The housing market continued its downward spiral, with home sales statewide falling 15 percent during the first three quarters of the year and selling prices dipping 5 percent.

A total of 41,561 single-family homes were sold from January through September this year, down from 49,104 during the same nine months last year, according to statistics released today by The Warren Group, parent company of Banker & Tradesman. The median price for homes sold during the first three quarters of 2006 was $330,000, 5 percent lower than the $347,500 median price posted a year earlier.

Industry observers earlier this year predicted a drop in home sales and more moderate price appreciation in 2006, arguing that the market could not sustain the record-breaking pace it had been enjoying locally and nationally. A glut of unsold homes has helped cool the once red-hot real estate market in Massachusetts and provided a more favorable environment for buyers, say local Realtors.

“I think it’s all about supply and demand. We’ve got a more moderate sales pace which has led to increased market time, and buyers are taking the time to conduct lengthy and more exhaustive property searches,” said Kimberly Allard, president of the Plymouth and South Shore Association of Realtors, or PASS.

There were 43,227 single-family homes available for sale throughout the state during the month of September – nearly 13 percent more than there were in September 2005, according to the Massachusetts Associations of Realtors. That represents a 12.6-month supply of unsold single-family homes in September. A market with a six-month supply of for-sale homes is considered balanced.

In the 18 communities that PASS serves, which includes Braintree, Quincy, Marshfield, Rockland and Plymouth, there were 5,672 homes available for sale – including condominiums and multifamily properties – as of last week. According to Allard, that is 880 more listings than were in evidence during the same week in 2005.

Homes are taking weeks and sometimes months longer to sell in many parts of the state. It’s taking about a month longer to sell properties this year than it did a year earlier in communities on the South Shore and in parts of Plymouth County, explained Allard, who noted that the average number of days on the market for homes sold between October 2005 and October 2006 was 115, compared to 82 the year before.

“That’s fairly consistent to what’s happening statewide,” said Allard, who is the broker/owner of Century 21 Professionals in Braintree. “It’s very important to note that this is a wonderful opportunity for buyers to get out there and really negotiate some of the best deals.”

Henry Pollakowski, director of the Housing Affordability Initiative at the Massachusetts Institute of Technology’s Center for Real Estate, said the state is going through a “normal” real estate cycle. “[The market] had to turn at some point,” he said.

Unlike previous market downturns when the overall economy was weak, however, this slowdown is occurring at a time when the “economy is generally quite strong or at least not heading into a recession,” Pollakowski said

“To me the thing that stands out is that Boston is thriving and high-tech employment has been growing over the last couple of years,” he said.

Pollakowski said he is concerned about some of the state’s less affluent communities that were among the last to experience rapid growth in home prices and where subprime lending helped to inflate home values and put households at risk of losing their homes. “Those communities may see the sharpest downturns because [home prices] rose so late in the cycle,” he said. “Those price increases came so late in the game that they were less sustainable.”

Buyer Opportunity
Steep declines in single-family homes sales occurred in Barnstable and Essex counties, where sales were down 21.6 percent and 18.9 percent, respectively. The median selling price in Barnstable County fell a modest 1.7 percent to $372,500 during the first three quarters of the year, while in Essex County the median price decreased 5 percent to $360,000.

Housing affordability, excess supply and a “negative psychology” among buyers are key factors in the housing market’s downturn, according to a report released by analysts at Fitch Ratings earlier this month.

“The increase in inventory is a big part of the change in the market,” said Brenda Beaudoin, a Dracut broker who is president of the Northeast Association of Realtors, which serves communities located in both Essex and Middlesex counties.

According to the Massachusetts Association of Realtors, the highest supply of unsold homes – 15.9 months – was seen in February of this year. In September the 12.6-month supply statewide up compared with home inventory in August, when there was 10.4-months’ worth of unsold homes.

Beaudoin said sellers are anxious because more properties are available for sale and prices have declined. “Prices have definitely dropped a bit and you have a lot of more competition out there,” said Beaudoin, owner of the real estate firm Beaudoin & Assoc. “Buyers are definitely looking to make offers. They’re not looking to pay exactly what the [asking] price is.”

But Beaudoin anticipates that prices will stabilize and doesn’t expect them to decline much more than they have. “It will still be one of our best years, but it’s not going to be the best year,” she said of the real estate market.

In the western part of the state, homes sales declined during the first three quarters of 2006 but prices were holding steady, and in some cases continued to rise. In Hampden County, which includes Springfield, 3,583 single-family homes were sold during the first nine months this year, an 8 percent drop from the same period in 2005. However, the median selling price climbed 3 percent to $175,000.

“We’re definitely seeing a cooling-off or slowdown, as everyone is across the state. But I’m encouraged by our numbers compared to the rest of the state,” said Kevin Sears, of Sears Real Estate in Springfield.

Sears said Springfield and other parts of western Massachusetts did not experience the rapid double-digit appreciation that the eastern part of the state had. While some communities in western Massachusetts saw strong price increases of 9 percent to 13 percent in the last few years, according to Sears, other towns in eastern Massachusetts were seeing prices rise almost 20 percent.

“Our price growth was slower,” he said “Our levels [of price appreciation] were much more sustainable than the eastern part of the state.”

In Franklin and Hampshire counties, home sales decreased 11.4 percent and 2 percent, respectively, from January through September compared to a year earlier. The median selling prices in those counties, however, remained steady, increasing a slight 1 percent to $185,000 in Franklin County, and rising 0.6 percent to $248,950 in Hampshire County.

However, like other regions of the Bay State, communities in western Massachusetts have seen the number of unsold homes increase.

Sears said the number of active single-family home listings in Hampden County was about 41 percent higher at the end of August this year compared to August 2005, and the average time on market for those properties was 23 days longer this year.

“When buyers have an opportunity to look at 40 percent more houses, they’re going to take that opportunity,” Sears said. “That’s translated to more days on market.”