Perhaps no other industry received as much attention in 2006 as the housing market. From cocktail party chatter to economic forecast luncheons, everyone was debating whether they were hearing the popping of a housing bubble or simply experiencing a long-overdue market correction.
Single-family home prices in parts of Massachusetts fell anywhere from 2 percent to 5 percent after years of robust price appreciation, and home sales plummeted as much as 20 percent in some regions as the number of for-sale properties jumped sharply. Homebuyers appeared to have the upper hand, as home sellers and Realtors eager to move unsold homes slashed asking prices and offered a variety of incentives and promotions.
And the once-booming condominium market wasn’t immune to the downturn, as sales statewide dropped more than 10 percent and prices eased. Local industry watchers were caught by surprise when the developer of Folio Boston, a luxury condo project in the city’s Financial District, decided to auction off unsold units in the fall. The auction drew the attention of industry experts who hadn’t seen such measures taken since the housing bust in the late 1980s and early 1990s when condo developers and banks were floundering and struggling to survive.
But real estate industry leaders maintain that 2006 was still a solid year for residential real estate, both nationally and locally. The National Association of Realtors has reported that 2006 was third-best year on record for existing-home sales.
Rick Loughlin, president of Coldwell Banker Residential Brokerage of Northern and Central New England, said it was clear that the double-digit price gains of prior years could not be sustained, and that 2006 was a return to a more “normal” housing market.
“We could not continue with 25 [percent] to 40 percent appreciation without it affecting affordability,” he said. “The market we were in was most likely not sustainable.”
Loughlin, who is the incoming chairman of the Greater Boston Real Estate Board, noted that the slowdown in 2006 was not as dramatic as the downturns experienced in the late 1970s and late 1980s to early 1990s when home prices and sales plunged by double digits. The difference, he noted, was that in those previous housing cycles, unemployment was high and buyers had to contend with double-digit mortgage interest rates. In contrast, economic fundamentals in 2006 were strong – with low unemployment, reasonable inflation and favorable mortgage interest rates.
“The decline [in prices and sales] stemmed from affordability issues and appreciation going for long periods Â… and a lot of artificial demand out there,” Loughlin said.
David Wluka, a Sharon real estate broker who served as president of the Massachusetts Association of Realtors last year, said it was very challenging trying to help buyers and sellers as well as real estate brokers deal with the fairly sudden change in market conditions.
Wluka pointed out that even though prices and sales were down, many seemed to forget that they were off from peak levels. “The biggest challenge in 2006 was one of helping people understand the perspective of what was going on – that there wasn’t a crash, that it was part of a cycle and like other cycles it will and is beginning to pass,” he said.
New Projects
The slump in sales helped boost the rental housing market in Greater Boston, as occupancy and rental rates improved but still didn’t recover to peak 2001 levels. Greater Boston saw an influx of newly constructed high-end apartment projects.
Among them: Archstone Boston Common, 420 units near the city’s Financial and Theatre districts; Trilogy, a 581-unit complex in Boston’s Fenway neighborhood; Park Lane Seaport, 465 apartments along Boston’s waterfront; and the Watermark Residences, a 23-story building with 321 apartments in Cambridge’s Kendall Square.
In the suburbs, leasing started for large apartment projects like Avalon at Chestnut Hill in Newton, Archstone Reading, Highlands at Dearborn in Peabody and Jefferson at Dedham Station – a 300-unit complex near a Dedham commuter rail station.
“There was a lot more in the way of Class A [apartment] completions than we have seen in a number of years. In fact, it’s probably the most Class A completions ever,” said Thomas Meagher, president of Northeast Apartment Advisers, an Acton-based research firm that tracks conditions at market-rate apartments in the Boston metro region.
While newly constructed apartment units were coming on line in 2006, housing advocates were focused on measures that would make development in the Bay State easier.
In the summer, the Legislature passed an expedited permitting law that included a provision enabling housing developers with special permits to move forward with projects at their own risk when the permits are being contested in court. Developers say that part of the law is crucial for projects that in the past would have been delayed or stalled for years at a time by lawsuits.
Lawmakers also passed an economic stimulus package that included $30 million for the Brownfields Redevelopment Fund, a program that provides grants and loans to developers and communities to clean up and develop contaminated brownfields into affordable housing and mixed-use projects.
In addition to extending the brownfields redevelopment program, the Legislature budgeted more money for several housing assistance programs. Lawmakers approved $5 million for the Soft Second loan program –doubling the amount that was appropriated in the prior year – boosted funding for public housing by about 30 percent and provided an additional $2 million for the Affordable Housing Trust Fund. The trust fund, which was established in 2000 and has received about $20 million in state money annually since then, has been credited with creating 2,600 affordable homes.
The Legislature also set aside $27.5 million for the Massachusetts Rental Voucher Program, which provides rental assistance to low-income tenants, and $5 million for the Residential Assistance for Families in Transition (RAFT), a program that helps families pay back rent and unpaid utility bills. Gov. Mitt Romney wanted to reduce funding for both programs, but lawmakers overrode his vetoes.
“Those increases, particularly in the rental voucher program and public housing, are not sufficient but at least it’s going in the right direction for funds that had been cut over the years,” said Aaron Gornstein, executive director of the Citizens’ Housing and Planning Association, a group that lobbied strongly for funding increases.
But affordable housing and homeless prevention programs suffered a setback late in the year when Romney announced a series of emergency budget cutbacks that slashed millions from the rental voucher program, the Soft Second program and RAFT. After outraged advocates loudly protested the cuts, Romney eventually restored RAFT funding and some money for the voucher program.
Romney also signed into law a measure that requires the state Department of Housing and Community Development to collect and report data on state- and federally assisted housing.
Under the new law, the state agency must gather information about the income level and race and ethnicity of households living in affordable housing units, the number of people living in each unit, and the accessibility of the housing for people with disabilities. The law, which was supported by groups like CHAPA and the Fair Housing Center of Greater Boston, is designed to assess if housing programs are serving those most in need.
While some were focusing on newly passed measures, smart-growth supporters were thrilled to see towns and cities taking advantage of laws that were passed in prior years, namely Chapter 40R and Chapter 40S.
The laws provide financial incentives to communities that create smart-growth zoning districts, which make it easier to develop dense housing projects near town centers and public transportation. Communities like Plymouth, North Reading, Norwood, Chelsea, Dartmouth and Haverhill were among the first to approve smart-growth zoning districts in 2006.
Meanwhile, property owners throughout the state had to comply with Nicole’s Law, a statute requiring the installation of carbon monoxide detectors in all residences that went into effect this year.
Even as Realtors expressed support for measures like Nicole’s Law, Chapter 40R and Chapter 40S, they were busy last year battling efforts to impose real estate transfer taxes on Nantucket and Martha’s Vineyard. Proposals to charge home sellers on Martha’s Vineyard a 1 percent tax to fund an affordable housing bank and a separate tax on homebuyers on Nantucket were unsuccessful last year.
“We continued to defeat transfer taxes across the state at the grassroots level, as well as the legislative level,” said Wluka, the former MAR president. “We still believe that a sales tax on housing is the worst way to create housing. It just doesn’t make any sense.”
Housing policies and their effect on home prices and the economy gained attention as several well-publicized reports were released last year, showing how land-use policies and restrictive regulations were driving up the costs of development and driving home prices up.
The reports were cited at several forums, including at gubernatorial debates that were held throughout the year.
