The Mandarin Oriental, a luxury hotel with 50 condominium units, is expected to open in Boston’s Back Bay this summer, but not all news for the local residential real estate market is good.
Those hoping for a housing market recovery in 2008 may be disappointed.
Some experts are anticipating that the housing slump could deepen this year as foreclosures mount, adding more for-sale homes to an already bloated inventory. The additional supply of unsold homes could put further downward pressure on prices.
A few economists also are concerned that the housing downturn and its effect on jobs and consumer spending and confidence could sink the economy into a recession.
Not all forecasts are so bleak. The New England Economic Partnership is projecting that home prices will fall another 5 percent in Massachusetts through midyear, bottom out by fall and then begin to climb.
However, even that outlook was recently tempered when NEEP forecaster Alan Clayton-Matthews cautioned that the predictions were made prior to realizing the depth of the liquidity crisis.
“There is a high level of uncertainty” in the predictions, acknowledged Clayton-Matthews, associate professor at the McCormack Graduate School of Policy Studies at the University of Massachusetts at Boston.
That uncertainty can be felt nationwide.
The National Association of Realtors is projecting that prices will remain flat in 2008 and sales will increase a modest 0.5 percent to 5.7 million units. The trade association expects the nationwide median home price to be $218,300 this year.
On the state level, the Massachusetts Association of Realtors is expecting sales and prices to be about the same as in 2007.
A total of 72,699 single-family homes and condominiums were sold in Massachusetts from January through November of last year, down 7.8 percent from the 78,849 sales during the same months in 2006, according to The Warren Group. The year-to-date median selling price for single-family homes in November was $311,705, a 4.7 percent drop from a year earlier. The median condo price was down almost 2 percent to $269,900 during that period.
‘Good Underpinnings’
MAR leaders say the state’s housing market is positioned for a recovery.
“I think the Massachusetts housing market has good underpinnings and is poised to recover,” said MAR President Susan Renfrew.
Interest rates that are hovering around 6 percent for fixed-rate mortgage loans, the modest decline in statewide prices after a steep run-up in values, and the state’s low unemployment rate are healthy signs, according to Renfrew, a Greenfield-based broker.
“Overall, prices are pretty stable statewide and we have a healthy inventory to choose from, which gives consumers choices,” she said. “With all those conditions in place, the only thing we need is for buyers to regain their confidence in the housing market.”
But Moody’s Economy.com is characterizing the current downturn as a housing recession that will continue through early 2009. In its most recent forecast, the research firm projected that the nation’s home sales will hit bottom in early 2008, declining by over 40 percent from their peak, and prices will be down by 12 percent through early 2009.
The biggest strike against a recovery is the large number of unsold homes, according to Economy.com, and that problem likely will worsen as the ongoing subprime mortgage crisis fuels more mortgage loan defaults and foreclosures.
Analysts say that $500 billion to $550 billion in adjustable-rate mortgages will reset in 2008, potentially pushing more struggling homeowners who can’t afford higher monthly payments into foreclosure. Some estimate that as many as 2 million homeowners nationwide will face higher monthly payments this year.
New-home sales and construction also will suffer. Economy.com is projecting that housing starts will be off 55 percent by 2009. Single-family housing starts will drop to 796,000 nationwide this year from a peak of 1.72 million in 2005, according to the National Association of Home Builders.
Sales of newly built single-family homes will total 741,000 in 2008, according to the builder group, down from 1.28 million three years earlier.
In Massachusetts, some builders are expecting a rebound in new-home sales starting this year.
Mark H. Leff, president of the Home Builders Association of Massachusetts, said permitting for new homes peaked in 1986 at more than 45,000 and then took five years to hit bottom at around 12,600. Permitting activity peaked again in 2005 in Massachusetts, when fewer than 25,000 permits were issued. Just over 13,440 permits were issued as of November of last year, according to the U.S. Census Bureau.
Leff said since permitting during the latest peak was about half what it was during the last peak, and since local developers pulled back on projects because of the housing slump, he expects a quicker recovery this time.
“There’s not that much new product. Inventories have started to decline and when the market comes back there will be little new construction for buyers to choose from,” he said. “I do see sales of new construction rebounding by the second half of [2008] and getting stronger into 2009.”
One factor that bodes well for the new-home market in Massachusetts is there hasn’t been a surge in construction activity.
Jon Gollinger, chief executive officer of Accelerated Marketing Partners East Coast, said Massachusetts didn’t experience the overbuilding – particularly condo development – that occurred in other parts of the country.
“There wasn’t a tremendous amount of product that really came out [in the Boston area] as has happened in other parts of the country,” he said. “Basically you don’t have a tremendous amount of saturation.”
Still, Gollinger said he doesn’t expect a pickup in the condo market statewide, because single-family home sales are going to be sluggish and baby boomers who want to downsize and purchase a condo will have trouble selling their homes.
“Unfortunately, I don’t see any stabilization occurring in the condo market. I see, in general, pressure against any imminent recovery,” he noted.
But Gollinger noted that some of the newer luxury condos in sought-after locations will sell well in 2008, particularly since there aren’t many new high-end units slated to open this year.
The Mandarin Oriental, a Back Bay property featuring a 5-star hotel and 50 condos with prices starting at $3 million, is expected to open this summer. Realtors say all of the Mandarin’s units already have pre-sold.
“There’s not a lot of new inventory that is really high-end coming into the market before 2009, so what’s standing ought to be absorbed,” Gollinger said.
The new year also means a renewed focus on policy and legislative priorities. Builders, real estate industry leaders and local officials will continue meeting to discuss zoning reform.
An affordable housing bond bill also will be up for consideration. Sen. Brian Joyce and Rep. Kevin Honan have sponsored a $1.25 billion bill, and Gov. Deval Patrick has filed a similar measure totaling $1.09 billion.
Housing advocacy groups will be pushing lawmakers to take action on the bond bill and also will be pressing for more funds for the state’s rental voucher program, which assists low-income tenants. The program is funded at roughly $30 million and activists are pushing for a $20 million increase.
They also want state leaders to commit an additional $25 million for the state’s public housing authorities.
“It’s going to be a tight budget year and the administration is announcing there could be a significant deficit so increased funding for any program is going to be a big challenge,” said Aaron Gornstein, executive director of the Boston-based Citizens’ Housing and Planning Association.
