Spring has returned to the Massachusetts housing market – and perhaps most importantly, it’s come to one of the most drought-stricken patches: New home sales.
“Last year, we had the worst year for permits since 1960. That’s big. But pretty much everyone believes last year was the bottom,” said Michael McDowell, president of the Massachusetts Homebuilders Association. “We’re seeing investors coming out of the woodwork right now.” Nationally, homebuilders have certainly felt the effects, with Douglas Yearley, CEO of national homebuilding giant Toll Bros. calling it the “best spring in five years” on CNBC. Lennar, another national homebuilding heavyweight, reported a 33 percent bump in orders over last year.
But while Massachusetts has not always followed national trends, and last year was the worst in decades for new housing permits in the Bay State, early results this year show a market ready to shake off the gloom.
According to U.S. Census data, Bay State building permits were up 16.6 percent in January compared to last year, rising to 429 from 368. But that’s nothing compared to February: the 1,082 permits filed in February is almost quadruple last year’s total of 289. Two months don’t make a season, but that’s the highest number for February since 2006.
The increase is robust: While the biggest surge was in multi-unit construction, single-family permits were up 5.8 percent in January compared to last year, rising to 292 from 276, and up 88.8 percent year-over-year in February, rising to 302 from 160 last year.
In part, the interest in new homes is driven by a lack of desirable inventory. Though Realtors are reporting increased buyer interest and multiple offers across the board on desirable properties, year-over-year prices still fell earlier this year. As a result, many sellers remain underwater and unwilling to put their places on the market.
A recent survey of buyers conducted by online brokerage Redfin found that lack of inventory was far and away the number one concern of buyers this spring, with 63 percent citing it as a “major concern with buying this year,” more than double those who cited a fear of price drops (29 percent).
And because prices and interest rates are both near-record lows, and much of the existing inventory tired or overpriced, more buyers are considering new construction.
Mario Alagna, owner of Summa Development Corp. in Weston, said he’s noticed more interest in, and activity at, his custom homes business.
“It has been slow for such a long time, [buyers] that have been sitting for a long time might be looking to actually do something,” he said. “Brokers seem upbeat.”
He said he has three projects in the works, one expected to close next month.
Even in Western Massachusetts – harder hit by the housing downturn and generally slower to recover than the rest of the state – tragedy has brought a silver lining for builders. Last year’s brutal weather, including a spate of late spring tornadoes, created a big demand for new construction.
“My area, which goes from West Springfield, Springfield, Wilbraham, and on through Monson, we have still not made up from the storm, and there’s still a lot of building activity out here that a lot of guys are taking advantage of,” McDowell said.
But the permit process often requires two years or more to go from purchase to build out. So even if developers are getting off the blocks now, it may be quite some time before they finish the race to get new inventory out there – potentially driving up prices.
