LAURENCE J. YAMEEN
‘A glut of listings’
Sales of two- and three-family homes in Massachusetts have plunged this year, registering an even steeper decline than single-family homes and condominiums.
The number of two-family home sales fell 23 percent, while three-family home sales dropped nearly 30 percent through August of this year compared to the same eight months a year earlier, according to The Warren Group, parent company of Banker & Tradesman. Median selling prices also decreased by about 6 percent in both multifamily categories.
Local Realtors say the slowdown is due in part to the softening condominium market, which has discouraged developers and investors from acquiring multifamily properties and converting them into condos. Developers hungry to take advantage of a booming condo market in the last four years have been purchasing multifamily properties in some urban neighborhoods, rehabbing them and selling off the individual units as condominiums for a hefty profit.
But with the inventory of unsold condos growing and sales slipping, developers are taking a pause, according to local Realtors.
“There’s a glut of condos on the market and Â… they [investors] can see that condos are not selling as quickly as they were,” said Ruthie Dollarhide, an agent with Century 21 Annex Realty in Quincy.
Jackie Rooney, broker-owner of Rooney Real Estate in South Boston, said the steep price increases of two- and three-family homes in neighborhoods like South Boston and Dorchester over the last three to four years were largely driven by speculative developers who were willing to pay premium prices for a multifamily property.
“They were willing to pay top dollar, but now with all the units on the market, they’re adjusting their price [offers],” said Rooney. “They can’t afford to buy a three-decker for an exorbitant price and then gut it.”
A total of 4,878 two-family homes were sold statewide from January through August of this year, according to The Warren Group, down from 6,364 transactions during the same months in 2005. The median selling price for a two-family home fell 5.7 percent to $330,000 during the period.
The drop-off for three-family homes was even sharper. Some 2,124 three-family homes were sold in Massachusetts during the first eight months of the year, a 29.8 percent drop from a year earlier when 3,028 three-family properties were sold. The median selling price for three-family homes sold through August was $355,000, a 6.6 percent decline from the $380,000 median selling price posted for the same period in 2005.
In Dorchester, sales of two- and three-family homes fell 15 percent and 32 percent, respectively, and the median selling price for a two-family home fell to $450,000, about 3 percent lower than a year earlier. The median price for three-family homes sold in Dorchester tumbled 8.8 percent to $482,500.
Dollarhide, who sells multifamily homes in Quincy and Dorchester, said the Dorchester multifamily home market experienced a tremendous amount of investor activity in recent years.
It wasn’t unusual to see an investor purchase a three-decker, rehab it with new kitchens and bathrooms, and clear $50,000 to $100,000 per unit, according to Dollarhide. “It was great for two or three years,” she said.
But now with 376 condos available for sale in Dorchester, compared to only 178 condos during the same period two years ago, and another 335 for-sale condos in Quincy compared to just 117 two years earlier, Dollarhide said contractors and investors are hesitating.
Dollarhide added that she believes the market is correcting because prices of two- and three-family homes surged, making them unaffordable for many homebuyers who were interested in living in one unit and renting out the remaining units. In Quincy, for example, the median price for two-family homes sold through August reached $462,133, less than 1 percent higher than a year earlier. The median selling price for three-family homes in Quincy in the same months was more than $500,000.
Those kinds of prices are discouraging buyers who in the past looked to two- and three-family homes as an affordable way to get into homeownership. Many buyers would occupy one unit, and rely on the rental income from the other units to help pay the mortgage.
But Dollarhide said rents haven’t kept up with the high prices and mortgage payments that many homebuyers are incurring. In many cases, the rental income is only covering about 20 percent of the mortgage payment, according to Dollarhide.
“They’re not generating enough money to cover the mortgage,” said Dollarhide. “I think that prices went up so fast in such short period of time and people now are stepping back and saying, ‘Enough is enough.'”
‘Buyers Are Afraid’
In Lawrence, the majority of people purchasing two- and three-family homes are first-time buyers who occupy one unit and rent the others, according to Patricia Valley, one of the owners of Garcia, Valley & Assoc. in Lawrence.
But Valley said rising interest rates and unemployment are key reasons the multifamily market is slowing down in the city.
Sales of two-family homes in Lawrence plummeted 26 percent through August of this year. A total of 127 two-family homes were sold, compared to 171 a year earlier.
Prices for two- and three-family homes in Lawrence have flattened this year. The median price for two-family homes sold during the first eight months of 2006 was $325,000, or 0.8 percent higher than a year earlier, while the median price for three-family homes sold through August was $360,000 – 2.9 percent higher than a year ago.
Valley said two- and three-family homes are staying on the market for as long as seven months, when in prior years they sold within a month.
“Buyers are afraid to buy because they don’t know if prices will come down more,” she said.
Laurence J. Yameen, owner of Yameen Real Estate in Lawrence, said a significant number of homeowners in the city are struggling to make payments on multifamily homes they purchased with home loans they can’t afford, and are now trying to sell off their properties.
That is one reason there is a “glut of listings on the market,” according to Yameen. A total of 286 multifamily homes were available for sale in Lawrence as of last Thursday.
“A lot of people are in trouble. I think a lot are into foreclosure or very close to it,” he said.
Some homeowners have relied on first and second mortgages with high closing costs, he explained. “The result is that people are saddled with payments that are above and beyond their means,” said Yameen.
And like Dollarhide, Yameen said he believes that buyers are hoping that prices will decline further and searching for a bargain. More than a year ago, a real estate agent “couldn’t keep a listing,” said Yameen.
Nowadays buyers are taking their time to evaluate options. Yameen said he listed a two-family home about a year ago in South Lawrence that was on sale for $319,000. He had to show it 66 times before it was finally sold.
Rooney, the South Boston broker, also has noticed that it’s taking longer for multifamily homes to move, but he said Realtors have been “spoiled” because such properties were selling within days of coming on the market in neighborhoods like South Boston and Dorchester. “They wouldn’t last a week,” he said. “You couldn’t get enough of them.”
The slide in the multifamily sector follows a similar trend in the Bay State’s single-family and condo markets. Single-family family home sales decreased 14 percent through August of this year compared to the same period in 2005, while median prices slipped 4 percent. Condo sales were down 11 percent and the median price for condos remained flat.
Nationwide, sales of existing homes – including single-family homes and condos – were 12.6 percent lower in August than the same month in 2005, according to the National Association of Realtors, and the median existing-home slipped 1.7 percent.
NAR’s Pending Home Sales Index, released last Monday, shows that pending homes sales are up. The index, based on contracts signed in August, rose 4.3 percent to a level of 110 from a reading of 105.6 in July, but was still 14.1 percent lower than a year ago. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and the first of five consecutive record years for existing-home sales, according to NAR.
Federal Reserve Chairman Ben Bernanke was quoted last week as saying that the housing market correction “was one of the major drags causing the economy to slow now.” Bernanke is predicting that the housing downturn will take 1 point off growth in gross domestic product this year and maybe even next year.
In Massachusetts, agents are noticing how such news is affecting buyers.
“Everybody is afraid that the prices are going to drop more,” said Dollarhide. “They think in three months there will be another 5 percent decrease in prices and they don’t want to pay more. They don’t want to be caught holding the bag.”
