The housing market’s downward spiral hit the multifamily sector hard.
Sales of two- and three-family homes in Massachusetts plunged to a 10-year low and prices fell more than 4 percent, a new report shows.
A total of 7,471 two-family homes were sold statewide last year, a 22 percent drop from the prior year, according to a report released last week by The Warren Group, parent company of Banker & Tradesman. The median selling price for a two-family home slipped 4.6 percent to $332,000 during that period.
The three-family home market experienced even bigger drops. Sales of three-family homes plummeted 27 percent last year. A total of 3,270 three-family properties were sold, compared to 4,506 in 2005. The median price dropped to $360,000, 5 percent lower than the $380,000 median posted a year earlier.
Sales volume was the lowest it’s been since 1997, according to The Warren Group.
Realtors in several cities with a plentiful supply of multifamily homes blamed the sharp sales drop to a pullback in investor activity. Other Realtors attributed the decline to a weaker rental market and rising insurance and fuel costs, which made owning multifamily property more expensive.
Some industry leaders fear the recent surge in foreclosure activity could further weaken the market.
“There’s been a slowdown in investors gobbling up the three-families to [create] condos,” said Julie Simmons, manager of Jack Conway & Co.’s Dorchester office. “There’s still some of that going on, but not at the rabid pace it was before.”
In Dorchester, where condo conversions of multifamily homes is no rarity, two- and three-family home sales fell 24 percent last year.
A total of 612 two- and three-family homes were sold in 2006, down from 810 the prior year. Prices also tumbled, with the median two-family home price slipping 1.5 percent to $460,000, and the median price for a three-family residence falling 3 percent to $514,000.
According to Simmons, a jump in for-sale condos and slower sales discouraged some investors from purchasing multifamily properties and transforming them into condos in communities like Dorchester and Quincy. The result was that unsold multifamily properties accumulated on the market.
Dorchester, for example, saw the number of for-sale two-family and three-family homes increase more than a third at one point last year. A total of 228 two- and three-family homes were on sale at the beginning of April 2006 – the height of the spring selling season – compared to 145 during the same time in 2005, according to statistics provided by MLS Property Information Network.
“There are still people converting condos. It’s not just as much as before,” said Simmons. “Now it’s mostly well-heeled contractors who are doing it.”
‘A Greater Stabilization’
Local Realtors like Simmons are eyeing the increase in foreclosure activity with concern.
Worcester broker Jeff Hall estimated that at least 12 percent of the two- and three-family properties currently available for sale in Worcester are bank-owned and many more are either in some stage of the foreclosure process.
“The banks are making an effort not to undercut the market,” said Hall, explaining that banks are typically holding onto properties for several months and trying to fetch market prices.
But that scenario could change if lenders slash asking prices in order to sell properties within a short timeframe.
“It’s a very important aspect of the market. They [lenders] could drive the market down overnight if they decided they wanted to unload these properties quickly,” said Hall, a broker-associate with Re/Max Advantage 1 and vice president of the Worcester Regional Association of Realtors.
Simmons agreed, noting that a surge in foreclosures has pushed some discounted properties on the market so they can sell quickly. Last week, for example, a three-family home in Dorchester was on the market for $235,000.
“I never thought I’d see that,” she said.
Worcester sales of two- and three-family homes plummeted 37 percent last year. The median selling price for a two-family home fell 4.6 percent to $250,000, while the median selling price for a three-family home eased 1.3 percent to $303,000.
“There’s a greater stabilization on the prices of multi-income property,” said Sandra Katz, a broker with Roz Real Estate and president of the Worcester Property Owners Association.
An increase in rental vacancies and decline in rental rates have affected the market in Worcester, according to Hall.
By Hall’s estimates, apartment vacancies climbed between 7 percent and 10 percent in Worcester, while rents have retreated 15 percent in the last four to five years.
The rent drops have made it tougher for owners relying on that income to continue owning multifamily properties. It also makes it difficult for prospective buyers who need the income to qualify to purchase a two- or three-family home, explained Hall.
Such factors contributed to a larger supply of unsold two- and three-family homes in Worcester. At the beginning of April, for example, there were 254 properties for sale, a 37 percent increase from the same period in 2005, according to MLS Property Information Network.
A similar story unfolded in cities like Fall River and New Bedford. In New Bedford, two- and three-family home sales declined 23 percent, while in Fall River sales were down 18.7 percent.
The median selling price for a two-family home in Fall River actually climbed 2 percent to $257,000 last year, while the three-family home price slipped less than 1 percent to $288,500. In New Bedford, the median two-family home price declined 1.4 percent to $246,500, while the three-family home price reached $285,000, almost 1 percent higher than a year earlier.
“We knew it was time for an adjustment,” said Jose S. Castelo, president of ERA Castelo in New Bedford, Dartmouth and Fall River. “In my opinion, when the prices are stabilizing and getting more affordable, we’ll see more people buying.”
In Springfield, sales were down but prices continued to rise. Kevin Sears of Springfield-based Sears Real Estate said investors have driven up sales and prices in recent years.
But Sears said property owners have discovered that Springfield rents aren’t supporting such high values. Rent for a two-bedroom apartment in a three-family home in Springfield can be about half what a property owner could expect for a similar apartment in the Boston area, he noted.
“It’s no surprise to me because what we saw happening in the multifamily markets was units being purchased at high prices by out-of-town investors,” said Sears. “All of a sudden people started getting more conservative with their investment dollars. The rents they were expecting aren’t coming in.”
Springfield sales were off 29 percent last year, when a total of 736 two- and three-family homes traded hands compared to 1,038 a year earlier. Still, the median selling price for a two-family home reached $175,000, which was a 9 percent jump from 2005. And the median selling price for a three-family home increased 8 percent to $190,000 during that period.
Sears, whose company owns and manages multifamily properties in Springfield, said rents have increased slightly. But rent increases haven’t kept up with sharp jumps in insurance and fuel costs, he said.
“If my margins aren’t where they need to be, I can’t buy my next investment property,” he said.
A free 56-page market report from The Warren Group featuring more multifamily and other housing statistics is available at www.thewarrengroup.com/Templates/YinRegistration.aspx.
