A quick glance at the top line numbers might suggest a steady-as-she-goes sort of real estate market in Massachusetts this year – but beneath the surface, there’s more than meets the eye. New data from Zillow shows that there’s a real split in the market when it comes to inventory, with high-end buyers finding plenty to their liking, while entry-level buyers are still in the midst of a supply choke.
Real estate portal Zillow recently released a report examining inventory across price tiers. For 35 major cities across the country, the portal divided up the housing market into low-, middle- and high-end price buckets, then separately examined the available inventory in each tier. For the Boston area, an entry-level home was considered one priced below $295,850, middle tier from $295,850 to $489,650 and high end over $489,650.
While overall inventory levels have loosened, with inventory up 16.7 percent across the Boston metro market compared to this time last year, most of that loosening has been at the high end, according to Zillow’s calculations. While there are 25 percent more homes for sale at prices over $490,000 around Boston, there are only 18.2 percent more for middle-priced homes and a scanty 6 percent increase for entry-level properties.
There are several reasons for the disparity in the amount of inventory coming online, said Zillow senior economist Skylar Olsen. At lower price levels, more homeowners remain underwater than at higher price points, and must stay on the sidelines until home prices rise further, she said. Higher down payment requirements are also much more strongly impacting entry-level buyers, who may find it harder to save up for a big down payment, leaving them unable to purchase even if they want to, despite today’s low-interest rate environment.
Luxury Boomlet Comes Online
That matches up with what local agents are seeing, too.
“I’m seeing a shortage of entry level [inventory],” said Gary Rogers, broker/owner of RE/MAX On The Charles in Waltham. Many of the current owners of lower priced properties are simply unable or unwilling to take the leap into a larger, more expensive home, Rogers said. With the move-up buyers sitting tight, there’s little coming to market for first-time buyers.
And the entry-level buyer pool is having a tougher time getting deals done.
“This year, there’s a lot of people who would like to [purchase], but they’re not able to perform. They can’t. Their ratios aren’t good, their credit history isn’t good, or they owe more debt than they probably should. They’re upside down on their house or they’re tight on their house. They can’t get the margin they need for their house that would give them the freedom they need to buy something else,” said Jeff Forsythe, who manages Hammond Residential offices in Hingham, Hull and Sharon.
The volatile atmosphere in the mortgage markets isn’t helping, either. While some lenders are beginning to loosen the strings on their underwriting, they are doing so cautiously – and provisionally.
“We’re seeing more and more preapprovals fail, even when there weren’t extenuating circumstances” that would cause a bank to rescind their offer, said Rogers.
Even in Boston, entry-level buyers are finding it rough sledding. In the heart of the city, “the ‘sweet spot’ in the primary areas of downtown Boston [is] between $600,000 and $800,000, which is the qualifying range of your average married couple in Boston – if you take two common salary ranges, add them together, that’s what your couple can afford. And we have been getting little to no inventory in that range,” said Betsy Herald, sales manager for The Charles Realty in Boston’s Back Bay.
Things are a little easier for move-up buyers – many empty nesters are looking to return to the city, and with cash in hand from the sale of their former suburban homes, they’re able to purchase now, Herald said, though many may have to rent temporarily while the newly constructed units they’re after are completed.
The empty nest purchasers Herald’s dealing with are the beneficiaries of another trend: What new construction that has come on to the market, increasing supply, is at higher price points, said Olsen. “You have to make [new construction] more luxurious in order to reach the profit point” for developers, she explained, a trend that particularly impacts Boston, where land prices are extremely expensive.
“Lower-tier housing in general was hit much harder during the housing bubble-bust. But you’re really seeing that constraint in Boston,” said Olsen.
Compared to other expensive markets across the country, Boston’s low end inventory has fared much worse: Even in San Francisco, one of the few markets more expensive than the Hub, has seen a 39 percent increase in its lower-priced inventory, as have cities like Seattle and Washington.
Email: csullivan@thewarrengroup.com
