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With Labor Day and the fall home-selling season on the horizon, the prices of homes and a lack of inventory continue to plague the residential real estate market.
According to the latest year-to-date data from The Warren Group, publisher of Banker & Tradesman, the median price of a single family home in Massachusetts sat at $618,500 as of July 31. This is a 108 percent increase from the median price of $297,000 in 2010 and a 9.4 percent increase from $565,000 in 2023.
While the prices of homes continue to increase, the number of sales stayed relatively the same compared to last year. Through July 31, 22,879 single family homes have been sold this year compared to 22,687 in 2023.
Massachusetts Association of Realtors 2024 President Amy Wallick said that so, far the real estate market has provided more positivity compared to 2023.
“The market has been a little more promising than it was last year,” she said. “Last year, I feel, was really one of our toughest years in quite some time but we are seeing an increase in both sales and new listings, too, which has been nice. Still not enough to totally offset the demand by any stretch but it’s definitely been a lot better than it was in 2023.”
Plenty of Demand
The fact that the housing market is still seeing price increases is surprising to Colliers Boston research director Jeffrey Myers. With the unemployment rate jumping to 4.4 percent in July according to the Bureau of Labor Statistics, that might normally cause demand to slow and price increases to cool off.
“Normally when you think of a recession and a pandemic and all kinds of angst in the financial markets and right now we’re dealing with a slowdown in the labor market, normally all of that stuff says, ‘Hey, the housing market should also slow down and prices should not grow’ and indeed that’s the opposite of what’s happened,” Myers said. “Over the past few years, you’ve had prices jump by more than 30 percent since COVID.”
Even with the increase in home prices, Wallick believes that there are still a healthy amount of buyers and that the price battles of previous years are starting to appear in the review mirror.
Image by Bill Samatis | Special to Banker & Tradesman
“I think more anecdotally speaking, what’s been interesting about this year is that we’re seeing most properties that are still very competitive – lot of activity, multiple offers, fetching prices over the asking price – but then we are seeing some houses that are sitting a bit. We are seeing price reductions here and there,” she said. “I think that that just kind of speaks to buyers being a little bit more discerning, being a little bit more thoughtful, not getting caught up in these crazy bidding wars. I think all around we seem to be in a much better place than we were this time last year.”
Still, it’s possible that prices of homes continue to increase as the calendar turns to fall.
“Our populations been growing,” Wallick said. We’ve been under-building for the last 20 years. I think that we could certainly continue to see them [prices] climb.”
Inventory Issue Remains
While the market is strong – especially for sellers – inventory remains to be an issue. According to Zillow, combined single-family and condominium for-sale inventory in Greater Boston has grown 22.3 percent year-over-year. The United States as a whole has seen growth of 24.6 percent.
“There’s not enough supply out there for all of the demand in the marketplace,” Myers said. “That’s true in the Boston market. That’s true in the United States as a whole, and it’s increasingly true in places that historically would have been considered much more affordable markets whether you’re thinking of the smaller communities, or you’re thinking of the Sun Belt. Home prices in a variety of markets have just become unattainable or more expensive than they were just a few years ago.”
The Healey administration estimates that Massachusetts is about 200,000 units shy of what is needed to meet demand for both apartments and for-sale homes. Wallick said this underbuilding in the state has played a role in the continued upwards trend of home prices.
Interest rates aren’t likely to drop very far even after a Federal Reserve cut, experts say, meaning buyers and sellers will still face affordability challenges. iStock illustration
With the Federal Reserve signaling that at least one interest rate cut is coming in September, prospective homebuyers will gain some relief. Still, considering that the cuts are expected to be under 100 basis points, and could be as low as 25 basis points inventory will remain to be an issue. Many homeowners who might otherwise trade up or downsize still facing much higher monthly housing costs when they look for a new home.
According to new estimates from Redfin, 6 out of every 7 homeowners with mortgages have interest rates below 6 percent, but the average rate on a 30-year, fixed-rate home loan has settled at just below 6.5 percent according to Freddie Mac. Pre-pandemic. According to calculations from Zillow, the median household in Greater Boston would have to spend just shy of half its monthly income on the mortgage payment if it bought the median-priced home in July.
Sam Minton
Myers said while the Federal Reserve’s cuts could provide relief and jumpstart some new construction, the deficit is so great that the impact of interest rate cuts will be minimal and that some patience is necessary to truly see the problem be solved.
“I think that we are so far below equilibrium, as far as pushing prices, that you need to actually dig a lot deeper into building more inventory to really make a dent,” he said. “To get there, we need the demand side, we need the interest rates, but I think we also need time, trying to actually let the development process play out, because it takes time to build condos and townhouses and single-family homes and apartment buildings. It takes years to get a big project, conceptualized, permitted, financed, built and then leased or sold.”
That process can be increasingly difficult in the commonwealth where developers can face hurdles from the public, political red tape, high construction costs and other obstacles.
But for now, Wallick said she’s hopeful the rate cuts could give a nudge to homeowners who’ve been putting off a move.
“I think it will open up options on both sides. It’s going to give buyers more purchasing power,” Wallick said. “Rate cuts might actually motivate a seller to maybe lift their home and move because we have sellers, they have mortgages that could be in the twos into the threes [percent interest rate], and they’re sitting tight in the house that maybe they’d like to sell, but they have such a great interest rate, why would they? But that might kind of move them off the fence, which could open up some more inventory.”
