MARK H. LEFF
‘A difficult year’

2007 was a year that real estate industry watchers would rather forget.

Home sales plunged, and prices dipped in Massachusetts and many other regions of the country. A spike in foreclosures and a meltdown in the subprime mortgage market deepened the housing slump, dragging down the overall economy.

“2007 was a difficult year in that it was so unpredictable. In a sense we all knew that the housing market was in decline, but what really is notable is that it really hit hard in the beginning of August,” said Mark H. Leff, president of the Home Builders Association of Massachusetts. Leff, senior vice president of construction lending for Salem Five Bank, said the credit crunch in the summer affected consumers’ confidence and purchasing power, which dampened demand.

Single-family home prices in parts of the Bay State fell anywhere from 2 percent to 7 percent, while sales were off by as much as 12 percent in some regions.

Realtors convinced sellers to slash asking prices and offer a variety of incentives to move properties. The condo market also suffered in some regions, with sales falling statewide roughly 8 percent and prices slipping about 2 percent.

The Massachusetts Association of Realtors reported that the inventory of for-sale homes leveled off at about 11 months’ worth of supply toward the end of 2007. In September 2006, the number of home listings peaked at a 15-month supply. A market is considered balanced between buyers and sellers when there is about a 7.5-month supply.

“There’s less inventory than we had a year ago but there’s still plenty of choice,” said Doug Azarian, a Cape Cod broker who served as the association’s 2007 president. “It lends itself to a buyers’ market because the more inventory and more choice puts downward pressure on prices, pushing sellers to be more competitive with their prices.”

Azarian said while single-family sales were lower than a year ago, they are very similar to 2002, when the market was strong. And the year-to-date median single-family home price – which stood at around $348,000 in November, according to MAR – is stronger than it was five years ago.

“I think that what we’ll remember [about 2007] is that the market slowed down from the strong pace that we had seen in the previous couple of years,” said Azarian.

Growing Crisis

Industry analysts reported that the residential rental market in most parts of the Boston metro area was moving forward at a healthy pace. Occupancy and rental rates remained fairly steady but rents dipped in some spots, such as the North Shore, where new apartments flooded the market.

Permitting and construction of new homes eased, as developers who sensed the downturn put the brakes on building. According to the U.S. Census Bureau, a total of 13,443 housing permits were issued from January through November, a 26 percent drop from the 18,238 permits granted during the same months in 2006. This year’s permitting level was about 38 percent lower than 2005 when 21,528 permits were issued.

“Providing new housing opportunities has become more of a challenge because land costs and construction costs haven’t come down but the market is relatively soft and financing is becoming more difficult, and so that’s led to a slowdown in the overall housing production,” said Aaron Gornstein, executive director of the Boston-based Citizens’ Housing and Planning Association.

Local builders saw some positive signs earlier in the year as new homes sold at a fairly solid pace.

“In the spring and early summer we saw some good absorption, or decent absorption of new product,” said Leff. “There were a number of projects that were doing fairly well.”

But when problems with the subprime mortgage market started emerging in the summer and lenders started tightening their underwriting standards, it caused consumers to pause, according to industry experts.

One factor that continued to hamper any hopes of a recovery was foreclosures.

Foreclosure activity surged in some cities. More petitions to foreclose were filed in Massachusetts during the first three quarters than all of 2006, according to statistics from The Warren Group, parent company of Banker & Tradesman. Lenders filed 21,005 foreclosure petitions, the first step in the foreclosure process, from January through September, more than double the petitions posted during the same months two years earlier.

Auctions became more commonplace. In early November, a two-day auction of more than 300 foreclosed properties throughout the state took place in Boston.

The growing foreclosure crisis spurred leaders at the local, state and federal levels to pursue legislation to protect homeowners and crack down on abusive lending practices that put borrowers at risk.

State legislators and Gov. Deval Patrick signed off on a law that calls for greater oversight and monitoring of certain lenders, requires the licensing of mortgage loan originators, and requires borrowers to get counseling prior to obtaining adjustable rate mortgages.

Housing advocates praised the lawmakers for approving the legislation.

“The bill was able to get passed in a timely fashion, which will have an impact in the longer term,” said Gornstein.

Housing activists also were pleased with other legislation and policy initiatives in 2007. A new face in Massachusetts’ corner office brought a fresh approach to the housing agenda and new state leaders. Patrick, who became the state’s first black governor, created a cabinet-level position for housing. He appointed Daniel O’Connell, a former executive at Meredith & Grew, as the state’s housing and economic development secretary. Tina Brooks, a former community development veteran, became the state’s housing policy chief. And Patrick appointed conservationist Ian Bowles as the secretary of energy and environmental affairs.

“I would like to say that Gov. Patrick has made a number of impressive appointments to housing and environmental posts in his administration,” said Leff. “We’re very pleased with the level of engagement and competence that we’ve seen from Secretary O’Connell, Secretary Bowles, and Undersecretary Brooks and her staff.”

“Housing was much higher on the agenda of the new administration, and there were significant gains in funding and policy changes for affordable housing,” said Gornstein.

Patrick’s commitment to increase funding for public housing convinced housing authorities in Boston, Cambridge and Brookline to drop a lawsuit they had filed charging that the state was shortchanging public housing. Funding to the authorities to operate public housing was increased from $45 million to $60 million.

The Affordable Housing Trust Fund, which has been used to build and preserve thousands of units for lower-income households, was doubled from $20 million to $40 million. In addition, funding for the Massachusetts Rental Voucher Program, which provides rental subsidies to low-income tenants, was boosted to about $30 million from $27.5 million. Approximately 300 new vouchers were issued to low-income families in Massachusetts.

And Gornstein said another significant move by the Patrick administration was its emphasis on preserving existing affordable housing.

Housing supporters also were able to fight off an attempt to repeal Chapter 40B, the state’s so-called anti-snob zoning law. A grassroots coalition of opponents wanted to place a question on next year’s ballot in the hope of striking four key provisions of the law. But the group failed to collect enough signatures to get the question on the ballot.

Realtors also battled proposals to charge taxes on property sales in Chatham, and on Martha’s Vineyard and Nantucket. The islands sought the state’s approval to charge sellers a 1 percent fee to fund affordable housing, while Chatham voters filed a home rule petition to impose a 1 percent tax on property buyers to help pay for the expansion of the town’s sewer system. The bills failed to move forward.