Despite predictions of a housing slump, the residential real estate market in Massachusetts experienced another year of steady growth in 2005 as total sales of detached single-family homes and condominiums set a record and median prices rose for a 12th consecutive year, according to data issued this week by the Massachusetts Association of Realtors.
Attractive mortgage rates, a more plentiful supply of homes for sale, and more modest price appreciation have all helped to keep demand strong amidst rising energy prices and a weak job market this past year, MAR officials said.
“Once again, the local housing market has outperformed the expectations of many,” said MAR President David Wluka, of Wluka Real Estate in Sharon. “With mortgage rates relatively stable and a larger supply of homes to choose from, it’s been a good time to be house-hunting. Market conditions have become much more favorable to buyers in the past year.”
Across much of the state, the largest gains in sales activity occurred in the condominium market where sales soared to a new all-time high in 2005, climbing 16.4 percent from 19,781 units sold in 2004 to 23,026 last year. It’s the fourth consecutive year that condo sales have set a new annual sales volume record. Sales of detached single-family homes were historically strong this past year as well, but slid a modest 3.2 percent statewide, from a record 50,561 closings in 2004 to 48,922 in 2005. Notably, the 2005 sales volume for detached homes ranks as the fourth highest on record in state history.
There are signs of moderation in the market however. Specifically, the MAR report shows that sales of detached single-family homes fell 8.1 percent in the fourth quarter, declining from 12,171 homes sold in the final quarter of 2004 to 11,189 in the same three-month period this past year. It’s the largest annual quarterly decline in home sales in nearly three years, dating back to the first quarter of 2003 when sales decreased 10.6 percent from the first quarter of 2002, and marks the third consecutive quarter that home sales have fallen in the Bay State from the same quarter the prior year.
“The accelerated sales pace of recent years has all but ended and we’re returning to a more normal market,” stated Wluka. “Our strong seller’s market has been replaced by a more balanced one that will help stabilize home prices.”
Regionally, every market area of the state saw a drop in fourth-quarter sales of detached single-family homes, and five of seven regions reported annual declines in detached home sales from 2004 to 2005. Last year, sales fell a modest 2 percent-4 percent in greater Boston and the Northeast region, 6 percent along the South Shore and in southeastern Massachusetts, and 14.5 percent on Cape Cod. Sales rose in two of the state’s more affordably priced markets, however, climbing 1.1 percent in Worcester County and 2.5 percent in western Massachusetts this past year over 2004 sales levels.
“The steady gains in home prices and restrictions on residential development being imposed by communities in eastern Massachusetts has forced many buyers to extend their home search to the central and western part of the state,” Wluka said. In addition, it’s not uncommon for the housing market in the eastern half of the state to feel the effects of a sluggish labor market earlier and more severely than other regions, he noted.
“Many homeowners are opting to complete home additions or renovations instead of trading-up to a new home, and that has reduced demand throughout the single-family market, especially for larger, high-end homes,” Wluka added.
The condominium market, on the other hand, has seen a surge in activity both for luxury units and entry-level condos and townhouses. Sales of condominiums rose during all four quarters of 2005 over year-ago levels, including a 6.8 percent increase in sales volume during the final quarter of the year, as sales rose to a fourth-quarter record of 5,025 units sold from 4,705 in the final three months of 2004.
Furthermore, this past year, condo sales accounted for 32 percent, or one in every three residential property sales in the Bay State, the largest percentage ever recorded on an annual basis in state history.
“The growth of the condo market is due to its wide appeal to many distinct buyers, including immigrants and young professionals in search of their first home, baby-boomers looking to downsize or purchase their second home, and active seniors seeking a return to the their roots in the city to be near shopping and cultural institutions,” said Wluka.
“While homes are now taking a longer time to sell, the fundamentals of a strong housing market remain in place,” Wluka asserted. “Today’s low mortgage rates and new financing products, along with stable home values, and strong demographic influences should keep demand fairly steady for the foreseeable future,” he remarked.
Another factor that has helped entice buyers into the market of late is the sharp increase in the number of homes for sale across the state. In the past year, the inventory of single-family properties (detached homes and condos) on the market has risen 20 percent, from a monthly average of 38,823 listings in 2004 to 46,501 in 2005. At the current sales pace this represents 7.7 months of supply, an increase from 6.6 months of supply in 2004, and signals the first time since 1997 that there’s been a healthy balance between supply and demand of 7.5 to 8.5 months of inventory for sale statewide.
“The record sales pace of recent years greatly depleted our inventory of available housing stock, and with growth controls in place in many communities, we haven’t built new housing fast enough to keep up with demand,” said Wluka. “There may be more homes for sale, but there’s no excess supply either that could trigger a sharp market correction.”
Illustrative of this point, data from the MAR report show that home prices have continued to appreciate even as inventory levels have increased and sales have slowed. In the most recent quarter, the statewide median selling price for detached single-family homes rose 1.5 percent to $350,000 in the fourth quarter from the comparable period last year, and the statewide median selling price for condos increased 3.8 percent in the past year to $270,000 in the final quarter of 2005.
Additionally, the annual statewide median selling price for detached homes rose 5.9 percent, from $340,000 in 2004 to $360,000 this past year, while the annual statewide median selling price for condos climbed 6.6 percent, from $259,000 a year ago to $276,000 in 2005. Every region of the state also saw healthy price appreciation this past year for detached single-family homes, with the strongest price gains observed in Barnstable County, the South Coast, and western Massachusetts, where prices increased 7 percent-8 percent over 2004. Elsewhere, prices increased a more modest 4-5 percent. In the condo market, double-digit price appreciation occurred in central and western Mass. where prices rose 10-12 percent last year, with prices gains of 4-7 percent reported in all other regions except the South Shore, where prices were flat.
“Prices may soften, but look for flat to modest appreciation this year rather than sharp price declines,” said Wluka.
Sales and price data from the MAR report reflects transactions occurring through Realtor-affiliated multiple listing services in the Commonwealth, and account for approximately 80 percent of all real estate sales in Massachusetts.
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