A more moderate sales pace along with softening home prices and a sharp increase in the inventory of unsold homes all helped to signal the emergence of a strong buyer’s market for Massachusetts’ residential real estate during the first quarter of 2006, according to a report issued today by the Massachusetts Association of Realtors.
In the first three months of the year, MAR data show that detached single-family homes sales fell 6.5 percent, from 8,604 homes sold in the first quarter of 2005 to 8,047 in the same period this year. It’s the fourth consecutive quarter that activity in the detached single-family home market has declined from the same period one year earlier. Meanwhile, sales of condominiums remained on a record pace, but were flat over the past year, with 4,071 condos sold from January-March 2006. That equals the number of units sold in the first three months last year, and is an all-time high for first quarter condo sales.
“After several years of strong sales growth and rapid home-price appreciation, we’re back to what many consider a normal market,” said MAR President David Wluka, of Wluka Real Estate in Sharon. “To some, especially sellers, it may feel like the market has slowed dramatically, but that’s because we are coming off the record sales pace of the last two years.”
In fact, this was the second-busiest first quarter on record for the state’s housing market, with the 12,118 detached homes and condos sold from January-March 2006 topped only by the 12,675 homes and condos sold in the 2005 first quarter.
“It’s still a very active market,” Wluka said. “The mild winter helped get the spring market off to an early start, and today’s stable prices and healthier inventory levels now offer some of the best conditions in years for home buyers.”
Regionally, sales activity in the detached single-family home market fell in six of seven regions of the state during the first quarter, but increased 1.5 percent from year-ago levels in Western Massachusetts. Sales were essentially flat on the South Coast, down just one unit in the past year, and decreased a modest 1.3 percent in greater Boston, but more significant double-digit declines occurred in Worcester County and Cape Cod. In the condominium market, sales improved in Worcester County, greater Boston, the South Coast and Western Mass., but fell in the Cape Cod, Northeast and South Shore regions.
The continued strong demand for condos, as well as the modest gain in home sales in the state’s four westernmost counties, reflects the fact that many buyers are choosing to commute longer distances or purchase less home as interest rates and household utility costs climb.
“Buyers, especially those at the entry-level, are feeling the pinch from rising mortgage rates and higher energy prices, which are simultaneously driving up the cost of home ownership and reducing consumer’s purchasing power,” Wluka said.
Mortgage interest rates rose steadily throughout the quarter and are up more than a half a percentage point in the last year in Massachusetts, having risen from an average rate of 5.85 percent for a 30-year fixed rate loan in the first quarter of 2005 to an average of 6.43 percent during the first three months of this year.
“Mortgage rates are still relatively low, but they’ve risen slowly since the fall and that’s prompted buyers who’ve been on the fence waiting for prices to decline to jump back in the market and get serious about a home purchase,” Wluka stated.
Another factor enticing buyers into the market in recent months is the more plentiful supply of homes for sale. In the past year, the inventory of single-family properties (detached homes and condos) on the market has risen 42 percent, from a monthly average of 38,871 listings in the first quarter last year to 55,338 in the first quarter of 2006. At the current sales pace this represents 13.7 months of supply, an increase from 9.2 months of supply in the first quarter last year, and is the largest supply of homes for sale in 10 years, dating back to the winter of 1996 when there was 14 months of supply on the market.
“With a much wider selection of homes to choose from this year, buyers have become more discriminating. They’re searching the market longer and negotiating harder before purchasing,” Wluka said.
Evidence of the market’s more relaxed sales pace is apparent from the lengthier time it’s now taking for properties to sell. Compared to a year ago, detached single-family homes took two weeks longer to sell this winter, as time on the market increased from an average of 106 days in the first quarter of 2005 to 121 days in the comparable three-month period this year. Meanwhile, condominiums are taking roughly a month longer to sell, as the average days on the market increased from 78 days in the first quarter a year ago to 111 days in the three months from January-March 2006.
While inventory is up in all price ranges, homes that are priced right are moving relatively fast, MAR officials said.
“Pricing is critical in today’s market,” Wluka remarked. “Sellers who over estimate the value of their home risk limiting the pool of buyers who can afford it, and the longer a property stays on the market the harder it becomes to sell.”
Still, demand remains reasonably strong, especially in the starter-home and high-end condo markets, so prices are not expected to plummet in Massachusetts, as some had theorized last year when suggestions were raised about a housing “bubble” in the local market. While prices have softened over the past year, the MAR report found that the statewide median selling price for detached single-family homes is down less than 1 percent from one year ago, declining 0.9 percent from $346,600 in the first quarter last year to $343,500 in the first quarter of 2006. In addition, the statewide median selling price for condos increased 2.4 percent, from $265,650 in the 2005 first quarter to $272,000 in the same quarter this year.
The last time selling prices for detached single-family homes fell in the Bay State was more than a decade ago in the first quarter of 1993, when the price declined 5.5 percent over the same quarter in 1992. Meanwhile, the selling prices for condominiums have increased for the past 29 consecutive quarters.
On a regional basis, median selling prices for detached single-family homes increased a healthy 5 percent-7 percent over the past year in Southeastern and Western Massachusetts, and were flat on Cape Cod and the South Shore, but slipped a modest 1 percent elsewhere. In the condo market, five regions saw price gains over the past year, with the most significant increases occurring in Barnstable County and Western Mass. where median prices rose 14 percent. More modest price increases of 1 percent-4 percent were observed in Worcester County, greater Boston and the Northeast region, but prices fell by a similar margin along the South Coast and South Shore regions of the state.
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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