Sales of detached single-family homes and condominiums declined across Massachusetts for a second consecutive month in May compared to year-ago levels, as higher mortgage rates, slow income and job growth, and a record number of homes for sale this spring prompted buyers to proceed more cautiously before purchasing a home, according to a report issued Tuesday by the Massachusetts Association of Realtors.
In the detached single-family home market, sales fell 2.9 percent last month, from 4,175 homes sold in May 2005 to 4,055 this May, while condo sales slipped 1 percent in the past year, from 2,134 units sold last May to 2,113 in May 2006. Despite the more moderate sales pace, activity in the state’s housing market remains quite strong by historic standards, MAR reported. In fact, the 2,113 condos sold last month is the second-highest sales volume on record for May in state history, topped only by the May 2005 sales total, while the single-family market enjoyed its eighth-busiest May on record for home sales this year.
“It’s unrealistic to think our strong seller’s market of the past few years could sustain itself indefinitely, especially under the current climate of rising interest rates and increased inventory levels,” said MAR President David Wluka, of Wluka Real Estate in Sharon. “While demand has softened, this is not the start of a major market correction. We’re merely returning to what we consider to be a normal, healthy market, after a period of unprecedented home sales growth and price appreciation.”
Indeed, despite May’s slower sales pace and higher mortgage rates, selling prices have remained fairly stable in the past year. The statewide median selling price for detached single-family homes did decline in May, for the third time in the last four months, but only modestly, decreasing 1.2 percent from a median price of $357,000 last May to $352,700 in May 2006. And, the statewide median selling price for condos rose 2.5 percent, from a median of $279,000 in May 2005 to $286,000 this May.
Notably, mortgage rates in Massachusetts rose to a four-year high last month, climbing for a fifth consecutive month in May to an average rate of 6.8 percent for a 30-year fixed rate home loan. That represents an increase of nearly one full percentage point since May 2005 when the average rate for a 30-year fixed mortgage was 5.92 percent, and is the highest point in 48 months, dating back to May 2002 when the average rate for a 30-year fixed loan in the Bay State was 6.94 percent.
“As mortgage rates continue to creep upward, buyers have lost some of their purchasing power in recent months, and that’s taken some of the air out of the market,” Wluka observed. “With an additional 17,000 homes and condos for sale across the state this spring, compared to a year ago, buyers aren’t in a hurry to buy either. They’re conducting exhaustive searches of the market, taking the time to find the right property and refusing to spend beyond their budgets,” he added.
Illustrative of this point, the MAR report shows that the number of active listings of detached single-family homes and condominiums has increased 33 percent over the past 12 months, from 51,546 homes and condos on the market in May 2005 to an all-time monthly high of 68,574 homes and condos listed for sale in May of this year.
Market time has increased steadily over the past year as well, according to MAR. In the detached single-family home market, listing time has risen from an average of 96 days on the market in May 2005 to 121 days on market for homes sold this May. And, among condos, the average listing time has increased by a full month, from 89 days last May to 120 days for units placed under agreement in May 2006.
Even though it’s become a buyer’s market, MAR’s president cautioned against complacency. “As a buyer, you’re best to act sooner rather than later. While prices have softened some, they aren’t expected to drop dramatically. However, mortgage rates are still trending up, which could wipe out any savings you might realize by waiting to see if prices will drop,” Wluka said.
