Does volume precede price?
Mass. home sales drop
3d quarter sees 4.6% decline as market softens
By Thomas Grillo, Boston Globe Correspondent, 11/15/2002
After a strong first half of the year, Massachusetts home sales cooled this summer as rising unemployment and escalating home prices forced buyers to retreat, the Massachusetts Association of Realtors reported yesterday.
''Real estate has been the only thing to keep this economy alive, but a slowdown was long overdue,'' said David Walsh, a South Shore realtor and former MAR president.
Sales of detached single-family homes fell 4.6 percent during the third quarter of 2002 compared to the same period one year ago, falling from 13,902 units sold between July and September 2001 to 13,263 during the same three-month period this year. Meanwhile, condominium sales were flat, rising just 0.1 percent during the summer from 4,191 units sold in the third quarter last year to 4,194 in the comparable quarter of 2002, the state realtor association reported.
For most of the year, the region's real estate market was the white-hot light in an otherwise dismal economy as retail sales suffered, unemployment climbed, and investors lost money in the stock market.
But Wayne Ayers, an economist at FleetBoston Financial Corp., said the home-sales dip is not an indicator that the regional economy is faltering. He said Massachusetts boasts the highest proportion of two-income families in the nation, which gives buyers confidence.
''I'd call it a midcourse correction, but it's not like the one we had in the late '80s when demand fell along with prices. We're in no danger of falling off a cliff,'' said Ayers.
''While New England has taken a hit in the recession, our unemployment rate is still below the national average. Home sales can be volatile, but we're still looking at a relatively high volume of sales this year,'' Ayers said.
Despite sluggish sales, home prices continued to rise steadily across nearly every section of the state, in part due to the lowest mortgage interest rates in 40 years. The rate for a 30-year fixed-rate mortgage averaged 6.29 percent in the third quarter of 2002, down from 6.96 during the same period one year ago, according to Freddie Mac's Primary Mortgage Market Survey. Buyers willing to pay points and closing costs took advantage of fixed-rate loans in the 5 percent range.
The inventory of single-family homes and condos for sale has diminished over the past year, with residential listings statewide off 3.2 percent compared to the third quarter of 2001.
But the inventory of homes in the affordable range of $100,000 to $200,000 fell by nearly 17 percent this year, forcing some buyers to stay on the sidelines, according to the MLS Property Information Network.
The statewide average selling price for detached single-family homes increased 12.3 percent during the past 12 months, from an average price of $325,556 in the third quarter of 2001 to $365,553 in the same three-month period this year. In addition, the statewide average selling price for condominiums has risen 15.1 percent since last summer, from $218,111 in the third quarter one year ago to $251,065 in the three months from July through September 2002, MAR reported.
The biggest jump in home prices came on the South Shore, where the average price for a single-family home reached $344,707, up from $287,544 last year - a 19.9 percent increase. On the condo market, the average price increased by 26.4 percent on the South Shore to $213,498, up from $168,944 a year ago, the realtor association reported.
Realtors say the biggest factor keeping buyers at bay is rising prices. Marlea Mesh, a Dorchester broker, said open houses have attracted few potential buyers. ''Things have been very quiet since August. Our phone just isn't ringing,'' Mesh said. ''Everything is overpriced. Just look at how long it's taking to sell homes.''
Average time on market has increased in nearly every price range from $100,000 to more than $1 million, from 48 days last year to 58 days, according to the MLS. Sellers of homes priced above $900,000 can expect to wait twice as long for a sale as they would have last year.
Some realtors are convinced that sellers are under the mistaken impression that they can still get the same prices that were paid for properties last spring.
''We just did an open house for a house in Norwell that was priced at $499,000,'' said Walsh, the South Shore broker. ''It should have been priced at $425,000. But the seller is convinced it's worth a half-million even though there are other bigger houses in better locations for less money. ''
Rosalind Levine, a MAR vice president, noted that the Massachusetts unemployment rate reached 5 percent in the last three months. ''People at all levels are concerned about the potential for job loss, whether you're a turnpike employee or a company executive. If there's a hint that you may be jobless in the next six months, you don't think about buying,'' Levine said.
Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University, said the region's slowdown stems from the fact that Greater Boston has been especially hard-hit by job losses in the telecommunications and high-tech sectors.
Nationally, existing-home sales in the third quarter of 2002 were the third-highest on record, with 34 states posting increases from a year ago, according to the National Association of Realtors.
The NAR survey showed that nationwide, sales of existing single-family homes and condos totaled 6.21 million units in the third quarter of this year, up 2.5 percent from the 6.07 million-unit pace in the third quarter of 2001.
The Northeast was the only region to see sales drop. The total existing-home sales pace of 753,000 units in the third quarter slipped 3 percent from a year ago, according to NAR data.
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