As we enter the midway point of 2008, it is a good time to take a closer look at the performance of the market. Most of the perception is negative, as rising foreclosures and energy costs are clearly hurting many aspects of the economy. The ongoing melancholy in real estate sales appears to be driven primarily by the contraction of the mortgage market. The mortgage industry has significantly tightened lending standards, reducing the amounts many people can borrow and effectively reducing the number of people who can afford to buy a home.
To date, the local real estate slow down has not been caused by job losses. Job losses or wage stagnation are the most common causes of a housing slowdown, but the Massachusetts economy grew at a 3.2 percent annual rate during the first three months of the year, according to the University of Massachusetts. That's about five times the national rate. Also, the local housing market continues to fare somewhat better than the nation's as a whole, so the news is not all negative.
Further, a widely respected index of home prices, the S&P/Case-Shiller index, reported recently that Boston's housing slump completed its 30th month in March, as prices fell a steep 5.9 percent, compared to the same month last year. Prices now have fallen 13 percent from the peak of the local market in September 2005. But prices in a composite of other major markets were down 14.4 percent since last year, and more than 20 percent since the peak of the market.
Foreclosures Still Weighing on the Market
Foreclosures continue to be a drag on the housing market. Massachusetts foreclosure deeds soared to their highest recorded level in April. Per the Warren Group, foreclosure deeds rose 187.5 percent in April, from 464 in April 2007 to 1,334. Deeds recorded in the first four months of the year are up 152.2 percent, from 1,650 last year to 4,161 this year, the firm also said.
In part from the foreclosure activity, sales prices for single-family homes in Massachusetts fell sharply in April, accelerating a decline that is now in its third year. The median single-family home price fell 12 percent in April, compared to the same month last year, the largest one-month drop since 1987. The median price for 2008 now sits at $310,000.
The falling prices are painful for many homeowners, reflecting the declining value of their properties. But the accelerating pace of the decline also means the market finally is heading toward a new equilibrium. Prices held relatively steady throughout 2007, even as sales volume fell sharply. Now, more sellers are cutting prices. The number of single-family sales fell 12 percent in April, compared to last year, but that was the smallest monthly decline in sales volume since August, an eight-month stretch.
Mortgage News
The benchmark 30-year fixed-rate mortgage has risen 6 basis points, to 6.26 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 6.61 percent; four weeks ago, it was 6.13 percent.
The benchmark 15-year fixed-rate mortgage rose 4 basis points, to 5.84 percent, and the 30-year fixed jumbo rose 9 basis points, to 7.47 percent. Adjustable-rate mortgages, or ARMs, went in the other direction. The benchmark 5/1 ARM fell 6 basis points, to 5.8 percent, and the 1-year ARM fell 8 basis points, to 6.14 percent.
The 30-year fixed hasn't been this high since the March 12 survey, when it stood at 6.39 percent. A week later, it plunged below 6 percent, and then gradually rose to where it is today.
Submarket News
It appears that the once-invincible condominium market in downtown Boston is weakening. Sales of condos in the 12 core markets of Boston, from the North End to the Back Bay, the South End to South Boston, plunged 22.3 percent in the first quarter of this year, while median prices declined nearly 1 percent, to $475,000, according to MLS data.
For much of this real estate downturn, the Boston condo market seemed to defy the market norm. While sales prices plunged in suburban markets and properties sat on the market, condos in downtown Boston sold quickly and at ever higher prices. But after an erratic performance last year, the Boston condo market has now quickly begun to worsen. Just 513 condos sold in the first quarter this year, well below the 700-unit quarterly pace during the peak years, 2004 through 2006. City neighborhoods posted wildly different results. Prices slid nearly 33 percent on Beacon Hill and 21 percent in the North End, but were up nearly 12 percent in South Boston and more than 10 percent in the South End.
Also, some of Boston's nearby suburbs continue to buck the trend. Median prices are up so far this year in Arlington, Belmont, Brookline, and Needham, for example. Smaller cities, in contrast, continue to see the biggest declines. The areas hit hardest include Brockton, Fall River, Lawrence, and Lynn.
For additional information about these or any other areas, please contact Hawthorn Properties.