New England Copes With Vast Housing Market Turnaround
Homeowners across New England seemed to have it all in the first half of this decade: rapid jumps in price made homes stellar investments, and if they decided to sell, buyers eagerly paid top dollar.
But 2006 is shaping up to be the year the region turned into a buyer’s market, with a housing slump hitting New England harder than most of the rest of the country, and predicted to stay that way through decade’s end.
The downturn cuts across the housing spectrum, from Maine to Connecticut. Economists predict New England’s historically volatile market will recover more slowly than the nation’s even if home mortgage costs remain low.
The downturn has sellers going to unusual lengths to unload properties.
The Boston Globe reports that in suburban Somerville, just outside of Boston, an area condo developer trying to sell the last of 18 units slashed prices — to $599,000, nearly 17 percent below what a comparable unit sold for three years in the same project.
“In any other market, this would be gone,” said real estate agent John Schwagerl, who has two potential buyers holding off on placing offers until they can unload their current homes. “The phones are ringing less. But when they do ring, there’s more work involved with it.”
In downtown Boston, the developer of a 14-story condo project held a real estate auction — a sales tool rarely used since the housing downturn of the early 1990s.
Bidders at the Folio Boston project’s October auction snapped up 31 luxury units in less than two hours at an average price of $778,000 — about 20 percent below the average asking price before the auction. The head of the firm that ran the event expects the market slump will lead to more such sales in Boston and elsewhere.
New England saw home prices rise by 73 percent from 1995-2004 compared with 44 percent growth nationwide. Gains in some areas were sharper, with prices nearly doubling in Boston.
Now New England is seeing a return to what it experienced at the end of the last century: prices growing faster than the nation’s through most of the ’80s, only to take a dive when boom turned bust in the 1990s. The region is prone to bigger swings than areas such as the Midwest, making both the ups and downs of real estate far more pronounced.
“The downturn here is more severe because the upside was so big,” said Karl Case, an economics professor at Wellesley College.
New England and the Northeast in general are more prone to wide housing market swings because development is more dense, with less available land to build. There are more restrictions on development, so it takes longer for developers in built-up areas to put up new houses.
The New England Economic Partnership projects the region’s home prices will remain flat through 2010 — in part because of price declines across parts of the region this year — and fall short of the U.S. forecast of 2.1 percent growth per year through the decade’s end.
Among New England’s six states, only Connecticut and Vermont are expected to see housing prices rise at rates above national averages through 2010. Massachusetts mortgage demand is projected to drop by 1.8 percent as the Bay State — the region’s most populous — is hit the hardest.
Meanwhile, permits to build new homes are expected to decline in all New England states through 2010 by 6.2 percent. That compares with a slip of just 0.3 percent per year expected for the nation, which is experiencing faster population growth than New England.
Every state in the region except New Hampshire ranked among the nation’s bottom 10 in housing starts from 2000-2004, the Federal Reserve Bank of Boston reported.
Yet as those interested in buying and selling continue to jockey for position across the New England region, industry officials are reminding area customers that most homes will likely yield some healthy investment returns — provided the owner holds onto the property for a few years.
“People who buy now will come out just fine. People who have a little guts and act now can expect prices will eventually get better,” said Fred Meyer, of University Real Estate in Cambridge.