The region’s housing market is going to extremes.
“When the market adjusts, it hits your middle-income guy – they’re the people that are left out,” said Norm Krayem, president of the Connecticut Association of Realtors and owner of Realty Estates in Groton, Conn. “It is kind of a dichotomy: The market is not good, and yet high-end houses are selling. The number of high-end houses [selling] is nowhere near the number of average houses that we are selling because it’s a smaller market. But the high end will go up, because they would rather buy them now than wait for an [upward price] adjustment.”
Data from The Warren Group, parent company of Banker & Tradesman, examined sales of single-family homes in both states that occurred during the third quarter for the past five years. Both states recorded more sales of $600,000 and above in the third quarter of 2007 than in the same period last year. Looking specifically at the $1 million and up category, Massachusetts is up 40 percent compared to 2003, and Connecticut is up 29 percent.
At the other end of the spectrum, however, sales are in decline.
In Massachusetts, the data show the number of home sales below $300,000 fell in all five years. In Connecticut, home sales at $200,000 and below have fallen steadily for all five years.
Previously, any home priced below $200,000 would sell immediately, said Rosalind Levine, broker-owner of Roz Real Estate in Worcester. “That’s not the case anymore,” she said. “We now have a huge inventory of short sale properties and foreclosures. And that is definitely competition.”
That may also be a factor in the slight rise of sales below $200,000 seen in Massachusetts this year.
Inventory is “languishing,” she said, adding, “and that’s after prices have dropped and dropped and dropped.” A low-end price used to be between $200,000 and $300,000, but “now it’s way lower than that,” she said.
In Connecticut, price appreciation is taking some blame for the fading low-end sales.
“In 2003, we had homes that were $150,000 to $200,000,” Krayem said. “In 2007, you have maybe 0.1 percent of what’s available in that price range because the prices have moved up.”
Between 2001 and 2006, equity value rose 62 percent on average, Krayem added, meaning the average rate of annual appreciation was 10 percent to 12 percent. “That basic house kept moving up in price,” he said.
That increase may be making it difficult for homeowners to move up from their current homes.
“For the lower-price homes, if you get one, you hold onto it – so you’re going to see fewer sales there because there’s less turnover,” said David Fink, policy director for the Hartford, Conn.-based Partnership for Strong Communities. “If you buy something that is less expensive, while you may enjoy appreciation – you’re enjoying perhaps the same percentage appreciation but on a smaller base – if you were to sell it, you’re left with less accrued equity and therefore profit to put down on the higher-income homes.”
Fink cited another reason for the dwindling sales at the low end: too few new additions. “We’re not adding new homes in that price range,” Fink said.
Of course, the high and low ends of a market are all relative.
A $600,000 home around Worcester would be considered high-end, and would very likely be sitting on the market for a while, Levine said. “But you take that $600,000 house out to Newton and Brookline, and it’s a bargain,” she said. “I don’t think it would sit at all.”
Louise Condon, broker-owner of Louise Condon Realty in Needham, has seen the market benefits of being close to Boston.
“I went to a conference not to long ago, and the people on the [Route] 128 belt were doing far better than the people on the [Interstate] 495 belt,” Condon said. “People seem to want to be closer in [to Boston]. It conserves on driving time and gas costs, [and creates access to] train service – it all plays.”
“It’s taking longer to sell, and yes the prices are down, about 10 [percent] to 13 percent, but homes are selling,” Condon said. “I think that we are very fortunate in this area – no question about it.”
‘A Good Time to Buy’
Regardless of the market, wealth appears to have insulated some buyers from the market turmoil.
“People buying those kinds of [pricier] homes, generally speaking, aren’t really bothered by the [fluctuations] of the market, are they?” Levine said. “They have the money.”
Krayem agreed, but noted there is a bit of urgency among shoppers in the high-end range.
“The people who have money are recognizing that if they don’t get that now, they’re not going to be able to get it. It’s like the train that’s leaving the station – it’s escaping,” Krayem said. “So if they can afford that $600,000 to $1 million [house], they’re doing it, because if they don’t, their option is they’re going to pay more in the next few years.”
Those same conditions driving up the prices at the high end also may continue to pull up the bottom end prices, too.
“Price is guided by supply and demand,” Fink said. “And the fact is that we’ve not been adding to the supply of less expensive homes for a long time, because exclusionary zoning has been at work for a long time.”
Town governments, particularly in New England, depend on property tax revenues, Fink said. So the local governments have been trying to cap expenses – such as by trying to limit the number of incoming school-age children and the subsequent need for school expansions – by requiring larger lot sizes for homes, he said. The idea is that fewer homes per lot helps cap local expenses, but it works against keeping homes affordable, he explained.
“It’s only if towns allow more units on a lot that you’re going to see affordability,” Fink said.
But the price of homes is not the only challenge facing the middle-income earners.
“There are other factors,” Krayem said. Those include rising costs for electricity, gas and food, he said.
“Their spendable income is dropping dramatically,” Krayem added. “And now they’re cutting into their savings. Cutting into their savings means it’s going to diminish, somewhat, their ability to buy a home, because they’ve got to have money down, unless they’re going with an [Federal Housing Administration] program.
“It’s like bees buzzing around you. You don’t mind one bee and trying to swat it. But when you’ve got three and four and five, it’s a scary situation. But the bottom line is, in a market that’s recovering, this is still a good time to buy, because there’s not as many people out there in competition with you to buy it. The inventory is up about 30 percent – so you have more choices. If you have the wherewithal, this is the time to buy.”
