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Hot condo market dampens house sales

Hot condo market dampens house sales
First-timers, empty nesters drive gains in segment
By Kimberly Blanton, Globe Staff / July 26, 2005

Sales of single-family homes in Massachusetts were flat last month as the state's roaring condominium market sapped some of the strength out of the traditional housing market.

The Massachusetts Association of Realtors said yesterday that sales last month of single-family houses were just 0.5 percent higher than in June 2004, while condo sales -- now nearly one-third of the market -- posted a 19.1 percent gain. On the heels of declining single-family sales in April and May, an insignificant increase in June is further evidence that a once-hot market is cooling, analysts said.

Price gains in the two markets reflected the difference: The state's median condo prices rose 8.3 percent, to $287,000, between June 2004 and June 2005. Median single-family home prices increased 4.8 percent, to $373,500, in the same period.

In contrast, US home sales exceeded analysts' expectations, the National Association of Realtors reported, at a time some regional real estate markets are experiencing increased speculation as buyers flip properties for profits or invest their savings into real estate.

Single-family homes nationwide were selling at an annual pace of 6.4 million in June, 3.2 percent higher than in June 2004, while the median US house price rose 14.7 percent, to $219,000 in June. Job growth and low mortgage rates contributed to record levels of sales of all residences, including homes, townhouses, and condos: June sales were at an annual pace of 7.3 million, the association said. The previous record, in April, was an annual pace of 7.2 million.

''Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise," David Lereah, the association's chief economist, said in a statement.

While a record 6,084 Massachusetts single-family homes sold last month, up from 6,051 in June 2004, sales are running behind 2004. Between January and June, 22,587 houses sold statewide, compared with 22,739 in the first six months last year.

Condo sales, by contrast, are running 24 percent ahead of last year: 10,874 during the first six months of this year vs. 8,782 condo sales during the same period last year.

Wellesley College economics professor Karl Case said strong sales of condos, which appeal to an array of buyers, have a dampening effect on house sales. Massachusetts had higher price appreciation than any other state between 2000 and 2003, and houses have become unaffordable to many first-time buyers. Older homeowners are selling large suburban homes to buy new condos, while professional baby boomers are putting their savings into second residences, often condos.

''A good component of the demand for condos is either people getting out of the housing market or people who can't get in," Case said.

But condo sales in pricey downtown markets including Back Bay, Beacon Hill, South Boston, and Charlestown are softening. According to Otis & Ahearn, a Boston real estate brokerage, in the first half of 2005, 1,835 downtown condos sold, compared with 2,055 in the first half of 2004.

''There is growing demand in the suburbs, and there's production being built to satisfy that demand," said Kevin Ahearn, Otis & Ahearn president. It's difficult to build condos downtown for under $500,000, he said, ''based on land costs and development costs and the upward pressure on pricing."

June typically is the strongest month as deals negotiated during the spring close. Real estate agents said a slowdown is a welcome return to normalcy. The state's market is more mature than some other regional markets, where price appreciation was delayed.

Beginning in the late 1990s, house sales began to climb locally as the high-tech boom pushed up incomes. House prices followed. That run-up may be peaking, said Maggie Tomkiewicz, president of the Massachusetts Association of Realtors.

''You can't sustain record-breaking levels forever," she said. ''We knew that'd change as well as we knew price appreciation would moderate. That's a good sign and a positive sign for the long-term health of the market."

Inventories of unsold homes are growing amid predictions of possible price declines later this year. The Massachusetts Association of Realtors said there are 35,820 active single-family listings on the market now, 20 percent more than a year ago.

Agents ''have to prepare the seller for longer periods of time on the market and possibly lower prices," said Chuck Lemire, executive vice president of RE/MAX of New England, a real estate firm. But, he said, ''You're not going to hear the bubble burst in '05."

Kimberly Blanton can be reached at [e-mail].


LINK: http://www.boston.com/business/globe/articles/2005/07/26/hot_condo_market_dampens_house_sales/