Is residential real estate due for a market correction? Nationally, the answer appears to be yes. Rapidly rising interest rates, inflationary prices and stock market declines have all contributed to a significant drop in mortgage applications and home sales.
Of course, just like politics, all real estate is local. National statistics are usually based on closed sales from one or two months ago. And market conditions can vary significantly from city to city and region to region. Be sure to consult with your agent to understand market trends specific to your neck of the woods.
So, how do things look in Greater Boston? The following observations are based on year-to-date MLSPIN data for 150 communities as of June 30, 2022.
Among single-family homes, some local indicators are clearly pointing toward a market correction. Compared to June 30, 2021, the number of single families on the market was up 37% and price reductions increased 20%. Pending sales and closed sales were both down.
There were some bright spots for sellers, however. Average sales price grew 11% year over year, while median sales price jumped 9%. Days-to-offer was down 21%, a sign that buyers were quickly snapping up new inventory. And sale-to-list ratio (i.e., the final sales price divided by the original list price) was up 1.6%.
Among Greater Boston condominiums, we didn’t see much indication of a softening market. Six percent fewer units were available than at the end of the second quarter of 2021. Largely due to inventory constraints, average sales price climbed 13% and median sales price rose 9%. Days-to-offer, meanwhile, was down 23%, suggesting that strong demand is spurring faster sales of condos.
As with single families, pending sales and closed sales of condos dipped year over year; this was expected, given that fewer units had come onto the market. Sale-to-list ratio declined, albeit only less than 0.5%, but buyers were still willing to pay an average of almost 2.5% above the asking price.
Sellers would be wise to adjust their expectations in light of these trends, particularly in the single-family arena. Pricing strategy is critical; most of our communities have seen an uptick in price reductions, which indicates it is possible to overprice a home in this market.
Although many homes were still receiving multiple offers, Compass agents reported that fewer offers were arriving in these cases. They added that more sellers (especially of homes under $2 million) were considering offers with financial and other contingencies. Furthermore, buyers were less likely to bid as significantly over the asking price as they were just one month before.
But buyers shouldn’t assume home prices will come crashing down anytime soon. In Greater Boston, a variety of factors will continue to cause inventory to remain low.
The rise in interest rates will also complicate matters. Buyers may need to reconsider what purchase price is realistic for their budget or explore an adjustable rate mortgage to keep payments affordable. John Burns Real Estate Consulting (which provides market data to Compass) projects that average monthly mortgage payments will soar 39% this year due to price appreciation and swelling mortgage rates. While affordability will be a challenge, those who are in a position to buy now will almost certainly benefit, as home prices have historically appreciated over the long term.
In stark contrast with the Greater Boston market, single-family inventory shrank 17% and condo inventory was down 22% year over year on Cape Cod. For both property types, the numbers of pending and closed sales were down significantly, while prices were up. In Barnstable County, the median sales price for single-family homes and condos rose 14% and 20%, respectively.
On Martha’s Vineyard, the number of home sales dropped 27%, and the median sales price was up almost 13%.
On Nantucket, the number of home sales was down 38%, and the median sales price fell by 1.4%. Average sales price, however, was up 38%.