Top Story from Realtor Digest, Massachusetts Association of Realtors
New data from the U.S. Census Bureau shows that Massachusetts is adding housing more slowly than nearly every other state in the nation, and the lack of new housing production since the start of this decade is among the key factors contributing to the sharp increase in local home prices since 2000. While speculation over the existence of a housing price “bubble” appears to grow every day in the news media, these reports, for the most part, overlook the economic fundamentals of supply-and-demand at work in the Bay State housing market.
Notably, last year, single-family home sales set a record in Massachusetts, and three of the top five years for home sales in the Commonwealth have occurred since 2000 – triggered largely by low mortgage rates and strong demand from baby-boomers and minority and immigrant buyers. During the same time period, the number of new housing units has grown just 1.9 percent across the Bay State, compared to 5.8 percent nationally.
The result has been steady gains in home price appreciation. The average selling price for detached single-family homes and condo in Massachusetts has risen 47 percent in five years, from $261,293 in 2000 to $385,755 in 2004, with double-digit price appreciation occurring in three of those years and four times in the past six years.
While investor activity has increased during this period and new mortgage products have been developed to allow buyers to purchase more home, the upward pressure on prices is due largely to a constrained housing supply. Although multifamily housing starts have doubled in recent years to nearly 7,000 units annually, single-family housing production remains well below existing demand, primarily because of restrictive zoning laws and cumbersome permitting processes, REALTORS® and other housing advocates note.
Gov. Romney has vowed to substantially increase housing production during his term in office, to twice what is was in 2003 when he took office, but the challenge has proved greater than initially thought. Half way through his first term, total housing permits have increased just 29 percent, from 17,465 units in 2002 to 22,477 units last year. The inventory of homes and condos for sale may be up sharply over the past year – by more than 9,800 units or 24 percent – but that’s largely the result of today’s more modest sales pace and existing supply that has not been priced properly to sell. New housing remains slow to come on to the market. Significantly, predictions that home values will fall – such as the PMI US Market Risk Index that puts greater Boston at a better than 50 percent probability for experiencing price declines – fail to account for the local regulatory and land use policies that severely limit new housing development in the Bay State. The more likely reality is that home prices will continue to increase, just at a more modest pace – like the 5-6 percent annual appreciation in median single-family home values observed statewide from April-June.
