This Lamacchia Mid-Year Housing Report presents overall home sale statistics as of the first six months of 2022 compared to the same period last year, January 1st to June 30th, 2021. Highlighted in this report are the average sale prices for single-family, condominiums, and multi-family homes in Massachusetts along with the number of homes listed for sale, placed under contract, and price adjustments.
Sales Decrease by 11.3%
Home sales for single families, condos and multi-families decreased by 5,149 transactions, with 40,397 closing in the first half of 2022 compared to 45,546 in the first half of 2021.
- Sales decreased in all three categories: -10.2% for singles, -14.7% for condos, -7.5% for multi-families.
- Last year’s major increases were due to the market catching up from 2020 when everything stopped during the pandemic. That created an artificial increase in sales.
- Review the chart below, the turquoise bars for 2021 are higher than 2022 every month, showing that sales were up last year over this year for the whole time period.
- Sales are down now due to major mortgage rate increases crushing buyer affordability, and other buyers are pulling out of the home search with concerns of buying at the top of the market.
Prices Increase 11.4%
Prices increased in all the categories in the first half of 2022 over the same time period in 2021. The average price for all three categories is up by $62,149 so far this year.
- Single family prices are up 9.17% to $677,037, condo prices are up 16.7% to $483,715, and multi-families are up 10.1% to $648,998.
- As soon as the market gassed up after the COVID shutdowns in March 2020, diminishing inventory and artificially low rates boosted prices to historic levels. As the market has cooled over the past few months with the increase in mortgage rates, they still haven’t started to fall.
- The rate of increase is slowing down but we are still seeing strong gains in the first half of the year as a portion of these sales were due to accepted offers before the giant increase in mortgage rates.
- In the chart below, you can see that over the past four years prices have steadily gained over prior years with this year showing some of the strongest increases.
- As the year progresses it’s not expected that prices will fall, but the rate of increase may continue to slow down.
Homes Listed for Sale
There were 49,839 new active listings in the first half of 2022 compared to 53,823 last year, a 7.4% decrease.
- A decrease in new listings shows that sellers are starting to fear losing their current, lower mortgage when they sell their home and buy a new one and land a 30-year mortgage at potentially twice the rate.
- It’s normal to see a pull back for a little while when the market shows a change like a jump in rates, but real estate is a need-based market. If one needs to move, they need to move and thus the rate hike will start to seem normal, and the market will still live on. People will list if they need to make a move.
- New listings are an indicator of future pending sales, so with this number down we will likely see lower pending sales into the fall.
Pending Home Sales (contracts accepted)
The number of homes placed under contract declined 13.7% year over year with 42,448 pending sales over 49,162 last year this time.
- The historically low rates over the past few years have had consumers slightly spoiled and seeing them rise created a sticker shock that grounded pendings.
- Some buyers made offers when rates were lower and by the time the offer was accepted affordability was reduced with the rise in rates.
- These rates as they currently are, in the high fives/low sixes historically aren’t that high and will seem relatively low if they continue their ascent over the next year.
- Pending sales were astronomical over the last couple years during the frenzied market with the historically low rates, and more buyers than ever competing over homes. This climate essentially consumed every listing as soon as it was made available on the market and pending sales were high.
- Pending sales are a future indicator of closed sales and with pendings down we are likely to continue to see a decrease in sales into the fall, which will be good for buyers as selection is rising and competition is lessening.
The chart above explains very clearly the story of the absorption rate phenomenon we experienced during the post-pandemic frenzied market. Up until spring of 2020, the number of homes on the market (blue line) was above the number of homes with offers accepted (green line). You could also infer from this that the number of sellers (total on market) always outweighed the number of buyers (total pending). That changed in early 2020, when for the first time on record, buyers were as high if not higher (see spring of 2021) than sellers.
Comparing this year to last year’s frenzied market will naturally make it seem like the market is under performing this year, but it really isn’t. The number of buyers has stayed relatively consisted over the past 22 years, it’s the number of sellers that has been in flux. What we hope to see is more sellers in the coming months to continue to balance out the market.
It’s also very easy to see here that the market is in no way looking like the housing crash of 2008, when the number of buyers was astronomically higher than the number of sellers, burying demand and therefore property values. That’s clearly not the case now.
Price reductions increased 4.2% year over year signifying that sellers are feeling the shift. Buyers aren’t pouring gasoline on the fire like they were able to over the past couple years because they can no longer afford to. Rates as they were, under 3%, made it possible for buyers to put less cash down, and therefore throw more into the offer to beat out other buyers. That’s not the case anymore.
Buying a home costs more now, so sellers need to price accordingly to attract buyers and if they didn’t, that’s when a price adjustment comes into play. In the chart below, you can see exactly this happening. The red line indicates price adjustments starting lower than ever in the winter, when supply was low and demand was high, but then took off with a trajectory of topping the past couple years right when rates spiked in April.
Predictions for the Rest of the Year:
Before our eyes, the market is starting to balance out. Change hurts but is essential. If the market continued on the path it was on, sales would be so high that inventory would be cannibalized, prices would therefore continue to rise at the pace they were, and we’d have a whole other issue on our hands. That said, rates are going to rise over the rest of the year, and sales will struggle to keep up. Prices won’t drop but they will settle down a bit this fall and certainly won’t be rising This is what it takes for the sellers’ market to give way to buyers having some leverage once again. This will make the lives of those selling and buying at the same time much less cumbersome.
Buyers have had to really fight over the past few years to get what they want, and now that inventory is rising a bit, they now have to contend with mortgage rates. There is a cost of waiting, as we have said over the past couple of years and the longer you wait the more expensive it’s going to be to purchase a home. Either rates will continue their ascent, prices will, or competition will incite bidding wars. Buyers have been experiencing sticker shock lately, but that same house will theoretically cost more two months from now than it would today, and with rates predicted to increase, it may be beyond what is affordable down the line. Buyers also should remember that there are more financing options beyond a 30-year fixed. ARMs have become increasingly more popular and may be well worth exploring as an option, especially for those who only plan to stay in the home for less than 5 to 7 years.
Sellers have had the upper hand for quite some time now, but it’s time to be a little more reasonable. The first thing to remember is that the home on your street that sold recently for a high price accepted an offer likely more than a couple months ago when rates and inventory were lower, and the buyer could afford more. Furthermore, there were likely fewer homes available in that area at the time, so buyers competed for the home with a bidding war which also drove up the sale price. We are not in that same market anymore. Now, there are higher mortgage rates, so buyers cannot afford as much as they could even three months ago, and there are likely more homes on the market locally, meaning that buyers have more choices and don’t need to outbid one another. List your home for a reasonable price, and you may still incite a bidding war depending on how many other similar homes are on the market at the same time. If you list for a ‘reach’ price, and the home has been sitting without much interest from buyers, it’s time to adjust that price. Market value doesn’t mean your home is any less special, but it does mean the difference between the home selling faster and for more money, or it sitting and someone eventually snagging it for less than you hoped to receive.
Rest assured, the market is definitely not going to crash, and unless there’s an unforeseen global event, neither will mortgage rates. This changing market is heading towards more of a balance between buyers and sellers. Sellers will finally need to come down off the pedestal and price to attract the right buyer, and buyers- though rates are still a hoop to jump through- will finally have a little more selection.
Data provided by Warren Group & MLSPin and compared to the prior year.