A Look Ahead at Real Estate in 2013
We expect continued recovery of the housing market in 2013. Year to date home sales in Massachusetts have increased 20% compared to 2011, according to the MLS Property Information Network (MLSPIN)*. Average home prices have shown a slight increase as well. The average selling price for a home in Massachusetts is $368,860, an increase of 2.6% compared to last year.
One factor impacting the market is the current supply of homes for sale. There were 30,000 homes on the market at this time last year. This year there are 24,000 homes on the market, which means there’s 20% less housing inventory than we had going into 2012. At the current rate of home sales per month in Massachusetts, there’s a 6 month’s supply of homes on the market. This decrease in available homes for sale has actually helped to balance the housing market since now it’s neither a seller’s market nor a buyer’s market.
As home sales increase and buyers have fewer homes to choose from, home prices have stabilized and even increased in certain areas within the Interstate 95 belt. For instance, year to date home sales in Milton increased 3% compared to the same period in 2011, and the average home price, $527,304, is an increase of 4.8% compared to last year. In Waltham, year to date home sales increased 24% compared to the same period last year and average home sale prices increased 4.6% at $381,278. Some areas farther outside of Boston have seen increases in home prices as well. In Andover, home sales have increased 22.5% and average home prices are at $536,740, an increase of 5.2%. In Worcester, year to date home sales have increased 10.6% compared to 2011 and the average home selling price, $158,762, is a slight increase of 2.8% over last year.
What to Expect in 2013
The market will continue to stabilize in the New Year and for prices to increase in certain towns on the higher end. Buyers will have fewer homes to choose from for at least another year. Although new construction numbers are at their highest level in four years, they have a way to go before they reach pre-2008 numbers, and many of these new homes haven’t hit the market yet. Many home sellers are waiting for the economy to improve so they’re delaying putting their homes on the market. And there are still many homeowners that owe more on their homes than they are worth, and aren’t going to sell.
If we get another mild winter in 2013 as we had earlier this year, the market could be as strong as or even stronger than we expect. The mild winter we had in 2012 encouraged more buyers to view homes and more sellers to think about relocating. If mortgage interest rates stay at the current low rates under 4%, it will continue to attract more buyers. The unemployment rate in Massachusetts is holding steady at 6.6%, well below the national average of 7.7%, which makes the area attractive for buyers thinking of moving to the state.
There is some speculation that the so-called “shadow inventory” of homes—distressed properties about to be foreclosed on or in the foreclosure process—could negatively affect the housing recovery. A sudden increase of these foreclosed home entering the market all at once could drag overall home prices down. However, according to RealtyTrac, which tracks foreclosure data, foreclosure starts are actually down 28% from a year ago, so there may not be as many foreclosed homes entering the market in 2013 as expected. We don’t feel that the shadow inventory is as bad as many think and the market can handle the additional supply if it does hit. The demand is there.
And lastly, more first time home buyers are continuing to enter the market. This is because monthly apartment rents have gone up so much that people are starting to realize owning a home is becoming cheaper than renting. For instance, the average price for a home in Massachusetts is $368,860, so at the current interest rate of 3.43% for a 30 year fixed mortgage, the monthly payment would be $1,775. The average monthly rent for a 2 bedroom apartment in Boston, on the other hand, would be 31% higher at $2,328. And though housing prices are showing slight increases, rental prices are increasing at a much higher rate. The Boston area rental market has seen an 8.7% year over year an increase of rental prices and this trend will likely continue.
Home buyers in 2013 should be prepared for less of a selection of homes, which could trigger multiple offers on homes they want to purchase. With such low inventory levels and competitive home prices, when they see a home they want they need to act fast. We encourage home buyers to have their agent schedule a showing as soon as possible and make an offer on the home before someone else does.
*MLSPIN data includes most home sales in Massachusetts, but it does not include all sales, such as certain areas in Cape Cod and Western Massachusetts because each area has its own MLS.