Third quarter sales data shows the fall real estate market is giving buyers plenty of listings to choose from and less competition compared to the spring market. However, rising interest rates, which change daily, are making it more challenging for buyers to afford the home they want.
“We’ve gone from a heavy seller’s market to a moderate buyer’s market in a very fast period of time,” said Rick Scherer of LeaderOne Financial.
However, he said buyers have a lot more control than they did three or four months ago.
“Buyers can make offers with contingencies such as a home inspection and they can also get closing credits back,” said Scherer.
Third quarter results
Real estate sales in the third quarter, which closed Sept. 30, indicate a cooldown in the Greater Boston housing market. Sales of single-family homes and condominiums fell from year-ago levels while annual price appreciation rates moderated and monthly median selling prices declined each month, according to a recent report by the Greater Boston Association of Realtors (GBAR).
Rising mortgage rates, now about 6.99 percent on a 30-year fixed mortgage, surging home values and shrinking savings and retirement accounts caused by inflation have caused buyer demand to steadily soften since the early spring, according to the GBAR report.
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Sales volume declining
Sales volume in August, 1,454 homes sold, was the lowest since August 2011 when 1,203 homes were sold in Greater Boston.
Condominium sales also fell 25.3 percent on a year-over-year basis declining from 1,330 units sold in August 2021 to 994 condominiums sold in August 2022. It’s the fewest number of condos sold during the month of August since August 2010 when 879 units were transacted, according to the GBAR report.
“It’s been a long time coming, but the market is starting to normalize,” said Melvin Vieira, GBAR president and ReMax Destiny Realtor.
“For years, sellers have held the upper-hand due to limited inventory and low-cost financing. However, with mortgage rates up sharply and selling prices reaching record highs this spring, demand is down as buyers have become more cautious and some have even suspended their home search,” said Vieira.
“This is allowing those currently in the market more time and opportunity to look for a home and negotiate on price. As a result, the pace of home sales has slowed,” he said.
Median sales price still a record high
Despite the declining number of sales, the median sales price of a single family home in Greater Boston is still a record high, climbing 5.8 percent over the prior 12 months from a median price of $780,000 in August 2021 to $825,000 this August.
For 34 consecutive months, the single family home median selling price has risen on an annual basis dating back to November 2019, according to the GBAR report.
In the condominium market, the median selling price also rose 2.8 percent from August 2021 to August 2022, from $635,000 to $652,950.
Market changing weekly
However, Vieira said the market is changing weekly based on inventory and mortgage rates. The median selling price of single family homes and condominiums month over month is decreasing. The median selling price of single family homes went from $840,000 to $825,000 between July and August and from $680,000 to $652,950 between July and August for condominiums.
Vieira predicts the average price of a single family home will continue to go down due to interest rates.
He believes the real fallout from the results of the third quarter sales won’t been seen until the end of November or beginning of December since it takes on average 60 days for a sale to close.
Another possible reason for slowdown
Colleen Barry, chief executive officer of Gibson Sotheby’s International Realty, said the best way to predict the future is to look at the past.
“The anomaly of the last couple of years during COVID is tapering off now,” said Barry.
She believes part of the reason for the slowdown in third quarter sales is because many people were travelling and taking the vacations they weren’t able to take in the summer of 2021.
“Searches were put on hold for vacations,” said Barry.
Future predictions
Interest rates will affect the market over the next two years, said Barry.
“Economists are predicting 4.5 to 5 percent in terms of price reductions or reduction in sales prices over the next two years, nationally,” she said
However, Barry said looking at the real estate market from a national perspective is like looking at the weather nationally.
“If it’s raining in another state, do you need to have an umbrella here? Each of these markets has its own set of economic factors that drive them,” said Barry.
What’s happening in the local market matters more than the national market when it comes to real estate, according to Barry,
Boston and Cambridge have had much less of a roller coaster experience than other major metros in other states.
“In Eastern Massachusetts, we have a lot of economic drivers such as colleges, financial institutions tech, pharma and biotech driving our economy,” said Barry.
Central Massachusetts, on the other hand, does not have as many of the economic drivers so historically it gets hit harder.
Scherer predicts interest rates will come down within the next three years and consumers will be able to refinance or change from an adjustable rate mortgage to a fixed rate mortgage.
Agents and lenders prepare
What buyers and sellers have needed from real estate agents over the last two years will be different from what they will need going forward, said Barry.
“Before this change in the market, it was a feverish pace for buyers. Homes got on the market quickly. Agents were thinking about incentives to throw into offers to win in a multiple bid situation. Now, homes will stay on the market longer and agents have to be more creative on how properties are marketed,” said Barry.
Help available to buyers
Scherer has been focusing on mortgage products to help buyers realize home ownership such as adjustable rate mortgages and buydown programs which temporarily brings down the borrower’s interest rate for one, two or three years at the beginning of the loan, reducing initial monthly payments. This also gives them closing credits from the seller.
“We are keeping buyers in play with this product,” said Scherer.
