Massachusetts housing market cools down, price decreases anticipated in 2023
After two years of double-digit increases in home sale prices and inventory that couldn't keep up with demand, signs of a correction in the Massachusetts housing market were apparent in the final 2022 statistics, analysts at The Warren Group said Tuesday.
"The Massachusetts single-family market finally hit that wall we've all been anticipating," Tim Warren, CEO of The Warren Group, said. "For the last few years, housing market activity has been so hot that inventory was unable to keep up — and our numbers reflect that. Add in economic uncertainties and the fact that mortgage rates are nearly double what they were a year ago, and you have the making for a cooling housing market."
The industry watchers' latest report paints a picture of the issues that Gov. Maura Healey's proposed secretary of housing will have to contend with if or when that office is created. Healey declared high housing costs "unacceptable for our people, our businesses and our state's future" in her inaugural address and said she would establish a new Cabinet secretary specific to housing within her first 100 days in office.
In 2022, there were 52,397 single-family home sales in Massachusetts — a 15.9% decrease compared to 2021. And at the same time, the median single-family home price increased 7.8% in 2022 to $550,000. Compared to the end of 2020, home sales are down 15% while the median sale price is up 23%.
The 3,838 single-family home sales in Massachusetts in December 2022 represented a decline of 31.7% from a year earlier while the median sale price of $510,000 set a new all-time high for the final month of the calendar year. Despite that, The Warren Group said, "year-over-year increases have been shrinking for the past three months."
Tim Warren noted that home prices are still rising but that the increases are getting slimmer, "and they're even getting close to none." He said homes in Massachusetts cost more than buyers are willing to spend, inventory is drying up and rising mortgage rates make a purchase even more costly.
"People who were considering a home purchase have backed off, and instead of offering to purchase above the asking price, they are either on the sidelines or driving a hard bargain as bidding wars have become a thing of the past," he said on The Warren Group's monthly podcast. He added, "Talk of inflation and a possible recession this year have made consumers cautious and they have curbed their enthusiasm for a new home."
Further eroding buyers' fervor is the talk of a looming recession and resulting job losses in 2023 as the Federal Reserve Bank appears poised to continue ratcheting up interest rates, Warren said.
"Given this scenario, I think the downward trend will continue throughout 2023 for the Massachusetts real estate market. Fewer listings will mean fewer sales and high mortgage rates will exert downward pressure on prices. Probably not all but some of the months of 2023 will see lower median price then in the same month in 2022," he said. "In the stock market, prices declined by nearly 20 percent in 2022. We won't see that deep correction in the local real estate market, but I expect we'll see some price declines. And those who are confident in their jobs and their finances will find some bargains as the market slows."
Harvard University professor Kenneth Rogoff put a number on his expectation for housing market declines in coming years, telling Bloomberg Television on Tuesday that he expects about a 10% drop over the next few years.
"There's still a lot of downward adjustment in the housing markets globally, not just in the United States," he said.
By April 15, the governor has said she will file legislation to create a standalone secretary of housing, splitting it off from the current Executive Office of Housing and Economic Development. Healey made housing a major platform of her gubernatorial campaign last year and the issue was among the first policy areas she addressed in her Jan. 5 inaugural speech.
"The cost of housing is out of control for too many because we simply don't have enough of it," Healey said. "If we want Massachusetts to be a home for all, we need to build more places to live and we need to make sure those homes are within reach."
Healey's division of the Executive Office of Housing and Economic Development is likely to happen under the authority of Article 87 of the state Constitution. Under Article 87, executive branch reorganizations require a legislative hearing within 30 days of filing, a committee vote within 10 days of the hearing, and must receive an up-or-down vote from the Legislature, without amendment, within 60 days or the action takes effect. The Legislature allowed a handful of Article 87 reorganizations to take effect without votes under the Baker administration.