Multifamily-home sales boom ends 4-year run

Sales of multifamily properties in Massachusetts dropped 15 percent last year, ending a four-year run of rising sales and signaling that the market for condominiums converted from duplexes, triple-deckers, and four-families has peaked.

Multifamily sales, which make up 10 percent of the state's housing market, have risen every year since 2001, hitting a record 9,401 units in 2004, according to the Massachusetts Association of Realtors. Sales were fueled by contractors' converting them to condos, investors' buying them as long-term holdings, and homebuyers who would rent the spare units to help pay the mortgage. But last year, multifamily sales declined to 7,980, the association said yesterday.

''There's been a tremendous amount of condo conversion, especially in recent years," said Arthur Foley,of Century 21 Annex Realty in Quincy. ''The market's getting saturated with condos."

During Massachusetts's housing boom, buyers increasingly turned to condos as an affordable alternative to single-family homes, which are the third most expensive in the country, after Hawaii and California. Builders, small developers, and investors rushed to buy two- and three-families in Somerville, Quincy, Waltham, Dorchester, Worcester, and other communities. They could purchase the properties relatively cheaply and renovate and resell them as condos for far more than they paid for the properties.

As the condo market exploded, annual sales of multifamilies increased 33 percent from 2000 through 2004. The median price doubled during that time, to $357,000, according to MLS Property Information Network Inc., which also tracks the housing market. Prices continued to rise in 2005, with the median price jumping 8 percent to $384,900.

Edward Champy, managing partner of Waypoint Development in South Boston, said he stopped buying duplexes and three-families to convert in Cambridge, Somerville, and Boston because prices got so high.

''We were buying them, putting in a ton of work in and, at the end of the day, making 10 percent" profit, or, in some cases, breaking even, he said. ''It was just terrible." In prior years, he earned profits equal to 20 percent or more of the sale price of the units.

Multifamily sales in Greater Boston decreased 7.6 percent last year. Declines were worse in other regions: 24.1 percent less in northeastern Massachusetts and 19.3 percent less on the South Shore.

In some markets, rising mortgage interest rates caused condo prices to flatten or drop.

Paul Campano, an agent with Prudential Prime Properties who works in East Boston and Somerville, said sales of converted condos have probably peaked.

''If you want to buy a Somerville condo and you're going to be there four or five years, I wouldn't worry. But if you buy and may have to move in a year or two, I'd have some concern," he said.

Boston's Dorchester section has been transformed by condo conversions in recent years. In the early 20th century, buyers purchased three-families there and lived with family members or friends. In recent years, builders gutted and renovated them for resale as condos to young professionals who wanted to live near the subway but couldn't pay downtown prices.

Buyers who converted buildings ''added a lot of value by taking these run-down buildings and fixing them up," said Ken Osherow, owner of At Home Real Estate Group in Dorchester's Savin Hill neighborhood.

A record 379 condos are for sale in Dorchester, he said, and investors are scrambling to sell their units because they now realize overbuilding caused a glut.

''Would you invest in a three-family and convert it right now?" Osherow said. ''Probably not."

Kimberly Blanton can be reached at blanton@globe.com.