Housing market limps toward vital spring season

Prices drop 4% to 5% in February, but sales show very little change

The Massachusetts housing market showed signs of bumping along the bottom of a year long slump as it heads into the crucial spring season.

Prices for single-family homes sold in February declined between 4 percent and 5 percent from February 2006, according to two different reports released yesterday by real estate interests. The median house price fell to $325,000 from $339,000, while condo prices slipped just 1.8 percent, to $270,000 from $275,000, according to the Massachusetts Association of Realtors' monthly housing report.

Separately, Warren Group, which collects data on a larger pool of transactions, reported the median sale price for single-family homes in February falling to $300,000.

But in a sign the market hasn't deteriorated further, the number of sales in February did not change appreciably . T hough Warren Group showed sales down slightly, the Realtors Association reported a slight increase in the number of sales. Last year, some months saw double-digit drops in the number of sold homes, and price declines that exceeded 5 percent.

Still, conditions favored buyers. And those who were out buying in February were reacting to the recent price drops and snapped up houses as they became more affordable.

"People are looking for good deals," said Ken Maddeford, an agent with Century 21 Citiwide in Chelsea.

Separately, data released yesterday by the US Commerce Department showed housing starts nationwide in February jumped 9 percent from the previous month, when new residential construction activity posted a near-decade low.

Agents and industry analysts said it is still too soon to know how the all-important spring market will fare after last year's housing slump, the state's worst in a decade. For example, in January, the number of homes sold spiked sharply upward, likely due to unseasonably warm weather, only to flatten in February.

Currently, there are 45,193 single-family homes and condos on the market in Massachusetts, a year's worth of inventory. Analysts said a market balanced equally between buyers and sellers would have 7.5 to 8.5 months of inventory. However, the 12-month supply of available homes is down considerably from the 15-month supply available in February 2006, just before last year's spring selling season.

Another wild card: Increasingly both borrowers and lenders in the subprime mortgage market are in financial trouble. Foreclosures in the state are increasing rapidly, while some lenders are also experiencing financial hardship or capital problems. Some subprime lenders are halting or cutting operations, and other lenders are pulling in their horns, which could result in less money being available for some potential buyers and more unsold homes languishing on the market.

Subprime loans are targeted to people with less-than-stellar credit, and they often carry high interest rates but require no down payment, leaving homeowners with little ability to refinance as prices decline .

The Federal Reserve Bank of Boston said yesterday that subprime loans with adjustable interest rates were far more likely to go into foreclosure last year. A record 15,000 Massachusetts homeowners received foreclosure notices from lenders last year. In the final quarter of 2006, 4 percent of Massachusetts borrowers with subprime loans had received foreclosure notices from their lenders, compared with less than 1.5 percent of borrowers of all other types of loans.

"If a couple of these private lenders go down, it's a damper on the whole economy," said Alan Pasnik, a real estate analyst for Warren Group. "People get nervous about the whole banking system," he said.

Maddeford, who has worked in Chelsea real estate for 28 years, including during the early-1990s real estate bust, said he believes the state's housing market won't bounce back quickly from the slump because too many sellers are refusing to drop their prices.

"It's going to take time to correct," he said, because "the numbers just don't make sense right now."

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