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Home sales are up, but will it last?

Massachusetts numbers rise for May; but as tax credit ends, the coming months will tell the real recovery story

By Jenifer B. McKim
Globe Staff / June 23, 2010

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Home sales and median prices in Massachusetts rose again in May, buoyed by a tax credit and low interest rates, according to data released yesterday. But it is unclear whether the positive numbers signal an improving real estate market or are just a short-term reaction to the availability of federal stimulus dollars.

People hoping to cash in on the federal tax credit for home buyers pushed single-family home sales up 36.8 percent last month compared with May 2009, according to Warren Group, a Boston company that tracks local real estate.

During the first five months of the year, sales are up 29 percent compared with the same period last year.

Median prices for single-family homes also rose in May — by 2.6 percent to $290,000 — Warren Group said, and median prices for the first five months of 2010 increased 7.5 percent compared with the same period last year.

But Glenn Kelman, chief executive of the online brokerage firm Redfin, cautioned against too much optimism. Kelman said sales have been artificially boosted by the tax credit and will likely decline in July. The federal program provides up to an $8,000 tax savings for first-time home buyers and a $6,500 credit to eligible current homeowners who signed a binding purchase contract by April 30 and close the deal by June 30. Since May 1, Kelman said, home buyer interest has plummeted.

“Entry-level demand has been sinking like a rock,’’ he said. “July is going to be very soft.’’

Timothy M. Warren Jr., chief executive of Warren Group, said median prices likely increased because people are purchasing pricier homes, and not due to an overall rise in property values.

“Don’t be fooled by the recent gains in median prices,’’ Warren said. “Home values have probably leveled out, but they have not increased much.’’

Other real estate agents maintain the tax credit achieved its aim of jump-starting a lethargic market. Angela Harkins, president of Northeast Association of Realtors, which represents the Merrimack and Nashoba Valley region, said potential buyers are continuing to make offers, even without the lure of the credit, prompted by historically low interest rates and a sense that the local housing market has stabilized.

Last week, the 30-year fixed rate mortgage averaged 4.75 percent, according to mortgage giant Freddie Mac.

“Home buyers who identify well-priced property in good condition are jumping in with offers right now,’’ Harkins said. “I haven’t seen a slowdown at all.’’

Laura Cahill, a real estate agent with RE/MAX Landmark Cahill Properties in Milton, said the federal program pushed first-time buyers into the market, freeing up higher-end buyers to seek new homes. “It’s a trickle up program,’’ she said.

Everyone seems to agree that the Massachusetts housing market is faring better than the nation as a whole. Existing home sales nationwide dropped 2.2 percent in May compared with closings in April, according to data released yesterday by the National Association of Realtors. In Massachusetts, where the summer usually marks the strongest showing for real estate, sales of single-family homes increased 11.6 percent to 4,452 in May, from 3,990 in April, according to Warren Group.

In some area communities, however, prices have actually dropped this year. For example, the median single-family home price in Cambridge dropped 32.6 percent to $647,250 during the first five months of 2010, compared with the same period in 2009. At the same time, sales more than doubled from 17 to 38, according to Warren Group data.

Alex Coon, market manager for Redfin in Massachusetts, attributed the price fall to increased competition — more people put their homes up for sale.

Many market watchers are anticipating July data as a sign of where the housing market is headed, post-tax credit.

Karl E. Case, a retired economics professor at Wellesley College and cofounder of the S&P Case/Shiller Home Price Indices, said he expects the housing market to remain stable. But questions still remain because of the growing number of foreclosures and unstable economy, he said.

“I’m hoping it stays flat, and I think there is a good chance it will,’’ Case said.

Jenifer B. McKim can be reached at jmckim@globe.com.