May home sales

Both the Warren Group and the Massachusetts Association of Realtors just reported that the number of single family homes sold in Massachusetts in May 2007 was less than the number sold in the same month a year ago. Comparing prices for the same two months, the Realtors say the median price rose 0.7%, while the Warren Group says it declined 4.5%. Obviously they’re interpreting the data differently and I have no way of knowing who is correct. I do know that fewer and fewer homes are selling these days and that can only continue to drive prices down.

In a rising market, people care more about their ability to make the monthly mortgage payment than they do about the total price of the house. But in a declining market, the asking price takes precedence. No one wants to buy a house today knowing that it will be worth less a year from now. This same phenomenon adds to the current slowdown, since most of today’s sellers know that a year or two ago, their houses were worth a lot more and they’re hesitant to reduce their asking price and sustain a loss.