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Home sales fall but prices rise again

Posted by Scott Van Voorhis November 23, 2010 07:14 AM

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Just call it the Bay State home price riddle. Sales fall, big time, but prices, instead of declining, actually rise.

It's a pattern we've been locked into since sales of both homes and condos fell off the cliff this summer after the expiration of the home buyer tax credit.

Just released October numbers from both the Warren Group and the Massachusetts Association of Realtors tell pretty much the same story.

Home sales fell 28 percent, year over year, in October, according to the Warren Group, while prices rose nearly 4 percent to $289,000. The Massachusetts Association of Realtors pegs the home sales decline at 27.6 percent, while reporting that prices rose 3.2 percent to a median of $294,000.

So what's going on here?

Well it's a question I've asked before, but some clues are starting to emerge.

Take a look at this Globe piece on how lower-jumbo rates are starting to spur sales on the higher end of the Greater Boston market.

While sales of homes below $600,000 fell 24 percent during the third quarter - roughly right after the tax credit expired - the decline was a modest 3 percent for homes above that number, the story notes, citing MAR numbers.

So basically what we are looking at here is yet another way in which the home buyer tax credit - which is looking like one of the worst economic gimmicks of all time - has distorted the market.

The tax credit sparked a frenzy of sales of in the lower price ranges of the market, helping put a big dent into what passes as starter homes around here.

With fewer decent choices below $600,000, the few buyers still out there are looking at higher-priced homes, with lower jumbo rates helping some make that stretch. That's my interpretation of the article, but read it,especially some of the broker comments.

Prices aren't rising as much as what activity out there is shifting to higher priced properties.

It also makes sense given what we are seeing in the economy as a whole. The farther you go up the income ladder, the lower the unemployment rate, with the downturn taking a much heavier toll on middle and blue collar wage earners.

Hardly sounds like a prescription for a true housing recovery - pushing buyers into more expensive homes. Especially given the history of the Greater Boston real estate market, where a lack of construction has fueled a predictable bubble/bust cycle.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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