New England Hit By Housing Slump; Recovery Expected To Take Years
December 11, 2006
By MARK JEWELL, Associated Press
BOSTON -- Homeowners in New England seemed to have it all in the first half of this decade: rapid increases in price made homes stellar investments, and if they decided to sell, prospective buyers eagerly lined up to pay top dollar.
But 2006 is shaping up to be the year the region turned into a buyer's market, with a housing slump hitting New England harder than most of the rest of the country, and predicted to stay that way through the decade's end.
The downturn cuts across the housing spectrum, from Maine to Connecticut. Economists predict New England's historically volatile market will recover more slowly than the nation's.
The downturn has sellers going to unusual lengths to unload properties.
In Somerville, just outside of Boston, a condominium developer trying to sell the last of 18 units not only slashed prices - but added in a perk: the agent who brings in a buyer gets lunch with a partner in the sales agent's firm, RCG Properties.
Over lunch, the partner will dish out advice on the local real estate market or offer a lesson in winning at poker.
That's on top of sales agent John Schwagerl dropping the price for the three-bedroom condo to $599,000, nearly 17 percent below what a comparable unit sold for three years in the same project.
"In any other market, this would be gone," said Schwagerl, who has two prospective otential buyers holding off on placing offers until they can unload their current homes. "The phones are ringing less. But when they do ring, there's more work involved with it."
In downtown Boston, the developer of a 14-story condo project held an auction - a sales tool rarely used since the housing downturn of the early 1990s. Bidders at the Folio Boston project's October auction snapped up 31 luxury units in less than two hours at an average price of $778,000 - about 20 percent below the average asking price before the auction.
The New England region saw inflation-adjusted home prices rise by 73 percent from 1995 through 2004 compared with 44 percent growth nationwide, according to a report from the Federal Reserve Bank of Boston. Gains in some of the region's metropolitan areas were sharper, with prices nearly doubling in Boston during the period.
New England is seeing a return to what it experienced at the end of the last century: The region's home prices grew at a faster rate than the nation's through most of the 1980s, only to take a steeper dive when boom turned bust in the early 1990s.
"The downturn here is more severe because the upside was so big," said Karl Case, an economics professor at Wellesley College.
New England and the Northeast in general are more prone to wide housing swings because development is more dense than elsewhere in the country, with little available land to build, said Celia Chen of Moody's Economy.com, a private research firm in West Chester, Pa.
"And there are more restrictions on local development, so it takes longer for developers in built-up areas to put up new houses," Chen said.
The New England Economic Partnership, a regional nonprofit forecast organization, projects the region's home prices will remain flat through 2010 - in part because of price declines across parts of the region this year - and fall short of the U.S. forecast of 2.1 percent growth per year through the decade's end.
Among New England's six states, only Connecticut and Vermont are expected to see housing prices rise at rates above the national average through 2010, with Massachusetts - the region's most populous state - forecast to see a 1.8 percent decline.
Meanwhile, permits to build new homes are expected to decline in all New England states through 2010, as builders reduce their investments in response to the soft market, according to the New England Economic Partnership. Housing permits are expected to decline an average of 6.2 percent per year. That compares with a dip of three-tenths of a percentage point expected per year for the nation, which is experiencing faster population growth than New England.
Reprinted with permission of the Hartford Courant.
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