Massachusetts home prices set new records in May. But will rising mortgage rates throw a bucket of cold water into the fiery housing market?
The average selling price of a single-family home in Massachusetts hit an all-time high of $590,000 in May The Warren Group, a real estate analysis company. That was a 12.4 percent increase from the previous year and a staggering 38.8 percent increase from May 2020, when the average home sold for $425,000.
In May, 4,788 single-family homes were sold nationwide, down 7.2 percent from a year earlier. Despite intense demand from homebuyers, experts say inventory shortages continue to curb the number of homes being sold while stimulating price-driving competition.
The median condo price in Massachusetts rose 7.1 percent year over year in May to $525,000 — a new high for the month and near an all-time high of $530,000. discontinued in April. The 2,414 condos sold nationwide in May marked a year-on-year decline of 11.6 percent.
It’s the second month in a row that the typical condo has brought in over half a million dollars. And with a difference of just $65,000 between the two, condos don’t exactly offer an affordable alternative to the single-family home.
“Condos are shockingly expensive right now,” said Cassidy Norton, Associate Publisher at The Warren Group. “Condo sales suffer from the same utility issues as single-family homes.”
It remains to be seen how a sudden and dramatic increase in mortgage rates will affect the Massachusetts housing market this summer and beyond. After the Federal Reserve raised the federal funds rate by three-quarters of a percentage point last week, the average interest rate on a 30-year mortgage rose to 5.78 percent, a 14-year high and the fastest one-week rise since 1987. after Freddie Mac.
Since higher mortgage interest rates make it more expensive to finance a home purchase, they should – at least in theory – have a dampening effect on house prices in the future. For example, a homebuyer with a monthly budget of $2,500 has lost nearly $120,000 in purchasing power since December due to rising mortgage rates. to Redfin.
“I definitely think the rates will have an impact. But I’m not exactly sure when that tipping point will be reached in Massachusetts,” Norton said. “There are so many buyers and so few homes that I think people will stretch – and the people who don’t have to stretch will still be in the market.”
The home sales, which closed in May, would have started in April or even March, Norton said, ahead of the Fed’s latest rate hike (its biggest in almost 30 years). And one thing is certain: buyers stretched their budgets this spring. Around Boston, the average single-family home sold for 109.1 percent of its list price in May, according to data a separate report from the Greater Boston Association of Realtors. That means many successful buyers paid about $70,000 too much for an $800,000 home. The typical condo, meanwhile, fetched 103.3 percent of the asking price.
“I hate to say it – because I’m human and I want people to be able to buy houses – but it’s good that interest rates are going up,” Norton said. “People probably started getting overwhelmed with what they were offering and… I mean, that’s what happened during the Great Recession. … It’s not good for buyers, but it’s a good thing for the broader economy and the housing market.”
Realtor.com chief economist Danielle Hale expects rising interest rates to cool demand across the country and give homebuilders and sellers time to restock shelves with home inventory, if you will. creating something of a reset in the real estate market.
“Demand will continue to slow throughout the summer, creating room for the inventory recovery to accelerate,” Hale said. “As a result, this fall could be an opportune time to find a home, for both first-time buyers and repeat buyers.”
However, Norton reckons many buyers will feel pressured to get a mortgage before interest rates rise.
“A lot of people are really just desperate at this point and really want to settle before interest rates go up,” she said. “If you wait until September or October, we don’t know what the prices will be, but they won’t go any lower.”
The median condo price in Suffolk County, which includes Boston, Chelsea, Revere and Winthrop, was $725,000 in May, up 3.9 percent from a year earlier. The typical Cape Cod home sold in May for $650,000. (Here you can find the data from district to district.)
The median price of a single-family home sold in Framingham increased 9.7 percent from May 2021 to $630,500, while the price of a typical Wellesley home surpassed $2 million in May. Year-to-date, the average condo price in Somerville was $835,000, up 9.2 percent from the first five months of 2021. (Here you can find the data from city to city.)