Home prices in Massachusetts fell for the 15th straight month in July, and the turmoil in the mortgage market in recent weeks is likely to drive prices down further this year.
The median price for a single-family home has dropped 4.6 percent, to $323,000, since July 2006, Warren Group, a Boston real estate and publishing firm, said yesterday. July's sales volume increased 1.5 percent from a year ago, but analysts said it was a short-term rise brought on by a surge of parents buying homes prior to the new school year in September. The median price for a condominium rose less than 1 percent, to $280,000, Warren said.
Real estate analysts said a recovery will be delayed until 2008 as a crisis in the mortgage industry hits a housing market already reeling from an explosion in the number of foreclosures and an increase in homeowners in financial distress because of rising mortgage rates and falling home values. Earlier in the slump, sales slowed because stubborn sellers refused to lower their prices to adjust to new market realities. Sellers have reduced their prices, but buyers are now facing increased scrutiny when they try to obtain financing.
"People who are ready, willing, and able to buy a house can't do it because they can't find a mortgage," said Timothy Warren Jr., Warren Group's chief executive. "That's got to be bad."
Early this year, problems in the lending market were confined to so-called subprime lenders, those that made loans to borrowers with credit problems. Since then, the problems have spread to conventional lenders as the Wall Street investors who buy mortgages have suffered losses from mounting mortgage delinquencies.
Last week, the nation's largest lender, Countrywide Financial Corp., was forced to tap into an $11.5 billion credit line from its banks, causing the stock market to plummet, and this week Countrywide laid off some staff.
The credit crunch spread this week to other lenders such as Capital One Financial Corp., which closed its GreenPoint Mortgage unit, and Thornburg Mortgage Inc., which said this week it would scale back jumbo mortgages, or loans that exceed $417,000. Conventional mortgages below that amount are more widely available because the government-created agencies Freddie Mac and Fannie Mae buy those loans to help support the housing market. No such support exists for jumbo mortgages.
As a result, lenders who make jumbo mortgages have sharply increased rates in the past two weeks to nearly 8 percent. Freddie Mac's rate for a traditional, 30-year mortgage is 6.62 percent.
To calm financial markets last week, the Federal Reserve Board cut the discount rate it charges for loans to banks by a half percentage point, to 5.75 percent.
Kevin Cuff, president of the Massachusetts Mortgage Bankers Association, said if Countrywide stops making mortgages, other lenders would be unable to fill such a big gap.
A second housing report yesterday, by the Massachusetts Association of Realtors, showed a 6 percent increase in July single-family sales and a small increase in the median price for single-family homes -- 1.3 percent. Both organizations tabulate real estate closings in July; the association's data includes only sales conducted with the help of member agents, while Warren Group's larger database is culled from court records and includes all sales, including sales conducted through agents and by owners themselves.
July closings reflect sales agreements struck in May or June. Turmoil in the mortgage industry is expected to depress sales and prices in the August and September sales reports, analysts said.
While the state's housing market faces a rough ride this year, Wellesley College economics professor Karl Case said strong job growth will help shore up sales and prices. The Massachusetts market also began slowing earlier than the rest of the nation, and could pull out sooner. New figures released yesterday showed national foreclosure filings doubling in July compared to the same time last year, with California, Florida, Michigan, Ohio, and Georgia leading the way.
"We will not feel the pain as much the rest of the country," Case said. "The question now is how deep into 2008 before it stabilizes and starts to recover."
David Iaia, an economist with Global Insight, a Waltham research firm, predicted 2007's sales would roughly match 2004's. The market "has definitely come down from the peak in 2005, but we're not talking about unheard-of lows," he said.
Agents are divided on whether it is a good time to purchase. Some advise buyers not to jump into the market, because there could be better bargains if they wait. Others said buyers are in a strong position now with sellers desperate to sell due to financial strains or job relocation. "The savvy buyers are out there picking up all kinds of wonderful deals," said Linda O'Connor, an agent with Realpro Associates on the North Shore.
Her clients Ra'ufa and Bryn Clark watched the market for more than a year in search of an affordable two-family in Beverly. They recently bid $465,000 on a property -- it was listed for about $100,000 less than it was in 2005. During that time, the seller took the house off the market for a while, said Ra'ufa Clark.
"The people decided they needed to sell the house," she said. "We decided to go for it. The price drop made it possible."
Ronn Huth, owner of Buyers Choice Realty in Wenham, explained July's sales surge as "a group of buyers who needed to get their kids into school systems. You're going to see that wane."
He predicted house prices and sales will decline in coming months. "More buyers are looking, but they're still reluctant to take that step," he said.
Kimberly Blanton can be reached at firstname.lastname@example.org.