Impact of High Interest Rates on Massachusetts Home Sales: Decreased Volume, Increased Prices
Mortgage interest rates have nearly doubled within the past year, negatively impacting the accessibility of single-family homes and condominiums in Massachusetts. Real estate market analysts report that the prices of these properties continue to reach new heights, while paths to homeownership are being eroded.
In July, The Warren Group’s report on sales activity revealed a significant decline in both single-family home and condominium sales compared to the previous year. Single-family home sales dropped over 23 percent, while condominium sales were down more than 14 percent. Despite the decline, median sale prices in July reached all-time highs due to intense competition for the limited inventory available.
Cassidy Norton, Associate Publisher and Media Relations Director at The Warren Group, emphasized the persistent demand among prospective buyers. However, the insufficient inventory hampers the market’s ability to meet the demand.
In July, a total of 4,085 single-family homes were sold in Massachusetts, representing a decline of 23.1 percent from the previous year. The median sale price of a single-family home increased by 4.3 percent over the same period to a new record of $610,000.
Comparing the first seven months of 2023 to the same period in 2022, single-family home sales recorded a drop of 24.6 percent. Additionally, the year-to-date median sale price rose by 2.3 percent to reach $565,000.
According to Zillow data compiled by NerdWallet, the average interest rate on a 30-year fixed-rate mortgage stood at 7.247 percent APR as of Monday. This reflects a significant increase from the average interest rate of 5.267 percent observed a year ago.
Theresa Hatton, CEO of the Massachusetts Association of Realtors (MAR), acknowledged the persistent hot real estate market during summers. However, the chronic lack of inventory prevents the Bay State market from achieving year-over-year growth.
Hatton further added that many potential sellers are refraining from listing their homes due to the attractive existing mortgage rates. They are hesitant to enter the buyers’ market after selling their current homes, contributing to the ongoing inventory crisis.
In July, MAR reported a drastic decrease in new listings for both single-family homes and condominiums. New listings in July were down 26.7 percent and 17.6 percent, respectively, compared to the previous year. Year-to-date, new listings have declined by 25.1 percent for single-family homes and by 20.6 percent for condominiums compared to 2022.
The real estate landscape in Massachusetts calls for innovative approaches to navigate the challenges posed by rising interest rates, limited inventory, and intense buyer competition.
The tight housing market and limited inventory have greatly benefited sellers. According to MAR, single-family homes sold in July fetched an average of 102.9 percent of their original list price.
The condo market in July followed a similar trend to the single-family home market, as reported by The Warren Group. There was a 14.3 percent decline in condo sales, with 1,886 units sold compared to 2,201 in July 2022. However, the median sale price increased by 6.5 percent year-over-year, reaching a new all-time high of $555,000. From January to July 2023, there have been 11,270 condo sales in Massachusetts, a 22.2 percent decrease compared to the same period in 2022. However, the median sale price has risen by 4 percent to $519,900.
Norton commented, “Historically, condos have provided a more affordable option for potential buyers, but with the median price surpassing $500,000 for the past three months, prospective homeowners will face considerable challenges.”
The affordability crisis in Massachusetts has worsened since the onset of the pandemic in 2020. The state faces housing insecurity for many residents, compounded by a surge in immigrant families seeking shelter and employment opportunities.
Governor Maura Healey has raised concerns about the diminishing capacity of the state’s emergency shelter system and declared a state of emergency. She attributes the current situation to the longstanding shortage of affordable housing in Massachusetts.
The high cost of living in the state hampers Massachusetts’ ability to compete against more affordable destinations such as Florida, Texas, and North Carolina. Since assuming office in January, Healey has pledged to address the barriers that impede the progress of both residents and the state, including the uncontrollable housing expenses.