Marblehead Housing Review 2013 and Outlook

I concluded my 2012 review with these words: “clearly 2012 was the year when the market nationally turned up. More importantly, perhaps, it also marked the turn in sentiment, with the view becoming widespread that the market has bottomed and is improving, in some cases sharply.”

There is no doubt that 2013 was a year when the headlines about the housing market were dominated by stories of rising prices and bidding wars, with many, many properties throughout the country – and in Marblehead at the lower levels – selling above list prices.

The median price for a Single Family Home (SFH) in 2013 was $535,000,up from $510,000 in 2012 and from $524,950 in 2011. Sales, at 227 were unchanged from 2012, largely because the shortage of available properties for sale, a factor all year, really took hold in Q4.

Let’s look at the numbers. Remember that the sales numbers in Marblehead are always low – we turn over just 3-4% of our SFHs each year – so that there will be quarterly variations in the numbers. Also my numbers for sales include all sales recorded in the MLS, but for median price and ASR calculations I exclude distressed sales – Foreclosures (FC) and Short Sales (SS). I have published separate articles this weekend on distressed property sales levels in 2013.

First, sales. Through 9 months sales were ahead of 2012 and looked as though they might reach 240 for the year. A combination of shortage of supply, rising mortgage rates and political shenanigans in Washington caused Q4 sales to fall and the year’s total matched 2012’s.

Source: MLS, Oliver Reports

With the slow start and end to the year, Sales in Q1 and Q4 combined for just 33% of the year’s total compared with an average of 39% since 2000.

Source: MLS, Oliver Reports

Median prices: the median price for 2013 was $535,000. In 2012, because of the large number of houses sold under $500,000, the median price dipped to $510,000. The recovery in 2013 took the median price back to its highest level since 2007. Prices are still 9% below the peak levels of 2005/2006.

Source: MLS, Oliver Reports

While the median price declined slightly in Q4, I do not see that as a cause for concern. As the chart – and more clearly the table – below shows, the median price varies from quarter to quarter. The market in Marblehead is seasonal, and it is also small enough that fluctuations will occur from quarter to quarter.

The increase in mortgage rates and political uncertainty may have had a marginal impact, but I believe the main factor in Q4 was the shortage of properties available for sale.

Source: MLS, Oliver Reports

Source: MLS, Oliver Reports

Looking at the year numbers, the median price increased roughly 10% per annum from 2000 to 2005; marked time for one year; dropped nearly 10% for two years; and then marked time for one year. That takes us to 2009, since when the median price has increased about 3% per annum on average.

I have pointed out the flaws in the Case-Shiller Index (it includes foreclosures and short sales; only includes repeat sales; and excludes new construction), but it is widely used as a benchmark. The latest Case-Shiller report showed a 13.6% increase over the last year.

In Marblehead, we didn’t experience the boom of the early 2000s, didn’t suffer the bust of the late 2000s, and are not seeing double-digit gains in the 2010s. That is not to say that we may not see a strong increase in prices again, possibly even in 2014, but in general terms the Marblehead market is much more stable than elsewhere.

One way I measure prices is by the ratio (ASR) of Assessed Value (AV) to Sales Price (SP). If the ASR is above 100%  that means that properties are selling for less than their AV. Conversely, properties selling above their AV will have an ASR below 100%.

As we all hope out properties are worth more than the AV we look for an ASR below 100% as a positive sign. Remember that AVs are a lagging indicator: the tax bills that have just been sent out for FY2014 are based on actual sales in 2012. Thus the 2013 sales data, reported in this review, will be the basis for FY2015 assessments.

What this means is that in a period of falling prices the ASR is likely to be rising. The ASR is the AV divided by the SP: if the SP is falling (prices going down), the ASR will rise. And when prices are rising, when the SP is rising, the ASR will fall.

So what we, as homeowners, want is an ASR below 100% and falling. Let’s look at the ASR in recent years:

Source: MLS, Oliver Reports

and then let’s see how the ASR relates to median prices:

Source: MLS, Oliver Reports

As you can see, the ASR rose as prices fell and fell as prices rose.

2013 is interesting. There was a sharp drop in the ASR for the first time since 2010. I have commented in the past about the difference in the ASR between properties selling under $500,000, where the ASR was over 100% for several years, and those above $500,000, where the ASR has generally been under 100%.The next table breaks out the ASR by price range over the last three years. The key takeaway from this table is that the market under $500,000 has not only stabilized but is going up. This confirms statistically what has been apparent since late 2012.

Source: MLS, Oliver Reports

After several years where the market under $500,000 was weak that segment has turned around. It is now the upper end which is experiencing large supply and low demand. I have written several times on my blog about what seems to me to be an anomaly, with $3 million plus condos in Boston selling freely, while on the North Shore waterfront properties at the same price struggle to attract buyers.

One of the difficulties in analyzing higher end sales – apart from the small number of them – is that some properties are fully restored while others need either major work – and major dollars spent on them –  or are being bought for their land value with the new owner building a new house. That makes it difficult to draw conclusions from the ASR number in particular.

That being said, let’s look at sales over $1 million for the last 10 years:

Source: MLS, Oliver Reports

From these numbers it would seem that sales in the $1-2 million range dropped following the financial crisis but are now nearly back to their pre-crisis levels, although I would have expected a pick up in the last two years.  And despite the concern about the high inventory above $3 million, sales in this price range have remained slow but steady. Where sales have dropped sharply is in the $2-3 million range.

A final, brief word about the hot topic of the last few months, flood insurance. I have published three articles on my blog in the last few weeks and do not want to repeat my comments here. I will just mention two numbers: between 1978 and 2012 total flood claims in Marblehead, including both residential and commercial property, were just $2.1 million, while in 2012 alone Marblehead property owners paid some $400,000 in flood premiums.

There are so many reports all around the country of the inaccuracy of the new flood maps (it is claimed that for Massachusetts FEMA used an inappropriate technology from the Pacific Coast to save money) and the hardships caused, mostly to homeowners at the lower end, that it seems highly likely that Congress will move early in the next session to postpone the new rules.

But, as a friend pointed out, and as the numbers above show, Marblehead is very fortunate in not having a major flood problem. Many of our waterfront properties sit high above rocks, or are well-protected from nor’easters.  And the town has worked diligently to improve the situation, whether it be reinforcing the causeway or the Big Dig to improve drainage in town.

Finally, the crystal ball. While everybody wishes to buy at the bottom and get a mortgage at the lowest possible rate, in practice very few are lucky enough to do so. Look at the stock market. It hit new highs multiple times in 2013 and that means there was new buying, despite the fact that the market has more than doubled since the dark days of early 2009.

Most of us, especially in Marblehead, buy a home to live in, and stay here even when we do move, which is not very often. Absent a major geopolitical event, the real estate market looks set to continue its steady recovery in recent years. And again, if there is a surprise, I expect it to be on the upside.

If you are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or andrew@HarborsideRealty.com.

Andrew Oliver is a Realtor with Harborside Realty in Marblehead