How much has your home value changed?
by Cape Business staffThe home market across Cape Cod and Plymouth County certainly has felt the sting of the nation’s housing downturn. Signs of optimism early in 2007 continually eroded, with forecasts of a recovery first expected last fall now postponed at least until this autumn.
Houses are staying on the market longer and inventories of homes for sale have remained about 40 percent more than year-earlier levels. Mortgage activity continues to show weakness, especially in the refinance arena.
From December 2005 to December 2007, the median price of a home on Cape Cod dropped about 8 percent – from $356,000 to $329,000. The situation is more severe in neighboring Plymouth County. The average price of a home there in December 2005 was about $419,000. Two years later, that same house dropped to $373,000 – a 12 percent decline.
Still, the region south of Boston has escaped the intense pain felt in other states, where home prices are down 20 percent or more. We don’t depend as much on new home construction as elsewhere. And while new home activity has especially plummeted, existing home sales have held up better.
On the Cape, in particular, fewer homeowners have subprime or adjustable rate mortgages. In fact, many luxury buyers on the Cape purchase with cash and don’t take out mortgages. This has meant less volatility.
“The high-end market on Cape Cod is not slowing down, but actually continuing to pick up,” said Aaron Polhemus of Polhemus Savery DaSilva Architects Builders.
“Waterfront lots are pretty much non existent,” he noted. “When they go on the market, there usually is a battle for them. Whatever it costs to get that lot, someone will pay. These prospective buyers have the money; they want the property for generations to come.”
Also, the Cape market increasingly is dominated by second homes – in some towns, they represent more than half the housing stock. These owners, for the most part, do not have to sell into a down market.
Instead of reducing their prices, some sellers are simply taking their houses off the market. Jack Cotton, vice president of the Cape Cod region for Sotheby's International Realty, reports that expired listings in 2007 went up as much as 90 percent from a year earlier.
That has been less the case closer to Boston, where home sales are influenced by the mobility of a younger population, often forced to move due to job transfers.
Still, the Plymouth County home market was relatively stronger than elsewhere in the state – and much better than across the nation as a whole.
“While prices have fallen more dramatically in other areas, Plymouth County saw a more modest adjustment of 4 percent in average sale price over the last year,” said John R. Buckley, the county registrar of deeds.
“Clearly, sales are down across the state and, for that matter, across the country,” observed Buckley. “In other areas of the country, values have fallen dramatically. We have not seen that happening here.” While home prices have plunged precipitously in other regions of the country, the average sale price in Plymouth County fell 4 percent in 2007, from $386,216 to $371,329.
The refinance market was considerably slower in 2007 than in recent years. The total number of mortgages recorded through 2007 fell 24 percent, from 40,560 in 2006 to 30,729 in 2007. “We’re returning to more typical volumes that we saw prior to the explosion in the refinance market a few years ago,” noted Buckley. “Interest rates are still quite low, but people are understandably concerned about the current focus on foreclosures.”
Putting the numbers in perspective
While Realtors are feeling particular pain – with many actually leaving the business – some builders report they fared relatively better as an industry in 2007. More significantly, many others see reason for some confidence in 2008.
Luxury builders – especially in towns such as Chatham and Osterville – said demand for their services remained high throughout 2007 – and continues so. Similarly, home prices in these richer communities have proven nearly impervious to regional and national trends downward.
Remodeling activity, especially for homeowners who have not exhausted their home equity, is reported on the rise in many towns across the Cape and Plymouth County.
And while 2008 began with uncertainty – including unprecedented oil prices and shrinking credit markets amid a presidential election year – many builders we talked to see some light at the end of the tunnel.
“I suffered the worst year in the last 10 in 2007,” said one mid-market builder. “Yet, I should have the best year ever in 2008. My lead activity is good.”
He and other members of our builders’ board point directly at the importance of the baby boomers. They are three years older than when the downturn began, observed Rob Padgett, former president of the Cape Cod Homebuilders and Remodelers Association and president of Padgett Builders.
"A little voice keeps telling them that time is running out, and that they cannot postpone their dream indefinitely. And, while the economy certainly has an impact, the ultimate timeliness of their lives wins in the decision process," he said to nodding agreement from other builders at the table.
For those baby boomers finally deciding to purchase a second home, they also appreciate that prices are at 2004 levels. For others who want to move to the Cape permanently, they understand that a loss selling their current home can be made up purchasing more cheaply on the Cape.
Trends seen by our builders’ board skewing positive in 2008
• November 2007 saw existing home prices stand at virtually the same level as a year earlier. That was a first since 2005.
• The Cape historically is among the last places to experience a downturn and among the first to emerge from one.
• The Cape’s demographics will work in its favor. Since 2000, the fastest-growing age group on the Cape has been 45- to 65-year-olds, and forecasts see this migration accelerating through at least 2011. With limited housing supply, demand should at least stem recent price declines within the next year to 18 months.
• Foreclosures have been limited to very few towns south of Boston.
• Mortgage rates remain historically low.
• Regional and community banks were not affected by the subprime crisis. In fact, many of them view the current situation as an opportunity to reclaim market share they lost over the last five years to reeling mortgage brokers and Internet lenders.
• While the real estate market is feeling particular pain – with many Realtors leaving the industry – remodeling activity is on the rise for builders.
• Builders point to at least two reasons for this: If homeowners can’t sell and move up because of a slow market, then they are more apt to upgrade their current home and plan to stay there for years to come. Many other homeowners view remodeling as a way to maintain the value of their investment – or, at least, make their house for sale as attractive as possible in a buyer’s market.
Then there is one very positive impact of the downturn: Homes in the region are more affordable for more people. Where two years ago, it was virtually impossible on Cape Cod to find a condo in the $300,000 range, now many single-family homes have dropped to that price level.
From 1999 to 2005, house prices south of Boston had accelerated so rapidly that they locked many middle-income and young families from home ownership. For teachers, police, fire and other critical service workers, the market is becoming more affordable.
How are builders adjusting in 2008?
• Many are going high end to serve wealthy customers, who continue to flock to the Cape and rich South Shore suburbs. Oceanfront property is more than holding its value.
• Builders are gravitating from home construction to home maintenance. “Really small job services are very strong,” said Michael Cole, owner of Cape Associates in Eastham and Barnstable. “Lots of homes are maturing and they are in need of new roofs. Older residents and retirees need homes to be retrofitted,” he said.
• Many builders continue to expand into corollary and concierge services – especially in the second-home market. Builders want to maintain relationships with their customers after a house is built or a remodeling job is completed. They are establishing landscaping and concierge divisions, or allying themselves with other companies to provide one-stop service.
• While still battling myriad regulations that add higher costs to construction, many builders also are making the issue a selling point with customers. For example, Polhemus Savery DaSilva, located in Chatham and Osterville, has developed a special staff to help clients maneuver through and expedite planning and approval stages.
• Builders are learning more about green construction and energy-saving techniques and materials. It represents a competitive edge in a market where many customers – especially baby boomers – are demanding greater energy efficiency.
• Builders are marketing to grandparents, who are investing in bigger homes and remodeling projects to attract and entertain their children and grandchildren. This is particularly evident in the outdoor living arena.
• Builders and Realtors are gravitating to more sophisticated marketing approaches, especially direct mail and the Internet. The key is knowing where the best customers live and reaching them in pinpoint fashion.
Looking ahead six months, the builders’ board remains cautiously optimistic. The market remains vulnerable, but there is near unanimous agreement that demand exists – it’s just sitting on the sidelines.
While calling 2007 the quietest year he can recall, Jeff Karlson, president of the Building Company in Orleans, Brewster, Eastham and Chatham, is optimistic about 2008. As far back as last fall, he saw signs that 2007 could be the trough of this downturn.
Added Tony Shepley, owner of Shepley Wood Products in Hyannis: “This market has always been better than elsewhere. We tend to sustain ourselves through downturns rather well.”
“The homebuyer is there,” said Douglas Bohannon, president of Mid-Cape Home Centers, with locations on Cape Cod and in Plymouth County. “When the economy shifts, as it did 16 years ago, they will burst forward.”
Published in Cape Business Health & Wealth March/April 2008
