Rich and Carrie Garfield are still suffering from sticker shock after entering the housing market in the spring and getting outbid three times for homes — even after offering as much as 20 percent over the listed price.
“I always expected high prices,” said Rich Garfield, 31, a software engineer now renting in Somerville’s Davis Square, “but our agent told us right off the bat that everything we looked at would go higher than the asking price, and that’s exactly what has happened.”
Real estate agents and brokers say buyers should expect more of the same as the fall selling season gets underway after the Labor Day holiday. Factors that left the Garfields disappointed in the spring and summer are still in play: low inventories of homes for sale, strong pent-up demand from the recent recession, and fears that mortgage rates are only headed higher.
These factors have already helped push median sales prices above the 2005 peak in more than 60 Massachusetts communities, with the greatest appreciation in desirable Boston neighborhoods and close-in cities and towns such as Arlington, Brookline, Cambridge, and Newton, according to Warren Group, a Boston firm that tracks real estate.
In Arlington and Newton, for example, median single-family home prices are already better than 10 percent above the peak that preceded the recent housing bust, according to Warren Group. In Cambridge, prices are 14 percent above that peak. In Brookline, it’s 20 percent.
And other areas, where prices have yet to fully recover, might not be far behind.
Stephen Hussey, a realtor at Meridian Realty in Boston and a home inspector with JMC Associates in South Boston, said until recently, his home inspection business was contained to traditionally strong housing markets in the core downtown Boston areas, such as the Back Bay, South End, South Boston, and the Seaport District.
In the past year, though, he’s been getting more and more calls for inspections farther out in the suburbs, such as in Natick, Hingham, Weymouth, Peabody, and, yes, in more gritty communities like Lynn and Revere. The competition has grown so fierce in these and other communities, Hussey said, buyers sometimes make offers without contingencies, such as home inspections, in order to secure deals.
“Quantity-wise, I’m starting to see real growth outside the city,” Hussey said of home inspections. “I’ve had to turn down work.”
One of the key reasons buyers find themselves in this position is tight supply. The number of single-family homes on the market in Eastern Massachusetts has plunged 34.4 percent from a year ago, while condo inventory is down 40 percent, according to the Greater Boston Association of Realtors, a trade group.
Despite recent price appreciation, many potential sellers remain reluctant to put homes on the market, hoping to make better deals by waiting, said Michael Goodman, an economic analyst at University of Massachusetts Dartmouth. “They want to see where this market is going,” he said, “and whether they can get even higher prices.”
Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm, said longer-term factors are also at work. Massachusetts has a decades-old history of dramatic run-ups in housing prices precisely because not enough new housing is built to meet demand, said Zandi, who has closely followed the New England economy.
A combination of scarce land and sometimes contentious permitting at local levels has inhibited home building in the state, he said. “It’s ultimately a supply problem.”
Jake Duckworth, 37, an IT applications specialist, said he and his wife, Sarah, who are expecting their first child early next year, started seriously looking for a bigger home to buy about a month ago. And he’s already discouraged by the lack of choices and high prices for what he views as “low quality” products that could end up costing him more to fix up, such as paying for new roofs, heating systems, and kitchen renovations.
“Homes are already expensive enough as it is, let alone having to pay for extra upgrades and repairs,” said Duckworth, who currently owns a three-bedroom home in Danvers.
As a result of the supply-and-demand imbalance, most signs suggest the competition among buyers will only intensify this fall. Summer months are typically a slow period for the housing market, as both buyers and sellers attend to other important matters, like hitting the beaches and taking vacations, industry officials said.
But this past summer has been anything but typical.
Single-family homes sales in Massachusetts rose by 18.5 percent in July to 5,941, the largest monthly sales volume in the state since June 2006, Warren Group reported Thursday. The median price of a single-family home rose 10 percent in July, increasing to $349,000, compared to a year ago.
Condo sales also soared in July, jumping by 17 percent from a year earlier, while condo prices rose by 5.5 percent in July to $310,000, according to Warren Group.
“Why wouldn’t it continue?” asked Deborah Heffernan, owner of Cambridge’s Avenue 3 Real Estate. “I’ve talked to a number of potential buyers who say they’re waiting until after the [Labor Day] holiday to start searching. There’s normally a pickup in activity after the summer.”
That’s probably not what the Garfields, who are working with Heffernan, want to hear. They have already gotten into bidding wars on three homes in Newton and Belmont, once offering as much as 20 percent above an asking price, only to lose out. “It’s pretty shocking,” said Carrie Garfield, 31, a public relations executive. “It’s so competitive.”
Bert Beaulieu, a realtor at Northrup Associates Realtors in Lynnfield, said he’s seeing a lot of frustrated buyers like the Duckworths and Garfields.
In Lynnfield, median home prices are now at about $495,000, down 7.6 percent from their 2005 peak. Yet, activity in Lynnfield has “absolutely picked up,” and low inventory is becoming a problem there, too, he said. He’s even starting to see multiple offers for properties in places such as Lynn.
“The market is partly being driven by nervous buyers fearing increases in interest rates,” said Beaulieu.
Last week, the 30-year fixed mortgage rate averaged 4.5 percent, up from about 3.35 percent in May, according to Freddie Mac, the government-owned mortgage company. Most economists think interest rates will keep rising as the economy improves and the Federal Reserve ends stimulus programs aimed at holding rates down.
And Beaulieu thinks higher interest rates will continue to drive people into the housing market, not discourage them, out of fear they won’t see better rates if they wait.
“The demand for housing is outpacing supply,” he said, “and that’s going to continue into the fall.”