A year ago, it seemed nothing could stop the Massachusetts housing market recovery.
Bidding wars broke out for properties, sales jumped, and prices followed. Foreclosures declined and new home construction rebounded. Everything seemed to be coming together, five long years after the financial crisis that followed last decade's housing bust.
Flash forward to today: Sales are down, foreclosures are up, and buyers are walking away from pending deals. Construction of new housing is falling again. To top it off: Single-family home prices in September fell compared with the same month in 2013, the first such price decline in two years, according to the Warren Group, a real estate research and publishing company.
Real estate agents and others in the industry describe the market as "schizophrenic," "weird," and "baffling."
"We're all confused," said Jacquelyn Santini, a real estate agent at RE/MAX Encore in Wilmington. "Everything hasn't quite come to a screeching halt. There's just been a slowdown, and it's been a surprise."
The question facing industry officials, housing specialists, and ultimately buyers and sellers is whether the market is undergoing a temporary adjustment or longer-term changes. So far, no one sees the regional housing market heading towards a catastrophic nosedive; it's doing well, overall, considering the severity of the housing bust and recession, said Edward Glaeser, an economist and director of Harvard University's Rappaport Institute for Greater Boston.
Since the market here hit bottom in 2009, the state's median home price, adjusted for inflation, has climbed back to within 15 percent of pre-recession highs; nationally, prices are still down 30 percent, Glaeser said. There also are pockets of incredible vibrancy, including downtown Boston, Cambridge, Somerville, Brookline, and other trendy local markets, often near public transit.
"It's a perfectly respectable recovery compared to the rest of the nation," Glaeser said.
But lately, it's hardly been smooth sailing — or rational or predictable. Consider the following:
■ Single-family home sales have declined from 2013 in seven of the past eight months and condo sales in each of the last three months, according to the Warren Group. In the third quarter of the year, sales of single-family homes fell more than 4 percent and condo sales plunged by nearly 10 percent compared with the same period last year.
Those were the first third-quarter sales declines since 2010, according to the Warren Group. After three consecutive years of double-digit sales increases and rising prices, many real estate agents had predicted more sellers would put homes on the market in 2014 and higher sales would follow. The opposite happened.
■ Many blame the decline in sales on the low inventory of homes for sale in Massachusetts. The simple math: the fewer homes for sale, the fewer home sales.
Inventories, on a year-over-year basis, have fallen each month since February 2013, according to the Massachusetts Association of Realtors. In September, inventory of single-family homes for sale was 7 percent below the level of a year ago. Condo inventories were down 22 percent.
■ Real estate industry officials say a key factor in the low inventories of homes for sale is the notoriously slow rate of new housing construction in Massachusetts, often blamed on overly restrictive local zoning laws. Two years ago, signs were encouraging that home construction, which slowed to a crawl during the recession, was picking up.
New housing permits issued in Massachusetts jumped 30 percent last year, after surging 44 percent in 2012, according to the Commerce Department. Through the first nine months of 2015, however, permits are down nearly 8 percent compared with the same period a year earlier.
"Even though we all know we need more housing in this state, we aren't building enough housing," said Brad Campbell, executive director of the Homebuilders Association of Massachusetts. "To a degree, we're a very dysfunctional state in terms of housing."
■ Housing starts are down, but foreclosure starts are rising. Lenders initiated 734 foreclosures in September, a 68 percent jump from the same month in 2013 and the seventh consecutive month of year-over-year increases in foreclosure starts. Activity is well below the levels of the housing crisis, but the number of foreclosures initiated in the first nine months of 2014 is 30 percent higher than the same period a year ago.
Cassidy Murphy, editorial director at the Warren Group, has said the numbers are modest and don't represent a dangerous trend. Warren Group attributes much of the rise to lenders working through backlogs of foreclosures delayed as new regulations were getting finalized.
Regardless, Peter Ruffini, president of the Massachusetts Association of Realtors, said the rise in foreclosure activity makes potential homebuyers nervous about the market.
"Are consumers going to have a negative takeaway from this?" said Ruffini, regional vice president of Jack Conway Realtors in Norwood. "Yes, and you have to go out to them and try to explain what's going on."
Other businesses connected to the real estate market say they, too, are baffled by recent trends. Steve Hussey, a home inspector at JMC Associates in Boston, said more buyers are backing away from pending deals after his inspections find problems. Last year, many eager buyers waived inspections to clinch the deal, or just plowed ahead with home purchases despite inspection warnings.
With prices in many local markets rising quickly in previous years, some buyers have hit a price wall, drawing the line on spending extra for post-sale repairs, said Hussey, also a licensed real estate broker. "They feel they're already paying too much and just walk away from deals and then that property goes back on the market again," he said. "I've never seen a market like this, the ups and downs, the hot and cold."
Chris Shedd, owner of Mortgage Resources Inc., a Wellesley mortgage brokerage, said he expected 2014 to be another good year, but business, which got off to a good start, soon fizzled. The housing market typically has slow periods, he said, but it seems more dramatic this year.
"A lull to me is a temporary thing," Shedd said. "I'm worried that it's not a normal lull."
Barry Bluestone, a professor of political economy and director of the Dukakis Center for Urban and Regional Policy at Northeastern University, agreed that the market is not behaving normally. Part of it is the lingering effects of economic and housing downturn of the last decade; prices are still far below their pre-recession levels in many towns.
But demographic trends that could have lasting effects also are at work, Bluestone said. First, the state's population is growing — and increasing demand for housing amid tight supplies. In addition, both aging Baby Boomers and young workers increasingly want to live in cities.
That heightened demand for condos in some urban areas has led to a slackening demand for single-family homes, forcing down sales in many suburban communities, he said.
"We're seeing this housing market twist, from higher demand for condos and lower demand for single-family homes," Bluestone said. "The regular business cycle of things is contributing to today's market, but it's also demographics. I have no doubt about this."