Affordable Homes Available At Market Rate

FALMOUTH- With prices at their lowest in recent years, now may be the perfect time to buy a home, according to one local real estate agent. But fewer people are doing so, not only in Falmouth, but Capewide.
There are roughly 20 single-family homes available in Falmouth for under $225,000, a listing unheard of less than three years ago, Mark Garner, owner of Century 21 Cape Associates, said. “In 2005, you couldn’t find three houses priced under $300,000,” he said.

This house on Berkeley Drive in East Falmouth is priced at $149,900.

That meant just three years ago first-time home buyers were often priced out of the housing market unless they went the affordable route, he said. During the six-year period from 1999 to 2005, the costs of a median house on the Cape appreciated at a rate of nearly 160 percent, far surpassing increases in salary during that time, he said. It was a formula, he said, that inevitably had to change.
What towns like Falmouth are witnessing now is a depreciation in those prices, he said, as the market corrects itself. “Real estate prices were going up 25 percent a year,” he said. “It had to stop. Now we are going to pay for it, just like we did in the early ’90s.”
That market correction began four years ago when single-family home sales started declining throughout the Cape, based upon data from the Warren Group, a publishing group that specializes in real estate data. Median home prices followed suit a year later. After the recent failures of banks and financial institutions, Mr. Garner expected these trends to continue, at least through the end of the year.
Currently, Mr. Garner said, “there are houses on the ‘free market’ that are absolutely equal to the houses the town is putting up for affordable housing. That was absolutely not the case two or three years ago.”
As to when Falmouth will reach bottom, Mr. Garner said, “I believe we are already there, and I think interest will pick up substantially if they stabilize the financial markets.” If that happens, he predicted that 2009 will represent an upswing in the real estate market.
However, that may be wishful thinking, said Robert H. Murray, president of the Falmouth Housing Corporation and director of the Falmouth Housing Authority. “It will get worse before it gets better,” he said. “I think it will continue to go down for at least six to nine months, probably closer to six to 12 months, because they haven’t solved the foreclosure problem. Once they solve that, the housing market will stabilize.”

This house on Churchill Drive in East Falmouth is priced at $124,900.

Because market-rate homes have come down in price, Mr. Murray said the state has stopped giving subsidies for affordable housing ownership projects. Much of this, he said, has to do with the fact that low income tax credits, which are a form of subsidy, do not bring the value they did a few years ago, when they sold for 99 cents on the dollar. Now, he said, they are yielding 72 cents on the dollar.
“That is 26 percent less in value of subsidy dollars,” he said. “So you need to have more tax credits or other sources of subsidy.”
Providing a hypothetical example of a project that might be subsidized with $5 million in tax credits, he said, a 26 percent depreciation would translate into a loss of roughly $1.3 million for that development. “That is a big gap,” he said. “You have got to find that someplace.”
He expected that the market slowdown will also have repercussions on affordable rental developments, because they will be more difficult to finance. Yet, he expected the state to continue subsidizing these because the demand will increase.
“That demand is based upon the number of people facing foreclosures and put out of homes,” Mr. Murray said. “Those people will not buy something else. They will rent something instead.”
Both Mr. Murray and Mr. Garner attributed the housing collapse partially on the fact that many people bought homes, although they should not have qualified for loans. “I think everybody would like to own, but not everyone is able to own for a number of reasons,” Mr. Murray said. “People who couldn’t afford to own got mortgages and wound up worse than they would have, if they were in a rental.”
Years ago, he said, the rule of thumb for home buyers was that they should not purchase a home if they would spend more than 25 percent of their income on housing. Now, he said, it is common for people to spend “somewhere above 35 percent, but the higher you push that percentage, the more risk you have into going into foreclosure,” he said.
Mr. Garner added that easy access to loans, and the ability to put no money down on a home, also contributed to the bubble and eventual collapse.
He explained that many people purchased second and third homes by using their first home as collateral to obtain a home equity loan. As prices skyrocketed in recent years, he said, “it was a great investment as long as it went up year after year, but it had to come down.”
Currently, there are 413 single-family homes and 55 condominiums for sale in Falmouth. On average, these homes, Mr. Garner said, are staying on the market for 128 days, with those under $250,000 slightly less at 121 days.
The present housing climate in Falmouth, Mr. Garner said, stands in stark contrast to the boom that began on the Cape in the early ’90s, reaching its zenith in 1999 in terms of sales—9,370—while continuing its ascent in median price—$379,000—until 2005.
Those years signified the high water mark for the real estate industry in each category and since then those numbers have declined.
Mr. Garner said there were multiple reasons that home buyers were drawn to the Cape over 15 years ago, chief among them were that houses were a bargain at that time, following a similar stock market crash in the late 1980s. In 1993, the median house on Cape Cod, was purchased for $110,000, its lowest point in two decades.
But then, prices and sales began to creep upward as the Cape became a popular destination. The bulk of those buyers, Mr. Garner said, were from Massachusetts, particularly around Boston.
“You could get so much more house on Cape Cod than you could elsewhere in the state,” he said. “Interest rates came down, houses were available, and people realized it was a real bargain to sell their house in Natick or Bridgewater and duplicate that for a lot less money here.” He estimated that at one time, houses on Cape Cod cost 30 percent less than they did in, and around, Boston.
Another contributor to the housing boom, Mr. Garner said, is that the Cape shifted from what he termed a “hot spot for younger people,” to a retirement, and pre-retirement, destination.
With low interest rates and tax incentives, he said, more people were enticed to purchase homes on Cape Cod, which many saw as a safer investment than the stock market. Even though prices have now come down, he argued that this still holds true. 
“In the long term, real estate, in my opinion, is a better and safer investment than stocks,” he said. “It is not as volatile. It will always go up over time.”
During the late ’90s, he said, with the advent of technology and the ability of workers to telecommute, the area became even more attractive. That was particularly true of Falmouth and Sandwich, he said, towns that are not as far from Boston as other parts of the Cape, making an actual commute over the bridge easier.
Following the dot-com era, sales began to slow, although prices appreciated by roughly 20 percent from 2000 to 2003. It led, he said, to an artificial profit frenzy, and owning a home here was no longer a bargain.
Average home prices, he said, were among the highest in the state.
The only time the Cape witnessed a spike after that point was in 2004, when sales went up roughly five percent, and more than 5,500 homes changed hands. Since then those numbers have dropped more than 17 percent, with 3,781 real estate transactions taking place last year.
Those declines are similar in towns throughout the Cape, Mr. Garner said, even in Falmouth.
Comparing last year’s sales to this year’s proves this point.
From January 1, 2007, to November 10, 2007, a total of 394 homes in Falmouth were sold at a median price of $420,750. During the same timeframe this year, 356 homes in Falmouth were sold at a median price of $389,500.
Taking a smaller snapshot, from October 1 to November 10, the sales—45 in 2007 versus 41 in 2008—are not drastically different, but the median price is, Mr. Garner said, with homes in 2007 going for $460,000 last year versus $355,00 this year.
He expected the real difference to be witnessed over the next two months, as data in November and December reflect actual sales in September and October, when financial institutions on Wall Street were bailed out by the federal government.
“I bet the months of September and October are a killer,” he said, noting that until that point business was solid, if not ahead, of last year’s pace. Now, he said, “it is down... Fewer and fewer houses are being bought.”