Looking Back at the 2012 Housing Market

January 11, 2013

2012 was a crazy year for real estate in Cambridge and Somerville…

If you were out there as a buyer, you likely encountered multiple offer situations at every turn, and may have lost out on a property or two in bidding wars. Perhaps you even decided to bow out of the market for a while, given the frenetic pace and hyper-competitive conditions.

If you put your house on the market last year, you were probably very pleasantly surprised by the amount of interest, how quickly you received an offer or offers, and the price your property fetched.

And yes, I understand that many of you out there may not have been active participants in the 2012 housing market. So for you, here’s a bit of a rundown on what you missed.

Inventory was way down — On any given day in 2012, active inventory was down 40-50% in Cambridge and Somerville — this phenomena was seen for all residential properties –whether single-families, condos or multies– and spanned all price points. (And things haven’t yet improved in 2013 — see my related post.) But why? Well, it was partially due to fewer new listings, and partially because…

Demand was way up — This stemmed from a variety of factors including record-low interest rates, rising rents, and the renewed appeal of real estate as an investment. The result…

Multiple offer scenarios became typical — In fact, my post, “Dealing with a Multiple Bid Situation — Advice for Buyers & Sellers” was my top post last year — I just reposted it in anticipation of a similar 2013 market. And, to beat out the competition…

Many buyers came with cash, and many waived inspection contingencies — Obviously, not everyone is in a position to offer cash, and I caution buyers against waiving the inspection contingency, but those with deep pockets and a tolerance for risk made things very challenging for otherwise well-qualified buyers who require financing to buy a home. In any case, the net was that…

Prices were driven up — Econ 101: when supply is low and demand is high, prices go up. So after years of flat housing prices, 2012 brought significant increases throughout Cambridge and Somerville. The interesting thing, though, is that because of the way data is pulled from MLS, most media reports of the price increases don’t even come close to representing the extremity of these increases in our market. Allow me to illustrate…

Here’s an example of the 2012 increase in Cambridge condo prices:

838 condos were sold in 2012 (79% of all housing) at an average price of $510,758. The prior year, 714 condos were sold, with an average price $498,299. This is the simplest analysis MLS allows, and yes, it does shows the average Cambridge condo price in 2012 to be $12,459, an increase of 2.5%. Not so drastic, you might think. HOWEVER… this is not a true representation of the market.

To get a more accurate picture, I had to go in and manually slice-and-dice the data a bit further. I did this by taking a few sample condos a buyer might be looking for, and compared prices for these specific unit types in 2012 compared to 2011. And here’s what I found:

For a 1BR/1ba Cambridge condo without off-street parking:

  • 2012 average price: $327,009 (based on 91 sales)
  • 2011 average price: $306,066 (based on 93 sales)
  • $20,943 difference = 6.8% increase

For a 2BR/1ba Cambridge condo with 1 parking space:

  • 2012 average price: $435,344 (based on 84 sales)
  • 2011 average price: $358,278 (based on 57 sales)
  • $77,066 difference = 21.51% increase

For a 3BR/1.5+ba, with 1+ parking spaces:

  • 2012 average price: $889,191 (based on 81 sales)
  • 2011 average price: $795,826 (based on 82 sales)
  • $93,365 difference = 11.73% increase

See the difference? It’s quite extreme. And lest we forget our friends in The “Ville…

Here’s an example of the 2012 increase in Somerville condo prices:

In 2012, 459 condos were sold in Somerville, at an average price of $400,852. In 2011, 352 condos were sold for an average of $390,797. That’s a $10,055 difference, coincidentally, the same 2.5% increase as Cambridge data revealed. But a more granular analysis reveals:

For a 1BR/1ba Somerville condo without parking:

  • 2012 average price: $319,150 (based on 10 sales)
  • 2011 average price: $258,021 (based on 19 sales)
  • $61,129 difference = 23.69% increase

For a 2BR/1ba Somerville condo with 1 parking space:

  • 2012 average price: $346,008 (based on 59 sales)
  • 2011 average price: $303,180 (based on 55 sales)
  • $42,828 difference = 14.13% increase

For a 3BR/1.5+ba Somerville condo with 1+ parking spaces:

  • 2012 average price: $549,658 (based on 66 sales)
  • 2011 average price: $574,015 (based on 56 sales)
  • In this case, we see a decrease, but these results are skewed because of a few listings — trust me, most of the units I saw last year sold for significantly more in 2012 than they would have in 2011.

The net? We NEED more inventory so that we can get the market back to balanced! If you’re thinking about selling your home, or know someone who is, please get in touch — it’s for a very good cause!

And if you’re a buyer, hang in there! It’s a crazy market, but if your finances are in good shape, your expectations are realistic, and you’re truly committed to finding a home, your diligence will be rewarded — this is a great place to live and historically, our homes have retained their value.

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