Suddenly, area's housing market favors the buyers

Greater Boston's once-sizzling home sales have cooled so much this fall that realtors are reverting to a description not heard in a decade: ''Buyer's market."

From the South End to the South Shore to Cape Ann, the list of unsold properties is growing, and so are reductions in asking prices. Attractive houses in good locations with seemingly appropriate pricetags are getting scant interest. Real estate agents, who six months ago played host to streams of buyers, are now presiding over open houses that draw few if any lookers.

The fall slowdown not only represents a sea change for sellers, who for years have enjoyed multiple offers and higher prices, but also indicates the region's bull housing market is at an end. Real estate agents say a long-predicted market correction appears underway as the gap between the price of housing and peoples' incomes -- now even wider than at peak of the 1980s housing boom -- has become too great to sustain the recent pace of sales and appreciation.

Certainly, few expect an '80s-style collapse, when home values plunged 25 percent or more.Today, the economy and lenders are far stronger, and mortgage rates, which topped 10 percent when the last boom went bust, are far lower -- currently about 6 percent. In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash.

Still, real estate agents today increasingly are telling sellers to expect lower prices than comparable sellers received six months ago. 

While this may be good news for buyers, a slowing housing market will add a drag to Massachusetts' already sluggish economy. Real estate has been one of the state's few bright spots, generating not only jobs when most other sectors declined, but also wealth, in the form of rapidly appreciating home equity.

Homeowners, by refinancing mortgages, can tap into equity gained through appreciation as a source of cash. In Massachusetts, cash taken from home equity rose to 14 percent of peoples' disposable income in 2004 from 4 percent in 2001, according to Economy.com, a West Chester, Pa. forecasting firm.

Real estate-related employment in Massachusetts has risen about 5 percent since 2001, compared to a decline of about 5 percent in overall employment.

Analysts said it likely will take until spring, the main home selling season, to gauge the extent of the correction.

Maggie Tomkiewicz, president of the Massachusetts Association of Realtors, agreed that the market has cooled recently, but rather than a correction, it represents a return to normalcy. She doesn't expect prices to decline year-over-year.

''The market was overheated," she said. ''A seller now needs to be more realistic" in pricing.

The realtors association reported this week that the number of Massachusetts home sales rose in September from a year ago. Median prices increased about 4 percent over the prior year but fell from August. That data, however, lags the market since it includes only sales that have closed. It can take two-to-three months from purchase-and-sale agreement to closing.

Data from listing services, which better capture current conditions, suggest a weaker market. In Boston, for example, the number of condominiums listed for sale is up 50 percent from a year ago, while the number of price cuts has more than doubled, according to Listing Information Service Inc., which tracks the Boston condo market.

Analysts say a number of factors are contributing to this weakness, including rising interest rates, slow job growth, and soaring energy costs. Widespread speculation that prices eventually could fall rapidly is exacerbating the slowdown. As these factors have depressed buying interest, they also may have pushed sellers, sensing that the market may be at the beginning of a decline, to put properties up for sale, brokers said.

The result: more supply, less demand, and sellers searching for buyers. Last Sunday, Globe reporters visited about a dozen open houses in different Boston neighborhoods and suburban communities.

With growing choices, buyer psychology has changed, brokers said. In recent years, buyers raced to make offers, convinced prices would only go higher, or even bid against each other, pushing prices up. Now, many are prepared to wait, believing that prices are coming down.