Mary Kelleher, a Boston real estate broker, stands in her office and reads a fax detailing an offer to buy a home in the city's South End. The would-be buyer's bid is below the $659,000 asking price.
"This isn't an offer; it's an insult!" Kelleher said.
Massachusetts sellers and real estate agents are having to lower their expectations as home-price growth slows, particularly in comparison to other regions of the United States.
"Bubble talk," or speculation that home prices are inflated and will decline, began five years ago in Boston, at the beginning of the U.S. real estate boom. In the first quarter of 2000, Massachusetts ranked first in the rate of year-over-year price increases. In this year's first quarter, the state ranked No. 20, according to government data.
Experts say the Massachusetts cooling is a "soft landing" they hope to see replicated in the rest of the United States.
"It would be healthy for the U.S. housing market if the rate of price appreciation slows and gives income growth a chance to catch up to it, like we've seen in areas like Boston," said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University in Cambridge, Mass.
Home prices in Massachusetts gained 12 percent in the first quarter of 2005 from a year earlier, according to the U.S. government's Office of Federal Housing Enterprise Oversight. In the first quarter of 2000, the gain was 14 percent. Since then, rates in other cities and states have surged. The state with the fastest-growing prices in this year's first quarter was Nevada, with a 31 percent gain. California registered a 25 percent increase.
"Prices aren't going up as quickly in Boston, but it's not the end of the world," said Kelleher, with the Boston realty firm Gibson DomainDomain. "You can still make money in real estate, just not as fast."
The median price of a single-family home in Massachusetts was $346,800 in the first quarter, according to the Massachusetts Association of Realtors. Since 1980, home prices in the state have grown 591 percent, the biggest quarter-century gain among states, according to an OFHEO report issued June 1.
For the nation, prices grew 12.5 percent in this year's first quarter, the quickest pace since the third quarter's 25-year high of 13.4 percent, the OFHEO report said.
In comparison, the average annual U.S. price increase over the last 50 years was 5 percent, said Frank Nothaft chief economist at McLean-based Freddie Mac, the No. 2 buyer of U.S. residential mortgages.
"There's no way we can sustain double-digit price appreciation year after year; it just can't happen," Nothaft said in an interview. "We're going to see a return back toward the normal pace."
This year, U.S. home prices probably will grow 7.7 percent, moderating to 6.2 percent by 2007, Nothaft said.
"We've had such incredible numbers in Las Vegas, we know it can't go on forever," said Jeffrey Carter, a real estate salesman for Omni Realty in Henderson, Nev., just outside of Las Vegas. "People here would prefer to see a price slowdown rather than a decline."
Home prices have gone up the fastest in coastal markets, according to the OFHEO report. In Washington, prices grew 22 percent in the first quarter, New Jersey had a 16 percent increase, and prices were up 13 percent in New York. At the same time, Indiana had a gain of 4.1 percent and Ohio prices rose 4.4 percent.
"Not everyone is talking about bubbles," Retsinas said. "For some markets, it's just business as usual."
Home-price increases, large or small, aren't a certainty, said David Berson, chief economist of Fannie Mae, the largest buyer of U.S. mortgages.
"We could see price declines in some parts of the country if we see areas fall into regional recessions," Berson said in an interview. He said he couldn't point to any area in danger of recession. "In most parts of the country, I expect to see home-price appreciation slow," Berson said.
The price declines seen in Massachusetts, New York and California in the early 1990s were driven by job losses, Berson said. Massachusetts prices fell 10 percent from 1990 to 1994, and California prices fell 13 percent from 1991 to 1996, he said.
"To see a repeat of that, we would need to see a repeat of the recession and job losses we saw then," Berson said.
In a balanced market, the ratio of home price to annual income is about 3 to 1, Retsinas said. In areas of California, the ratio has risen to 9 to 1, he said. Salinas, Calif., had that ratio in the first quarter, with a median home price of $545,000 and a median household income was $60,300, according to the National Association of Home Builders.
"When you see people reaching beyond their income to buy a house, you raise the risk level and end up with defaults and foreclosures," Harvard's Retsinas said. "What drives prices down quickly is forced sales."
For the nation, the median home price was $188,800 in the first quarter, and the median household income was $56,323, according to the National Association of Realtors. That puts the national ratio at 3.4 to 1.