The short answer is: home values are not necessarily going to fall! And that’s because, going back to the 1980s, stock market crashes alone actually have had little adverse impact on the Massachusetts housing market.

By looking back over the last 35 years at how Massachusetts real estate fared during the three most recent US stock market panics, it becomes clear that the health of the Massachusetts economy, not the direction of the stock market, has been the deciding factor in whether local real estate values went up or down.

Stock crashes and MA real estate

The last three stock market crashes in the US have been in the Black Monday Crash of 1987, the Dot-Com Crash of 2000 – 2002 and the Global Financial Crisis of 2007 – 2009. The three charts below show how the Massachusetts real estate market performed during each of these stock panics. They compare the performance of the S&P 500 Index with the Case-Shiller Home Price Index for Greater Boston during each financial crisis. What you’ll see is that stock prices and real estate values do not dependably move in tandem.

The 1987 Black Monday stock market crash

As shown in the chart below, a 37% decline in the S&P Index in late 1987 had no negative effect on Greater Boston home prices. In fact, the Case-Shiller Greater Boston Index rose nearly 1% during the fall of 1987, and held steady during the following year, despite the dramatic stock market crash of 1987.

Looking in the chart at 1989 makes it very clear that there was a complete disconnect between stock values and Massachusetts home prices: as stock prices soared in 1989, the Case-Shiller Index began to sag. Massachusetts home values proceeded to fall sharply in the early 1990s as the Bay State’s mini-computer industry collapsed.

The Massachusetts real estate market experienced what became a near-depression in home values in the early 1990s, not because the stock market crashed in 1987, but because of a disastrous downturn in the regional economy.

The Dot-Com Crash

The lack of any correlation between falling US stock prices and Massachusetts real estate is amply demonstrated in the next chart below. In the early 2000s, US stocks were hammered by the busting of the Dot-Com bubble. The S&P Index withered, yet the Case-Shiller Index for Greater Boston zoomed ever-higher.

Massachusetts real estate boomed in the early 2000s because the Massachusetts economy was vibrant and expanding. The strength of the Massachusetts economy trumped the weakness in US stocks. Anyone who sold real estate in the Bay State in 2001 because the stock market was falling missed out on a lot of appreciation!

The Global Financial Crisis that started the Great Recession

The third chart below shows that if a stock panic’s wealth destruction is severe enough to trigger an economic recession that affects Massachusetts, then the Massachusetts housing market will be at risk.

We all remember the dire days of 2007 through 2009, when US financial markets seized-up, the banking system neared failure, and government bail-outs saved major US corporations and whole industries. The Massachusetts economy entered a deep recession and Massachusetts real estate took it on the chin: the Case-Shiller Index for Greater Boston fell 12% between January 2007 and January 2012.

Lessons from three stock market panics

Looking back at the last three major stock market panics in the US, the catch phrase from the 1992 Presidential campaign comes immediately to mind: “It’s the economy, stupid.” The Massachusetts real estate market will follow the Massachusetts economy, not gyrations in the stock market.

In 2022 and beyond, if the local economy remains strong, local real estate should do fine, despite the current stock market panic. If the Massachusetts economy enters a recession, Bay State real estate values will fall, no matter what the US stock market is doing.

So keep your eyes on the local economy. (We’ll discuss the economic outlook with inflation and rising interest rates in another post.) For now, just remember: the Massachusetts economy will dictate where Massachusetts home values head!

Help and support for you

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S&P 500 historical data by Henry Han via Kaggle.com
Case-Shiller Greater Boston Index by S&P CoreLogic Case-Shiller Home Price Indices

End of Federal housing support a concern

This optimism about US real estate comes despite widespread concern about the scheduled end of two important Federal initiatives currently supporting the US housing market.

BusinessWeek.com recently published an article discounting worries about the coming expiration of the two Federal home buyer tax credits and the announced end of the Federal Reserve’s massive $1.25 trillion purchase program bolstering the US mortgage-backed securities market.

Stronger economy and affordable homes reasons for confidence

The BusinessWeek article cites housing analysts who point to a brighter job outlook, low mortgage rates, and more affordable home prices across the nation as the main reasons for optimism about the outlook for housing. 

The article speculates that the US housing market may keep improving despite the April 30 wind-down of the home buyer tax credits and the end of the Fed’s extraordinary purchases of mortgage-backed securities.

Quoting from the article:

“A growing number of economists believe that a pickup in employment this spring, cheap credit, and a glut of affordable homes will allow housing not only to withstand the removal of government help in 2010 but also to contribute to U.S. annual economic growth for the first time since 2006.”

Worst over for housing because of jobs growth?

Citing improving employment figures in Massachusetts, the Boston Globe recently called the end of the recession in MA. 

The stronger local jobs market should greatly help real estate in Massachusetts.

The nationwide employment outlook is also improving, albeit at a much slower pace than in Massachusetts.

BusinessWeek cited a forecast by Morgan Stanley economist David Greenlaw calling for as many as 300,000 new U.S. jobs in March, the biggest monthly increase in four years.

The BusinessWeek.com article does detail continued risks of a national real estate “double dip” but concludes with the speculation that while the improving national job market “doesn’t portend a robust (real estate) rebound, it suggests the worst may be over for housing.”

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New jobs in technology, health care and education

The Globe interviewed Gus Faucher, director of macroeconomics at Moody’s Economy.com.   Faucher said the Massachusetts economy entered a recovery earlier this year.  He cited strong job creation in the state’s substantial health care and education sectors and increased worldwide demand for Massachusetts technology products and business services.

You can read the whole Globe article here.

Economic growth key to improving housing market

As the economic recovery takes hold in Massachusetts, we should see increased home sales and firmer real estate prices over the next 12 to 24 months.

 It is generally recognized that a growing economy is the best predictor of a future rise in home prices.  Low mortgage interest rates can help bolster home sales, but healthy job creation forms the most durable base supporting any real estate market.  

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Prices of Massachusetts homes for sale to rise?

Prospective home buyers should not expect any significant declines in MA home prices in coming months. The risk for home buyers sitting on the sidelines would seem to be the potential for future home price increases.

The front page Globe article cited findings from economic analysts that “signs of an earlier recovery are already emerging in the state as employment losses slow to a crawl, leading sectors add jobs, and the housing market rebounds.”

MA economy improving

The article contains a lot of useful insights into improving economic conditions in the Commonwealth and is very good reading.  You can access the whole Boston Sunday Globe article here.

Home sales rise

The Globe took a very positive stance regarding prospects for the MA real estate market:

“Home sales, adjusted for seasonal variations, have soared nearly 50 percent in the state since hitting bottom in January, compared with less than 20 percent nationally.”

An interesting graphic accompanies the article.

It shows the relative strength of both the MA jobs and housing markets compared to the nation as a whole.  It’s very nice for Massachusetts to be on the stronger side of  the national economic divide!

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