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

If you’re considering buying or selling a home in Massachusetts, we’re here to help! We can help you get the most out of your purchase or sale while we provide you with 5-star representation.

Start getting to know us by downloading our Client Welcome Kit.  Then contact us to schedule a free consultation – we’d love to hear from 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

No respite for home buyers

Massachusetts’ median home sale price already stands at a record high. But the Globe suggests that home buyers hoping that the red-hot Bay State housing market will moderate soon may be destined to be disappointed. An upcoming surge in new high-paying science and tech jobs could propel home prices even higher, according to the Globe.

(If the link is broken or leads to a paywall, you can access the article here.)

Video

Here’s a video on the Globe’s findings:

90 percent increase in Route 128 lab space in planning stages

Prominent in the Globe’s reasoning is the Globe’s report that 28 million square feet of new life science and biotech lab space in the Route 128 region have received construction permits. If all that lab space actually gets built, it would amount to a 90 percent increase over the 31 million square feet of space currently in service within Route 128!

The Globe notes that not all projects that receive permits get constructed. But even if only half of that 28 million square feet of new lab space gets built, that still represents a massive expansion of economic activity.

The Globe says that the Massachusetts technology and biotech/life-sciences industries are set to see significant growth in coming years, creating many new jobs.  And those new jobs will likely be accompanied by thousands of new state residents needed to fill them. 

New jobs require new housing

You shouldn’t keep adding jobs without building new homes to house the new workers.  But substantial new housing construction is just not happening in Massachusetts.

For a variety of reasons, major new housing projects are anathema in the suburbs comprising Greater Boston. For years, we have posted on the inadequacy of new-construction housing in Massachusetts:

The lack of new-construction housing in Massachusetts seems unlikely to change anytime soon, absent a revolution in Massachusetts’ overly restrictive, Byzantine zoning laws and permitting policies.

A floor under today’s high home prices?

The future is never clear, and there’s ample disagreement on the near-term outlook for housing. On a national level, some experts assert that US housing is undervalued. On the other hand, Robert Shiller, the dean of contemporary real estate analysis, has been quoted recently as believing that home prices have gotten ahead of themselves and that a mild home price correction is ahead.

For those seeking insight into the long-term prospects for Massachusetts real estate, look to the regional economy. The Massachusetts economy is underpinned by the technology, bio-tech, and life sciences industries. These engines of growth seem likely to continue creating lots of high-paying new jobs for years to come. The state’s vibrant knowledge-based economy should help insulate the local real estate market from any national downturn or mortgage rate shock.

There’s another bulwark against any protracted weakness in Massachusetts real estate. The very same lack of speculative new-construction housing developments in Massachusetts that is contributing so greatly to the dearth of supply in the current housing market will also help prop up local home values in the event of future real estate trouble. That’s simply because there’s not a lot of risky residential construction lending going on regionally. Few construction projects to fail means no widespread loan defaults to imperil local lenders. A repeat of the late 1980s real estate depression in Massachusetts seems highly improbable.

What this means for you

Due to the prospect for continued lack of housing supply and relentlessly strong demand, the Boston Globe could be right. Massachusetts home values could head higher in the 2020s. There may be bumps in the road – at some point mortgage rates may rise or the US will experience another recession – but you should not bet the farm on a coming real estate collapse in Massachusetts.

That prospect may dismay some of today’s home buyers hoping for a break in the torrid pace of the Massachusetts housing market. However, you could use this foreknowledge to your advantage: buy a home (or an investment property) and reap the long-terms benefits of that impressive generator of jobs and wealth, the Massachusetts knowledge-based economy.

If you find yourself priced out of Greater Boston, Central Mass is a good alternative. Below is a sampling of what $400,000 will get you in Worcester County:

Aim to buy a home in a good location that will serve your needs for at least the next five to seven years. Don’t fall for the false economy of “saving money” by purchasing a home that is too small for your long-term needs. If you’ll have to move again soon because you bought a home that wasn’t right for you, your transaction costs may consume any intervening price appreciation. You could end up losing money on the sale.

What’s best for you?

Contact me to schedule a free “Discovery Session”. We’ll discuss your individual needs and circumstances. I can help you assess your options and create a plan that makes you feel both comfortable and confident. Contact me today!

Copyright ©02038.com

COVID-19 did not disrupt the Massachusetts real estate market in 2020.  Instead of a pandemic-induced real estate slowdown, home sales and prices went on a tear.  Fueled by hyper-low mortgage rates, the median sale price of single-family homes in Massachusetts rose nearly 11% to hit an all-time high in 2020, according to MLS-PIN, the largest MLS in the Bay State. Single-family home sales volume on MLS-PIN also achieved a record level for the year.

2020 marked the eighth year in a row of rising home prices in Massachusetts. With real estate in MA so long into an up cycle, it seems a good time to step back and look for potential risks to the market going forward. The biggest uncertainty facing real estate in the Bay State appears to be mortgage rates. Where mortgage rates head this year will be a telling factor in how the market performs in 2021 and beyond.

Mortgage rates dropped to such record lows in 2020 that these low rates themselves represent a risk to the market. Because mortgage rates are now so low, a modest rise in rates would amount to a very large increase in borrowing costs on a percentage-term basis. (Here’s an example: a 50 basis point increase on the rate charged for a 30-year fixed rate mortgage from 3% to 3.5% seems negligible in absolute terms. But on a percentage basis, that represents nearly a 17% increase in monthly mortgage payments!)

Increases in borrowing costs in 2021 could slow demand for housing and put downward pressure on home prices. No one currently is predicting a significant rise in mortgage rates, but it’s something to be aware of as we head deeper into the new year.

The Year in Review

The advent of the COVID-19 pandemic didn’t put a dent in the Massachusetts real estate market in 2020. Fears of a market slowdown were widespread in March and April during the shutdown, but the worries proved completely misplaced. Instead, the second half of 2020 saw home prices soar across Massachusetts as demand exploded.  The buying frenzy began last summer and continued unabated throughout the fall.  Home buyers didn’t take a break, even for the holiday season.

Video recap of 2020

Below is a video that reviews the Massachusetts real estate market in 2020 and also touches on trends that may influence events in 2021:

Record high median home sale price

The median sale price of single family homes in the Bay State jumped nearly 11% in the year just ended, according to data maintained by MLS-PIN. 2020’s median price of $460,000 is 27% above where it was in 2005 at the top of the prior market cycle and nearly 59% higher than the low set in 2009 during the Great Recession.

Home sales volume rises despite low supply of available properties

Single family home sales volume on MLS-PIN set a record in 2020. More single family homes sold on MLS-PIN in 2020 than in any prior year of MLS-PIN’s existence (which goes back to the 1990s). 2020 marked the sixth consecutive year that single family home sales volume on MLS-PIN exceeded the previous market cycle sales record set back in 2004.

Ever-dwindling inventory of homes for sale

As you can see in the above chart, the supply of single-family homes listed on MLS-PIN has been in dramatic decline for years. But look carefully. In just the last twelve months, there has been over a 50% drop in listings on the MLS (from approximately 6,780 homes in January 2020 to just over 3,160 homes currently).

Pandemic-related uncertainties surely kept many homes off the market during 2020. But something more has been in play over the past ten years, which have seen a relentless decline in housing supply. A vicious cycle has taken effect. Prospective home sellers decide not to put their own homes on the market because there are so few homes for sale that they would want to purchase. The less there is for sale, the greater the number of potential home sellers who decide to stay put in their current housing. This leads to fewer and fewer available homes as the cycle feeds on itself.

Mortgage rates collapsed in 2020

30 year fixed rate mortgages averaged 3.8% at the start of 2020, according to MortgageNewsDaily.com. The average got as low as 2.7% during the year. This provided the supercharged fuel that powered the market upward during the second half of the year.

When rates rose in 2018, the market slowed

There’s something else to note in the rate chart above. In 2018, mortgage rates were on the rise. When the interest rate for a 30-year fixed-rate mortgage loan reached 5% in fall of 2018, the real estate market slowed noticeably. Luckily, mortgage rates entered a steep decline in the first quarter of 2019, so real estate sales in MA perked right back up. But take heed of that warning. Demand for homes deteriorated quickly in Massachusetts when mortgage rates rose.

The greatest uncertainty for real estate in 2021

Mortgage rates appear to be a potential achilles heel of the Massachusetts real estate market in 2021 and beyond. If interest rates were to rise, the dampening effect on the market could be significant.

There’s no consensus among experts that rates will rise in 2021. But there are plenty of reasons why a rise in rates could be a reality in coming months and years. Chief among those are the record Federal deficit spending and the massive injections of liquidity into the banking system by the Federal Reserve that have taken place in recent years. All those trillions of dollars sloshing around in the economy could become inflationary at some point.

Another potential precursor to higher interest rates has recently come to the fore. While we all have been distracted by the holidays and political turmoil in the nation’s capital, commodity prices have been rising sharply.

Copper, corn and soybeans futures all are up significantly. Oil prices have also been on the rise. The ten-year treasury bond rate has been going up in recent weeks, perhaps in response to these inflationary price trends.

If the Fed begins to combat inflation in 2021, even if it was just to start talking about tapering off its ongoing economic stimulus, market-driven long-term rates would likely rise.  Mortgage rates would surely follow suit. 

Because mortgage rates are currently so historically low, even a small rise in rates will, on a percentage basis, substantially Increase the carrying cost of housing. This could seriously dampen the Massachusetts housing market, just as occurred in late 2018.

Just a possibility

Rising interest rates are merely a possibility at this point. But prospective home buyers and sellers may want to take a prudent, strategic approach to their real estate plans for 2021.

Home buyers may want to protect themselves by buying sooner rather than later to lock-in historically low rates while they’re still in place. And home owners thinking of selling in 2021 (or even 2022) should consider expediting their plans and get their properties on the market. With so few homes for sale and home prices at all-time highs, now is a wonderful time to sell a home in Massachusetts!

Use the form below to seek guidance from attorney and real estate broker Warren Reynolds. He’ll help you with your buying and selling needs and guide you to success in real estate in 2021 and beyond!

Copyright ©02038.com

The median sale price of single family homes in Massachusetts sold on MLS-PIN now stands 14.6% above its prior market-cycle-high set back in 2005 and a sizable 43% higher than its 2009 Great Recession low.

Mortgage rates moving the housing market

The Fed’s dramatic easing of monetary policy at the end of 2018/start of 2019 immensely helped the housing market as 2019 unfolded.

As detailed by Mortgage Daily News, average 30-year-fixed mortgage rates fell sharply from the end of 2018 into 2019.  From a high of about 5% in December 2018, the average 30-year mortgage rate had fallen as low as 3.5% by last fall.  The decline boosted home buyers’ purchasing power significantly and powered gains in home prices throughout 2019.

Strong sales performance

The number of Massachusetts single family homes that sold on MLS-PIN in 2019 rose marginally over 2018’s total.

As detailed below, 2019’s sales volume gain came during a year of relentlessly low housing inventory.  So the fact that there was any rise at all in the number of homes sold in 2019, even a minimal increase, actually is a very bullish indicator.

Crushingly low supply of homes for sale

2019 showed no mercy to Bay State home buyers in terms of housing choice: it was yet another year of low housing inventory.

The chart above shows the number of single family homes for sale on MLS-PIN each January 15 for the last fifteen years; it paints a very clear picture of the extremely low numbers of homes for sale in Massachusetts throughout 2019. 

The chart below demonstrates the scant supply of homes for sale in another way: it shows how many months of housing supply there are in Massachusetts.

It’s very telling that a two-month supply of available homes, last seen in 2016, looks downright ample compared to how low supplies are at the start of 2020. 

Conventionally, a six-month supply of homes is deemed a housing market in equilibrium. A four-month supply typically denotes a market favoring home sellers.  It’s shocking that, in the first month of 2020, we are faced with less than a one-and-one-half-month of supply of homes for sale across Massachusetts and in all the sub-markets represented in the above chart.  Today’s abysmally low inventories of homes for sale should serve as warning to all prospective buyers about the upcoming spring home buying season: if you find a home for sale that works for you, buy it immediately!

Franklin, MA housing in 2019

To get a sense of how the housing market fared in Franklin, MA during 2019, start by taking another look at the chart above showing the months of supply of homes: there currently is in Franklin, MA LESS than a one-month supply of single family homes – that’s dire!

Here’s how the current supply of homes for sale in Franklin breaks down by price bracket:

There’s very little supply in every price bracket below $800,000.  And it was pretty much like that throughout all of 2019!

Franklin median price at record high

Given how depressed the supply of homes has been in Franklin in the last few years, the median sale price performance in Franklin for the year was fairly muted.

The median sale price of single family homes in Franklin, as reported by MLS-PIN, rose 2.3% in 2019 compared to the median price for 2018.  Franklin’s median sale price for 2019 is only 3.5% higher than it was at its 2007 prior market-cycle high. Franklin remains a relative bargain in the Greater Boston area!

So while supplies are tight and home prices certainly are at all-time highs in Franklin, MA, prospective home sellers in town should resist the temptation to push the asking price envelope in 2020.  Even in the current pro-seller market, significantly over-priced homes will face resistance from the home-buying public.

Home sales volume in Franklin slips

For the first time in the last five years, the number of single family homes sold in Franklin on MLS-PIN fell in 2019.  The decline was a slight 3.6%.  More housing inventory in 2020 should be the cure for any sags in home sales volume in Franklin this year.

©2020 02038.com

Mortgage interest rates collapse thirty percent as Massachusetts economy booms

After peaking at approximately 5% in November of 2018, the average interest rate for 30-year fixed mortgages abruptly reversed course at year’s end and embarked on what became an historic plunge in 2019. 

By this September, the average interest rate for 30-year fixed mortgages was at an astoundingly low 3.5%.  That’s a 30% drop in mortgage borrowing costs from late last year – a boon for home buyers and sellers alike!

Rates drop while local economy booms

What makes the drop in mortgage interest rates over the last ten months so extraordinary is that the decline took place against a backdrop of a healthy national and local economy.  Economic conditions in Massachusetts, after a string of strong years since 2016, have been particularly robust in 2019.

The Massachusetts economy ranked as the third best in the country in a recent survey published by WalletHub.

All-time high home prices

The strong Massachusetts economy and low mortgage rates helped send MA home prices to all-time highs by mid-year. 

The median sale price of homes in Massachusetts is now a whopping 47% above where it was back in 2009!

What this means for home sellers

Prospective home sellers in Massachusetts have hit a literal trifecta of market conditions: a thriving economy, near-historic-low mortgage rates, and record-high home prices. If your current home no longer suits your long-term needs, the current market presents a once-in-a-generation opportunity to sell and move to a better place to call home!

Home buyers benefit, too

Today’s ultra-low mortgage rates mean the effective cost of owning a home has dropped significantly since late last year.  And with the Massachusetts economy producing so many high-paying new jobs, the outlook for solid long-term career prospects looks good.  

So seize the opportunity to lock in a very attractive mortgage rate by buying a home this fall.  You may be very glad next spring that you did not wait!

If you’re looking for a community in which to put down roots, Franklin, MA deserves your careful consideration.

Copyright ©2019 02038.com

Home sales on the upswing

After a dip in the spring of 2018, single-family home sales volume recovered nicely this year.

The two percent rise in single-family home sales volume in the Commonwealth so far in 2019 is very significant, coming as it does on the heels of notable market weakness last fall.  Demand for homes has been very strong in Massachusetts since mortgage rates fell in December.  The vigorous pace of sales this spring appears likely to continue during the summer, given the booming MA economy.

Home prices remain on the rise

The median sale price of single family homes in Massachusetts continued to climb this spring.

Fueled by good economic times and attractive mortgage rates, the median sale price of single-family homes in Massachusetts has jumped nearly five percent on a year-to-date basis as of May 15.  Strong demand, as evidenced by the overwhelming attendance at many open houses in the greater I-495 market this spring, should continue to move homes prices higher in coming months.

Too few homes for sale, despite inventory uptick in 2019

While there are more single-family homes for sale this May compared to May of last year, the supply of available homes remains extremely limited in light of avid demand.  With an overall population gain exceeding 335,000 in the last eight years . . . 

 . . . the Commonwealth of Massachusetts is faced with a severe shortage of housing.

The above chart shows single-family housing inventories for select geographic areas of Massachusetts and for the Commonwealth as a whole, expressed as months of supply.  The chart shows that inventories have risen somewhat this May, compared to May 2018.  (The Town of Franklin has seen its supply of homes decrease this spring.)

Home buyers can take little comfort in the build-up housing inventories shown above, because the MA housing market remains severely out of balance in the favor of home sellers.  Six months of supply is considered a market in equilibrium.  Four months of supply typically denotes a sellers’ market.  With current inventories of approximately three months in most of the regions shown above, and even less in the Town of Franklin, the housing market remains strongly tilted towards home sellers. 

Best advice for home buyers

Keep trying!  The long-term benefits of homeownership are undeniable and well worth the grind of showings, open houses and competing offers.  You’ll “make your luck” by keeping in the game and working with a caring real estate agent with a lot of patience!

For home sellers: price properly

Given the strong market conditions, you will be tempted to set your asking price high. Sometimes that can be a big mistake! Many home sellers who price too aggressively regret their high-price strategy after weeks – and even months – of sitting unsold on the market.  You’ll find that a more reasonable initial asking price designed to seem compelling to buyers will bring you a better sale, and at a better price, than you’ll achieve by starting at the outer edge of your property’s value range. Contact me for advice on effective pricing and marketing!

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At $450,000, the median sale price in Franklin is the highest for the first quarter of any year on record, according to the data maintained by MLS-PIN!  The median sale price of single family homes in Franklin rose 4.7% during the first three months of the year, compared to the same period one year ago.

Record high home prices for all of MA

It’s the same “record high price” story for all of Massachusetts as well.

The MA median single family home sale price rose 5.5% in the first quarter of the year to $385,000, an all-time high.  That’s a gaudy 51% higher than where the Commonwealth’s median sale price stood back in the first quarter of 2009!

Drop in mortgage rates helped market

The rise in home prices in Franklin and the rest of Massachusetts in the first three months of 2019 is all the more impressive given the significant weakness the MA housing market experienced during the fall of last year when 30-year mortgage rates hit 5%.

The higher rates hurt home buyers’ purchasing power and triggered a sharp drop-off in housing demand last fall.

Fortunately, mortgage rates plummeted as 2018 ended, reinvigorating home sales in the Commonwealth.   The drop in rates continued throughout the first three months of 2019, further boosting home buyers’ purchasing power during the first quarter.

MA home sales volume strong in the first quarter

The stimulative effect on demand of those lower mortgage rates certainly is reflected in the number of homes that changed hands in Massachusetts during the first three months of the year.

After such a weak housing market last fall, it is highly significant that home sales during the first quarter of this year on MLS-PIN exceeded the sales total posted during the first quarter of 2018.  That’s clear proof that housing demand rebounded as mortgage rates fell!  Thanks to the decline in interest rates, this is the fourth year in a row that first quarter home sales on MLS-PIN exceeded the 8,500 mark. 

Outlook for the rest of 2019

How well the MA housing market performs during the rest of 2019 seems dependent on the direction of mortgage rates.  Both the local and national economies appear strong, so a recession this year seems unlikely.  Absent some shock to the US economy from abroad, the only creditable risk to local housing in 2019 would seem to be another rise in mortgage interest rates along the lines of what took place last year.  As we saw last fall, demand for housing withered as mortgage rates neared and then topped five percent.  Unless mortgage rates spike at some point this year, the table appears set for a healthy housing market in Massachusetts for the rest of 2019!  

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The latest reading of the benchmark Boston Index stands at 217.28, 20% above its 2005 prior market cycle high of 180.81. That’s 45.7% above the Index’s 2009 low of 149.05 set during the Great Recession.   The rise in home prices in Massachusetts has been accompanied by an inadequate supply of homes for sale, which has gotten progressively worse every year since 2015.

Boston Globe cites huge home price run up in formerly depressed areas

It’s no secret that the Massachusetts housing market has been on a broad upswing since 2012, with home prices rising relentlessly over the last seven years.  A recent article in the The Boston Globe confirmed that the home price surge has materially impacted home values in many of the Bay State’s most economically challenged communities.

Citing statistics from the Massachusetts Association of Realtors, The Boston Globe reported that the median sale price of single family homes in Massachusetts increased 33 percent from 2012 to 2018.  The Globe article went on to highlight the disproportionately greater increase in home values during those seven years in traditionally low income, former industrial cities such as Lowell, Lawrence and Lynn:

“But prices in Lawrence almost doubled in that time period, rising 95 percent; Lynn saw an 85 percent increase. Likewise, Brockton house prices have risen 97 percent since 2012, compared with 38 percent in Plymouth County.”

Why the home price surge in old industrial cities?

What’s behind the huge percentage increases in home prices in many of the former mill cities of Massachusetts?  The Boston Globe points to two factors.  First, home prices in these communities fell precipitously after the financial crisis of 2007 and the ensuing Great Recession.  The median home sale price in these hard hit areas bottomed at such low levels that their rebound since 2012 has been amplified on a percentage basis.

According to The Boston Globe, the second cause of the current real estate renaissances underway in many previously depressed Massachusetts cities is affordability: these areas offer some of the last pockets of reasonably priced housing in Eastern Massachusetts.

Affordable housing may be the initial draw, but what is making people chose to live in what were some of the most down and out areas in Eastern MA is the advantages these cities offer to younger buyers: proximity to mass transit and walkable neighborhoods close to commercial uses, restaurants and bars.

What Massachusetts really needs is more housing

While it is encouraging to hear how buyers are fueling a real estate rebound in postindustrial cities like Brockton and Fitchburg, what all of Eastern Massachusetts sorely needs is new housing, and lots of it. Exclusionary zoning, frustratingly byzantine permitting rules, and a deeply entrenched “not in my back yard” aversion to new housing have killed the construction of affordable homes in Massachusetts for many years.

Calls for the easing of barriers to the construction of housing in Massachusetts are nothing new.  These pleas and warnings have mostly fallen on deaf ears.  But until the powers that be in the Commonwealth summon the political will to untangle the modern day Gordian Knot of laws and regulations that so severely restrict housing starts in Massachusetts, we will continue to have sky high home prices and a crushingly inadequate supply of homes for sale that endanger the future economic health of the Bay State. 

Copyright ©2019 02038.com

While some open houses still draw crowds and some homes still sell within days of hitting the market, other listings now can sit unsold for weeks, and sometimes even months.  The lessening of the intensity of demand is giving buyers more available homes to choose from and more time to look at listings and consider their options.

Home buying frenzy subsides as MA economy flourishes

The tempering of demand for housing has taken place against a backdrop of a Massachusetts economy that is thriving. High paying jobs in the technology, biotech and life sciences industries are plentiful and well educated new residents continue to flow into the Bay State seeking to better themselves (and buy homes).

In fact, the economy in Massachusetts is so good that the Urban Land Institute, an influential real estate research and education nonprofit, recently issued a report citing Greater Boston as presenting one of the nation’s top real estate investment opportunities for 2019.   

Opportunity to buy a home or the start of a downturn in residential real estate?

So how should prospective home buyers respond to the current deceleration in demand?  Should they put their home buying plans temporarily on hold in the hope that we are at the start of a significant downdraft in the market that may lead to lower home prices in coming months?  Or, with the Massachusetts economy so strong, is the current slowing of demand more likely to be only a temporary blip which offers a short term buying opportunity, after which demand will accelerate again? 

Possible answers to these questions are reviewed in the discussion below.  But I’ll summarize my best advice here: buyers who have been stymied by the previously torrid pace of home sales in Massachusetts might be very wise to take advantage of the current lull in demand for homes.  Home purchasers on the sidelines might want to seize the initiative and make offers on homes while the market balance is more favorable to them.  There is no way to reliably forecast whether the Massachusetts housing market will weaken or strengthen next year, especially given the ongoing rise in mortgage interest rates.  But, in light of how strong local economic conditions are now, there is  a very legitimate chance that 2019 will see a resumption of upward momentum in demand.

Market remains active despite the cool down in demand

The recent cooling in the temperature of Massachusetts real estate market seems so far to have been only relative. While no longer in overdrive, the housing market remains pretty darn strong.  In fact, the recent sales statistics present a very solid picture:

The above chart looks at second half homes sales on MLS-PIN to date (as of October 15) this year compared to 2017.  Three geographic markets are surveyed: all of Massachusetts, the eastern part of the state, and the Town of Franklin.  In all three, median sale prices are up, average days to offer are lower, and there has been no significant decline in the number of homes changing hands.  So if one is looking for evidence of an upcoming real estate market correction, there’s nothing in the above market statistics to hang your hat on.

Sizzling MA economy should support home demand in 2019

The Massachusetts Executive Office of Labor and Workforce Development announced recently that the state’s unemployment rate currently stands at a very low 3.6%.

In making the announcement, the Office cited statistics showing that the Massachusetts economy added over 68,000 new jobs in the last twelve months.  

A recent article in the Massachusetts real estate trade publication Banker and Tradesman describes how booming wage growth in Massachusetts is powering the commercial real estate market in eastern Massachusetts:

Below are excerpts from the Urban Land Institute survey mentioned earlier in this post.  The excerpts show the outstanding outlook for commercial real estate in Greater Boston in 2019:

None of the above reads on the Massachusetts economy and commercial real estate market indicate the prospect of any imminent significant weakness that could trigger  a meaningful downturn in residential housing values in the Bay State.

The 2014 MA real estate slump was a buying opportunity

On the other hand, the fact that the Massachusetts economy is so strong does not guarantee that home prices will not fall in 2019.  The most recent case in point took place in Massachusetts back in 2014.  Most everyone likely has forgotten that, out of the blue, the Massachusetts housing market swooned in 2014.

After a very strong spring 2014 home selling season, MA home prices dropped as housing demand suddenly softened. The Case-Shiller Boston Index dropped 2.6% over a period of three months.  Toward the end of the year, local news media were lamenting the unexpected decline in the health of the state’s real estate market.

To the relief of home sellers across the Bay State, the 2015 market saw a strong rebound in buyer demand.  Home selling prices moved a lot higher over the succeeding three years, right up to today.  In hindsight, the weakness of 2014 was temporary and ended up being a very short-lived buying opportunity.    

Mortgage rates on the rise

The major differences between 2014 and the present are the strength of the economy and the direction of interest rates.  In 2014, both the national and Massachusetts economies were not nearly as strong as they are today.  In addition, mortgage rates in 2014 were on the decline. 

Mortgage rates in 2014 (in yellow)

The sharp decline in 30 year fixed-rate mortgage rates from a high of approximately 4.5% in January 2014 to a low of about 3.6% in January 2015 represented a sizable 20% reduction in home buyers’ borrowing costs.  This gave buyers a big boost in buying power and may have helped drive the market (and home values) higher.

So far this year, mortgage interest rates have risen significantly.

Mortgage rates in 2018

From about 4% at the start of the year, the average rate for a 30 year fixed-rate mortgage now stands at nearly 5%.  That’s a 25% increase in borrowing costs!  The rise in interest rates may have been a major contributor to the cooling of home buyer demand this year.

Interest rate outlook for 2019

The current forecast for 2019 is for further increases in mortgage interest rates.  The Fed is expected to tighten again this December and may raise rates three more times in 2019.

That being said, a 30 year fixed-rate mortgage at 5% (or even 6%) would still be very attractive, given how much higher mortgage rates have been for most of the last forty years.

Given how vibrant the Massachusetts economy is, higher mortgage rates (even if they approach 6%) may not seriously dent the MA real estate market in 2019.

When is the right time to buy a home?

There’s an old saying in real estate: “The right time to buy a home is when it’s right for you!”  Some home buyers may be tempted to postpone their purchase plans in hopes that the current slackening of demand will persist into 2019 and result in lower home prices.  The risk in trying to time the market in 2019 is the strong Massachusetts economy.  A growing economy will typically trump rising rates in terms of affecting the direction of the real estate market.  Unless the local economy falters in 2019, next year may very well see continued healthy home sales volume and stable-to-rising home prices in Massachusetts. 

Today’s slower paced market gives buyers the chance to find, and buy, the home that’s right for them.  So if you’re a prospective home buyer who has been deterred from buying by all the competition from other buyers the last few years, you now have the opportunity to “make your luck” by buying a home now while there are not as many buyers at most open houses and you have some precious breathing room!

Please contact me for my help and advice in buying or selling a home or investment property anywhere in Massachusetts!

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The Case-Shiller Home Price Index for Greater Boston has risen for 11 straight months, and has been powering upward since 2012.  At its most current reading of 213.48, the Index is 18 percent higher than its prior high point back in 2005, at the top of the last market cycle.  The Index now stands 43 percent above where it was in 2009, the most recent market bottom.

Boston Bubble or are high prices endemic to Greater Boston?

Current conditions in Eastern Massachusetts are so robust that the “B-word” is being bandied about in the media: There is talk about the possible beginnings of a real estate bubble in Greater Boston.

A recent editorial in the influential real estate trade publication Banker & Tradesman sought to contradict the new Boston Bubble theory.

Banker & Tradesman argues that the current low housing inventory and high home prices in Greater Boston are a natural function of supply and demand.  The editorial asserts that the booming Massachusetts economy has created so many new jobs and drawn so many new residents to the Bay State that demand for housing is overwhelming supply.  It’s the excess demand for housing, created by the vibrant MA economy, that is driving the real estate market upwards, not the speculative frenzy that characterizes an economic bubble. 

Longer view of the MA housing market cycle

That the folks at Banker & Tradesman are analyzing the Greater Boston housing market correctly becomes clear when one takes a longer term view of the market’s performance.

The bulk of the historic rise in Greater Boston home values over the last 30+ years took place during the 13-year-long bull real estate market of the 1990s and early 2000s.  From a low of 63.56 in February 1992, the Boston Index rose 185 percent to a high of 180.81 in November 2005.  Even the vicious Great Recession of 2007 – 2009, the worst national economic catastrophe since the Great Depression, failed to undo the majority of those gains.  The Massachusetts real estate market was badly dented by the Great Recession, but it did not break.  Since 2012, the Boston Index has recouped all its losses and has moved on to new highs

Don’t bet against the MA real estate market

The knowledge-based Massachusetts economy lies at the heart of the Greater Boston real estate market’s amazing price performance since the mid-1980s.  And with the advent of the life sciences and biotech industries in the Bay State, it seems highly unlikely that the Commonwealth’s economy will become moribund in coming decades.  Boston does not appear likely to suffer a decades-long loss of jobs and population along the lines of Detroit!

My point is that a future downturn in the Massachusetts real estate market (and there surely will be one) will be cyclical, not permanent.  A future downturn, even as severe as the one during the Great Recession, will not obliterate the enormous home price gains of the last 30 years. Yes, there will be ups and downs in MA home prices as economic expansions and recessions unfold in the future – that’s only natural.  But the overall trend in Massachusetts home prices seems inexorably on the upside. The overall uptrend in homes prices will endure for a good, beneficial reason: the Massachusetts economy makes the Commonwealth a wonderful place to build both a career and a future! 

So the best advice to be given to today’s beleaguered home buyers is: don’t try to time the real estate market!  Buy a home when the time is right for you. Don’t succumb to the temptation to put off buying in hopes that home prices will be significantly lower at some point in the future.   Remaining a renter and paying high rents for years in hopes that home prices will fall is a losing proposition. 

Yes, another economic downturn will come.  And yes, Massachusetts home values, at that time, will surely take a hit.  But, just as surely, another boom cycle in home prices will come as the economy recovers, as it always will.

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