Consensus: MA home prices will fall in 2011, rise in 2012

If you’ve been wondering when the Massachusetts real estate market will start rising, 2012 looks to be the year. That’s the consensus among 111 housing and economic experts surveyed recently by the financial and technology company Macromarkets.

The survey calls for MA home prices to fall in 2011, followed by higher real estate prices in 2012 and possibly for several years beyond.

MA homes price to rise in 2012

The Macromarkets survey covers 384 regional real estate markets across the U.S. Results are downloadable in a comprehensive .xls file. I did the download and created the following projection for select regions in MA:

MA home price projection 2011 - 2012

The Macromarkets survey calls for 2011 home price declines on the magnitude of 4.8% for the Cambridge-Newton-Framingham region and 4.5% for Boston-Quincy.

For 2012, Boston-Quincy home prices are projected to rise 2.2% while Cambridge-Newton-Framingham prices are pegged to climb 3.6%

The Worcester region of MA is forecast to experience roughly similar price performances in 2011 and 2012.

2013 and beyond

Macromarkets’ survey projections for years beyond 2012 are not provided for individual regions.  But they do exist  for the U.S. as a whole for the years 2013 – 2015:

Macromarkets US home price projections 2011 - 2015

The survey consensus calls for an increase in U.S. home prices every year from 2012 through 2015.

This upcoming 4 year consecutive run-up in home prices would be great news for the U.S. economy.

Such a rise is tantalizingly plausible and a look at the past real estate market cycle in Massachusetts helps lend credence to the forecast.

A look back to the 1990s

I took the opportunity to look at the Case-Shiller Home Price Index as it appeared after the lows of the last MA real estate market cycle back in the early 1990s; I used the seasonally adjusted Index for this analysis as it strips out the strong seasonal swings that typically influence MA home prices:

MA real estate prices 1990 - 1993

The early 1990s in Massachusetts did not see home prices rise in a straight line after the market hit bottom.  Prices zigged and zagged up and down for about 18 months after true bottom before moving into a prolonged upward rise.

You can see in the above chart that after a false bottom in 1991, the Massachusetts real estate market hit its true low point in early 1992.  After rising sharply for several months thereafter, the market bottom of 1991 was severely tested as home prices slipped for much of the rest of 1992.

Home prices surged again at the end of 1992 and early 1993 only to retrench again that spring.

In mid-1993 MA home prices began a pronounced,  long-term rise that ran through the rest of the decade and essentially kept going strong into 2005.

Short intense price surges made the difference

Despite the intra-year price volatility during the early 1990s detailed above, the yearly price performance figures for 1992 through 1995 look a lot like the 2012 – 2015 consensus forecast from Macromarkets.

The Boston Index rose 2% in 1992, 3% in 1993, and 2.9% in 1994.  A further 2.2% price rise in 1995 confirmed that home prices were clearly on the rise in Massachusetts.

The month-to-month volatility in 1991 though 1993 helped mask the overall trend of the market and proves how hard it is to “see” a market bottom while you are living through the events in real time.

Where MA home prices stand today

The forecast 2011 MA home price decline is being confirmed so far this year by the Boston Index.

MA real estate prices 2008 - 2011

The seasonally adjusted Index for Greater Boston has fallen 1.5% so far in 2011. (March is the latest month available in the Index.)

The Boston Index now stands 3% below its May 2010 high and only 1.6% higher than the market low of March 2009.

Some real estate experts are saying that the Federal home buyer tax credits helped boost home prices above what would have been their natural recovery trajectory through early 2010.  When the credits expired April 30, 2010, the price inflation ended and Massachusetts home prices began to stagnate.

2011 weakness a buying opportunity

It may be that the lows of early 2009 were the true market bottom in Massachusetts.  Or it may be that 2011 will see new home price lows.

Whatever the second half 2011 brings, the MA economy is doing a lot better than the rest of the U.S. and the consensus forecast is calling for a MA home price rebound in 2012.

There’s truth to the adage that “you have to be in it to win it”.  You’ll never perfectly time the market – if you want to buy, now’s the time.

Given the Macromarkets forecast, any further weakness in Massachusetts real estate prices in 2011 should be viewed as a buying opportunity for anyone looking to buy a home or investment real estate in MA.

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