The beleaguered Massachusetts home buyer finally got a break this fall after years of relentlessly low listing inventories and skyrocketing home prices: there has been a noticeable slowing recently in the previously frenzied pace of the MA real estate market. Heated bidding wars have become something of a rarity, instead of the expected norm.
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.
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.
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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