The question on the minds of many homeowners in Massachusetts is whether the current panic on Wall Street, which has seen major stock indices slide between 20 to 40 percent, will cause home prices to fall. Will the 2022 stock market crash derail what has been, up to now, 10+ years of rising real estate values in the Bay State?
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!
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