Anyone who’s been involved — or even KNOWS someone who’s been involved — in a recent home sale or purchase in the Greater Boston area is likely well aware that we’ve been in a hyper-competitive, low-inventory, rapidly-appreciating market for the past several years. And while it may feel painful for anyone out there trying to purchase a home, in many ways, it is a positive, since it’s a reflection of our strong economy, low unemployment, and the fact that we live in a pretty great place where people want to put down roots. (Don’t get me wrong, I KNOW it’s brutal — especially on those trying to enter the market for the first time…)
And since the frenzy started back in 2012, one of the most frequent questions I get from clients, prospective clients, and actually just about anybody who knows I work in real estate is… drumroll please… “Are we in a housing bubble?”
It’s understandable people would wonder, since our current prices are well over the prices at the last market peak in 2005/2006, just before the national housing market took a serious dive. But a couple things are important to note:
As explained by Jonathan Smoke, chief economist at Realtor.com and Alan Clayton-Matthews, economist and professor at Northeastern University at a recent economics forecast seminar I attended, the last time we had a housing bubble in the US, there were a number of factors that created it — overbuilding, lots of speculative buyers (“flipping”), and very loose credit (no-doc loans, etc.). (Think, The Big Short.) This is a vastly different set of circumstances than today, and…
Cambridge and Somerville property values did not suffer as other parts of the country did, even then — prices mostly just leveled off and homes took a bit longer to sell, but a coinciding reduction of inventory and the law of supply and demand protected homeowners from ending up under water as happened in so many parts of the country. (The one area where prices did go down a bit was in the 02145 zip code of Somerville — Winter Hill and East Somerville — which is a bit further removed from the main squares and historically has been lower in demand.)
Okay, so if we’re not in a bubble about to burst, what WILL happen with real estate in 2017?
The general expectation is that, despite rising interest rates and the incoming Trump administration, our local real estate market will continue along much as it has — at least for the next year or so. Here are a few reasons why:
We are in one of the healthiest markets in the country with very low unemployment (3.2% in Greater Boston and 4.9% nationally) contributing to high consumer confidence — this is expected to continue
We have a high concentration of Millennials, and they, along with Boomers, are powering the market (Boomers actually love the area too, and many are trading in their large suburban homes for condos in our walkable cities.)
Though mortgage rates are going up, they are expected to rise slowly and stay under 5% this year (and actually, rising rates may cause more buyers to want to act sooner than later to get in before rates go up)
It’s expected that the incoming administration will greatly increase infrastructure spending and lower tax rates, which would likely have a positive impact on the economy, at least in the short-term
One change we have already started to see, and that could ultimately have larger impacts, is a softening of the rental market, especially at the high end. Some of the larger apartment buildings facing competition for tenants are now offering incentives like a free month’s rent, free parking, etc. — this may have a trickle-down effect and that, combined with the recent strong performance of the stock market, may shift investment away from real estate a bit, which could mean less competition for prospective owner-occupants — and that would be a good thing for a lot of people!
So, this is what we might see in 2017 — I say “might” because of course, we never know…