That’s when the Federal Reserve started tightening the screws, ending our sugar high of historically low interest rates in an attempt to get a hold on inflation. The post-covid-lockdown period has certainly come with a variety of challenges and uncertainty.
As we start to transition into this period, it’s worth asking what the housing market is transitioning to.
Do you think it could be...normal?
3% interest rates are certainly not normal. Having 50 buyers bid on a house is not normal (as nice as it was for sellers).
I’m not trying to say that high interest rates are a good thing.
But what, historically, is a high interest rate? 5%? 6%? Is even 7% a high rate? Not historically. Just for perspective, I’ve got folks in my office who laugh and tell me, “I bought my first place at 18%!” (BTW, that's most assuredly not normal either).
Here is a link to the history of mortgage rates over the last 50 or so years.
Even at higher interest rates, the sky will not fall. Sellers will still be getting a nice return on their home. Buyers will not have to get into ridiculous bidding wars over homes. There is no bubble to burst.
Will a recession come? Maybe not tomorrow or even this year, but...Yes! They always do!
Here's my recession story: I bought my previous home in August of 2008. I paid $640,000. In 2010, in the middle of a historic economic meltdown, the unit next door to mine, essentially the same unit, sold for $575,000. In 2020, I sold my unit for $1.1m.
Let’s get a grip on what we have here in the Boston area: A super-strong economy with varied industries creating thousands of jobs. A vibrant city that is the envy of most of the rest of the country.
Over the last decades, Boston real estate has been a super investment.
Even in the 2009 meltdown, we saw minimal losses and a vibrant recovery. At this time, our market is much healthier. Home equity far surpasses what it was then. The average credit rating of current mortgage borrowers is significantly higher. The structural problems in the mortgage industry have been mitigated to a high degree.
And one more thing: Inventory. Levels of inventory here over the last 20 years or so have been low relative to most other markets. Absorption rates reflecting low levels of inventory, the envy of most other locations in the country, remain remarkably steady, even in relatively hard times, aside from a few spikes. As of June 15th, 2022, we had only 2.44 months of inventory in our downtown neighborhoods. For the same period of 2020 as we were emerging from Covid lockdown, we had 2.94. During 2009-10, they were higher, but nothing approaching the levels of unsold inventory we were seeing in other places.
If you just look at our neighborhoods in Boston, Brookline, Newton, Cambridge, Somerville, and our other local inner suburbs, you realize that there is little opportunity to build vertically (at least for non-uber-high-end housing), and there is virtually no room for sprawl (until you get to the more outlying suburbs). So for property owners, there is built-in value protection over the long run.
So long story short, "normalization" means that there will be less competition for properties (you may even score a great property without any competition!), and less sharp property value inflation.
Here is the detailed market report for *all* Boston neighborhoods and inner suburbs.
If you have questions about buying or selling Boston real estate, please call me at 617-584-9790, or send me an email at joe.wolvek@gibsonsir.com.
