The market will stabilize — but don’t expect boom
The Massachusetts housing market will remain stable in 2011, with no dizzying ascents or dramatic drops.
With home buyer tax credits of up to $8,000 long gone, the new year should see more natural balance between supply and demand. An improving economy should entice more potential buyers to take the plunge, while sellers, who have been waiting out the downturn, put homes on the market in hopes of stronger prices and better bargaining power.
Foreclosures, meanwhile, will slow in 2011 as the number of struggling homeowners decreases, either because they have already lost their properties or were helped by the improving economy. Between January and November of last year, foreclosure petitions, the first step in the home seizure process, declined. That will translate into fewer homes taken this year.
Still, the climb will be slow and long. Home sales, which slowed significantly during the second half of 2010, should pick up slightly in the spring, but will still be restrained by tight credit, tougher lending standards, and lingering economic uncertainty. Interest rates, which hit historic lows in 2010, won’t set any new records. But they should not spike over the next year.
Home values won’t budge much either. Prices in Massachusetts are largely anchored by the relatively small inventory, which creates competition among home buyers. In the past, that has led to quickly rising prices. But overall housing prices will be restrained by the large number of foreclosed homes heading into the market, especially in the suburbs and rural areas of the state.
The state housing market, of course, is an amalgamation of smaller and diverse local markets. Homeowners in Boston’s downtown and higher priced suburbs, where values held up relatively well during the recession, should see some lift in sales and prices as wealthier residents grow increasingly comfortable spending again. Lower income communities, however, will still struggle because of stricter lending requirements that will deter many first-time and moderate-income home buyers.
Massachusetts homeowners were hurt less by the national housing downturn that wiped out billions of dollars in home equity. Nationally, median home prices dropped by more than 30 percent in the downturn, compared to 20 percent in Massachusetts. Since hitting bottom in 2009, home values here have increased by about 7 percent — with some dips and surges along the way.
Most housing industry analysts do not expect 2011 to provide any surprises, but then again, few predicted the recession in 2008. Paul Willen, a senior economist at the Federal Reserve Bank of Boston, said it’s difficult to predict the exact moment when buyers will stop worrying that homes will lose value and start to panic that values will rise rapidly, leaving them priced out of the market.
“The minute it happens, it is sort of a surprise,’’ he said. “Unexpected things happen in the housing market a lot more than they should.’’
Jenifer B. McKim can be reached at firstname.lastname@example.org.