Will Greater Boston home prices rebound with the economy?
The short answer is maybe, but not so fast.
It's a pretty key question right now - especially for buyers weighing whether to commit now or stay on the sidelines longer.
Thanks to Sean, a first-time buyer in West Roxbury, for throwing the topic my way.
I see two competing scenarios here - each compelling. One is a return of a 1990s-style stagnant market, where prices take years to really start moving again. In the other, prices fall again in the months ahead.
Let's start off with the first possibility.
Greater Boston home prices spiked in the 1980s, before crashing and burning at the end of the decade right through 1991.
Then a funny thing happened - the economy started growing again, but home prices in the Boston area and across the country didn't do much of anything for the next few years.
Yes, the GDP numbers looked OK, but the job market stunk to high heaven - remember all the angst about downsizing?
Check out this Case Shiller chart, which shows a rough flattening out of Greater Boston home prices after the housing market crash from late 1988 through 1991.
While the economy technically was no longer in recession through most of the early and mid-1990s, job creation lagged. At least in the Boston area, hiring did really start to take off again until 1996 and 1997.
Still, there's also another, maybe even more valid scenario at this point.
The Great Recession we are slowly crawling out of now bears more of a resemblance to the Great Depression than the early 1990s downturn.
That means we may not see prices stabilize at lower levels over the net few years, as in the mid-1990s, but rather fall even lower.
The foreclosure crisis, if anything, appears to be intensifying again as banks start to cut into a backlog of troubled homes they have let sit in limbo, but are now ready to auction off.
The federal government, after its frantic, trillion-dollar-effort to reinflate the housing market and prevent a more catastrophic bursting of the housing bubble, is now stepping back.
The Fed earlier this month stopped buying mortgage-backed securities, which is expected to gradually push up interest rates, dampening new housing demand.
The $18 billion home buyer tax credit is also getting ready to take its leave, with a looming, April 30th expiration date.
And unemployment, with the real rate something north of 15 percent when all those struggling to get by on part-time work are counted, is far worse than back in 1991.
All that said, there is an important caveat here when looking at either possibility. For we also have all the same structural issues that helped drive prices up well beyond reason in Greater Boston during the bubble years.
We had a decent burst of new home construction in the 1980s to burn off when the market flattened out in the 1990s.
But relative to the size or our metro market, not much got built in the 2000s. Sure we've got some unsold luxury condos downtown and some empty suburban condos and townhomes, but no big overhang in newly built single-family homes.
In fact, this lack of inventory has acted as a counterforce to falling prices over the past few years and will continue to do so in the months ahead.
Anyway, now I am starting waffle here, so I will turn it over to you.
What's your take on what the end of the Great Recession will mean for Greater Boston housing market?
