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Time for a Price Correction

Posted by Scott Van Voorhis June 18, 2014 09:22 AM

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Something has got to give here. Pending sales of homes in Massachusetts fell again in May, even as the median price for a house in the state hit $335,450, a 6.5 percent increase, new report finds.

Pending sales were also down in every other New England state this May except for Connecticut, where sales jumped more 33 percent, RE/MAX of New England reports.

This is not a sustainable situation. Falling sales almost typically lead to falling prices - it just takes a while to work out. No anomaly, it is the pattern we have been seeing for the last few months. At some point, prices are going to stall out, maybe not in Cambridge or Davis Square, but certainly in many other urban neighborhoods, suburbs and small towns far from the hipster hot spots.

So why? Well it doesn't take a rocket scientist to figure that one out.

After all, as prices keep rising, more and more buyers are finding themselves either priced out or stretching to keep up.

Now this clashes with the real estate industry's preferred explanation - that falling sales are all about the shortage of listings out there. And yes, listings are down again this spring compared to the spring of 2013, which was notable for the lack of choices confronting buyers.

However, affordability is fast becoming the major problem out there, surging past the inventory issue.

Buyers just can't keep up. And unlike the bubble years of the mid-2000, wages have been stagnant for years and there are no subprime mortgages to enable would-be homeowners with big ambitions and empty bank accounts to get in over their heads.

That said, let's not forget the Federal Reserve's multitrillion-dollar campaign to keep interest rates at rock bottom levels. The Fed helped re-inflate home prices after they hit bottom in the aftermath of the Great Recession, though the central bank is slowly pulling the plug on this effort.

Without the monkey business of subprime loans and other nonsense, this is a self correcting situation. We are not quite there yet, but when it comes to home prices, eventually what goes up must come down.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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