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House and condominium prices have been on an epic tear across the Bay State since the pandemic hit last year.
Every time it seems as if prices couldn’t go any higher – or frankly get any crazier – they do.
You now have to be making well over six figures now to even have a crack at buying a median-priced home in Greater Boston, which shot up 14 percent in May to an astonishing $761,000, according to the Greater Boston Association of Realtors.
But as June winds down and we head into the typically slower sales months of July and August, are we now finally seeing signs the surge in prices we saw over the past year may finally be slowing?
Or is it just an early summer mirage on the part of exhausted buyers and the worn-out brokers working for them?
Activity ‘Isn’t Sustainable’
While it’s too early to make a definitive call, there are signs that at least we might see single-digit increases going forward instead of double-digit ones.
“We expect sales to slow and the run up in prices to ease in the second half of the year, as the current level of activity isn’t sustainable long-term,” said GBAR President Dino Confalone, an agent with Gibson Sotheby’s International Realty in Cambridge.
First off, June has seen a jump in the number of homes and condos hitting the market, with a 20 percent rise since the first of the month, according to GBAR.
The increase is badly needed, with a months-long shortage of inventory, exacerbated by years of anemic single-family home construction, having pushed prices to record levels this spring.
Meanwhile, the rise in the number of homes and condos being listed comes as some buyers drop out of the hunt, easing demand a bit.
Open houses that were packed earlier this spring are thinning out. After losing out on multiple bidding wars earlier this spring, some would-be first-time buyers have opted to renew leases and put their hunt on hold.
“There is definitely buyer exhaustion,” Confalone said.
However, there’s another factor to keep an eye on, as well – sellers who got too cocky, overshot the market, and are now paying the price, with their homes still on the market as the slower summer market takes hold.
With Greater Boston home prices jumping past previous record-setting highs, some buyers appear to be calling it quits, for now.
Sellers Carried Away
With prices posting double-digit gains, you can see how some sellers could get carried away and think the sky is the limit.
Confalone noted one house in Newton where the owner insisted, against his broker’s advice, on trying to sell it for $2.3 million. Nine months later, it’s still on the market, with a small cut off the price – $25,000 – doing little to stir interest.
Other sellers are also being forced to pull back after overshooting the mark when they listed at prices that were simply too much for the market to bear.
“We’re already seeing homes with inflated values sitting longer and undergoing price adjustments,” Confalone said. “I have seen five price adjustments this past week.”
While buyers have been shelling out records amounts in order to land a home, they are also fearful of overextending themselves financially and won’t just pay any price, however high, in order to land something.
That said, while prices have never been higher in the Boston area, having long-since blown past records last set during the housing bubble of the mid-2000s, Confalone believes the pricing levels we are seeing now are here to stay, calling it the “new normal.”
A Bust Will Come. But When?
Given the big jumps in median prices over the last 12 months, is there another 2008-style Great Recession around the corner, ready to knock prices back by tens or even hundreds of thousands of dollars?
Not to Confalone’s eyes.
“I’ve always thought Boston was undervalued,” he said.
I’d agree on the short-term outlook, with the economy shifting into overdrive thanks to the end of the pandemic and trillions in stimulus spending by the federal government.
Scott Van Voorhis
But I’m less sanguine when it comes to the longer view.
It’s pretty predictable. At some point during an up cycle, everyone starts thinking that real estate prices are destined to rise forever and that downturns are a thing of the past.
Sorry, but in a dynamic, capitalist economy, we’ll always have booms and busts.
It happened in the late ’80s, in the late ’90s, and, most memorably of all, in the mid-2000s before the bottom fell out of the high-flying real estate market once again.
It will happen again, rest assured. That’s the easy part. When is the trillion-dollar question.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
