Six factors turned what could have been a housing slump into the hottest market in recent memory: Consumer confidence, low interest rates, low inventory, a rethinking of “home,” an unequal recession and a growth in personal savings.

Okay, time to fess up. I was wrong, way wrong, about the real estate market in Massachusetts last year.  

As the pandemic spread, restaurants closed, offices went remote, jobs were lost and everyone needed a haircut, I saw a recession coming upon us just like the last one: deep and long-lasting. In the six years starting in 2006, the median price of a single-family home fell 20 percent. Over seven years starting in 2005 the number of single-family homes sold in Massachusetts fell by 39 percent. I was certain it was déjà vu all over again. 

I remember hosting a webinar in April last year with the chairman of the Greater Boston Real Estate Board and the president of the Massachusetts Association of Realtors, whose rosy outlooks I heard in disbelief. While I showed slides of data from the Great Recession, they were saying: “Nothing to worry about. The market is strong and a great spring selling season will just be delayed until the summer.” 

In the second quarter sales were down 23 percent. In May alone they were down 30 percent. Massachusetts had one the worst rates of unemployment of any state in the country. I was convinced it would take years to recover.  

But lo and behold: The market turned, and our July data showed a glimmer of hope. When our data for September came out, we saw a raging bull of a market and it continued right through December. Sales volume increased 25 percent or more in each of the last four months of the year. The median price increased by 14 percent or more in each of the last four months. 

Three Market Factors 

So, what the hell happened? What was going on that I was not seeing while I was busy shaking in my boots? 

I would start with the tremendous support that the federal government provided to aid the economy and the people affected most by pandemic-induced layoffs. Unlike at the beginning of the financial crisis in 2008, Congress jumped in big, more than once, and its support is being renewed with another relief and recovery effort this month. And the Federal Reserve acted boldly to provide support and financial muscle. These actions have reassured consumers and business alike that they would not be hung out to dry.  

Consumer confidence in the economy and stock market is a big factor in the strong real estate market. Even more important is the certainty of low mortgage rates for the coming years. You would think twice if you stretched to buy a home with a mortgage rate under 3 percent if you planned to sell it in five years and worried that the mortgage rate would be 6 percent. 

The third reason for a strong real estate market last year was low inventory. Limited and decreasing numbers of homes actually for sale almost created demand on their own. Declining inventory has been with us for a decade now, but it has never been as low as it is now. The Massachusetts Association of Realtors reports that the number of homes for sale in December fell by over 60 percent from December 2019. New listings are greeted with multiple offers, most over the asking price and the competition is fierce. So, prices rise and feed the frenzy to buy now. 

Buyers’ Priorities Shifted 

The next thing I missed in my thinking about the real estate market in 2020 is just how much the pandemic changed everyone’s thinking about real estate.  

Stuck at home, working remotely with kids learning remotely made everyone think hard about their “space.” Many found that they did not have enough, indoors or outdoors, and began thinking about how to change that. Home renovations, repairs and additions were undertaken by some people, but others thought about moving to get more house, more land and better–configured space. A family of five that eats together at the dining room table stays together. The same family that works together at the dining room table gets nothing done – and a case of heartburn. 

This rethinking of “home” led to a remarkable explosion of sales and median price gains in vacation areas around the state. For example, in December statewide sales of single-family homes increased 29 percent from the prior year and the median price rose 14 percent. But in Barnstable and Berkshire counties sales increased 50-plus percent and the median price increased 20-plus percent. Nantucket and Martha’s Vineyard achieved similarly astounding results. 

A K-Shaped Influence 

I also didn’t realize how the pandemic’s uneven infliction of economic pain would be reflected in the market. Those in the service sector like hotel and restaurant workers were hit the hardest while those in white-collar jobs were more likely to retain their jobs while working remotely. The white-collar segment that did not lose income was exactly the group that had the means to make a home purchase. That is part of the reason why home prices are rising, and apartment rental rates are falling. 

Timothy M. Warren Jr.

I will mention one other unseen factor from the pandemic. Many of the wealthier segment of the population became wealthier during the pandemic. The Bureau of Economic Analysis found that personal income increased in 2020 and, without the usual outlets for spending, personal savings rose as well. With interest rates low, savings accounts and fixed income investments were unattractive, and the money flowed to the stock market and the real estate market. The S&P 500 gained 16 percent in 2020 and the median price of a single-family home in Massachusetts gained 11 percent. And those handsome gains drew more aggressive pricing, like day traders to GameStop stock. 

So where do things go from here?  

Since I failed so miserably to foresee trends for 2020, I will pass along predictions of “real” real estate experts. Nationally, CoreLogic projects sales volume gains of 2.9 percent and home value gains of 5.7 percent. Zillow is more gung-ho and predicts sales volume to increase by 21.9 percent and home value gains of 10.3 percent. The National Association of Realtors surveyed 20 top real estate economists and came up with a consensus forecast of an 8.0 percent gain in median price. Take your pick. No one really knows. 

Timothy Warren is CEO of The Warren Group, publisher of Banker & Tradesman.