The beat goes on - by Jonathan Avery

The housing market continues on an historic run in the single-family sector. The 10 year recovery from the great recession continues. Not only have we recovered to pre-recession price levels in certain markets but significantly exceeded those levels in select markets. Sustaining this trend in many suburban markets is an excess demand in the face of a limited supply. 

The April report from The Warren Group notes that the median price of a single-family home increased 8.7% in the last 12 months to $375,000. During that same period the median condominium price increased 12.8% to $373,000. This is particularly interesting as the traditional delta (at times as much as 20%) between the two disappears. There are many possible explanations – including lack of supply of single-family homes, changing tastes and the urban living trend of the Boomers. Certainly the production of luxury condos in Boston and surrounding cities has impacted the median condo price. 

The recent S&P Corelogic Case-Schiller Home Price Index report also notes continued steady increases in home prices nationally. The 20 city composite shows a 6.8% increase in the last 12 months with Seattle leading the pack at 13%. The May report includes interesting statistics regarding the degree of recovery from the recession. Using 2006 as the pre-recession market peak, the National Home Price Index exceeds 2006 levels by 7.8%. With 2012 price levels as the trough, prices have recovered 48.5%.

These indicators make it clear that in most markets the recovery has occurred and even exceeded historic highs in some cases. So, are we in for a “bubble burst” or a market correction? A market correction is the more likely scenario in my option. 

The mortgage market has not gone the way of 2005-2007. Yes, underwriting standards have loosened a bit but not to that extent. The level of interest rates is already having impact with some buyers being shut out because of higher mortgage rates resulting in higher monthly payments and higher home prices. This particularly impacting the first time buyer segment. 

The Federal Reserve has implemented six rate increases since 2016. This policy seems to indicate an end to the ‘accommodative’ approach to interest rates supporting the economy. Some pundits believe that the Fed could reach a neutral level of rates in the near term meaning a conclusion that rates are at market levels, no longer requiring artificial support. 

The bottom line – I don’t feel a market crash is at hand. A slowing of price increases – possibly a period of flat prices and extended marketing times are on the horizon but – hopefully – an easing of conditions not a steep drop in prices. Demand will continue and the supply will respond. 

Jonathan Avery, MAI, CRE, is president of Avery Associates, Acton, Mass.