Is the sky falling? AKA: Is the housing market crashing?
The news likes to report the negative: The buzz is that the housing market is crashing, but is it really? We say it’s experiencing a redirection. The country is technically in a recession, and inflation and interest rates have risen. Hence, buyers can’t afford the same mortgage prices as last year. But that doesn’t necessarily mean the market itself has crashed!
Pandemic-fueled moving made last year…um…busier than normal; now, "normal" feels "slow."
We just had an in-office meeting and looked at the local stats from all sales in our Cambridge office (there are over 125 agents in our office, covering all cities and towns throughout Greater Boston). Overall the market has definitely slowed in sales volume — almost 20% lower than the number of properties sold last year (year to date). But last year was an intense experience, with what felt like the entire world moving due to the pandemic. Most agents, home inspectors, lenders, and attorneys worked overtime on the gargantuan number of transactions we were juggling.
So is the market really crashing?
Let’s look at the local area:
In the current (2022) year to date, in Cambridge and Somerville, there were 1201 sales, with an average sale price of $1,260,814.
In the past (2021) year to date, in Cambridge and Somerville, there were 1484 sales, with an average sale price of $1,111,550.
The number of homes sold has gone down; however, sales prices have continued to rise.
Benefits for buyers
For buyers, the good news is that the market isn’t as competitive as it was last year. We *were* often seeing 15+ offers on a property, which was horrible for the other 14+ buyers. What’s more, it was also often unfair for the winning bidder, who often waived their home inspection and mortgage appraisal, or waived the mortgage in its entirety.
Now the market is becoming more balanced, with only a few offers on each property, and with some homes staying on the market for over a month. Gasp! I gasp in jest, as this smaller number of offers and longer timeline were quite normal just four years ago. So sure, if you’re comparing today’s market to last year’s market, it looks like it’s dropped. But we view last year as a unique surge, fueled by pandemic cabin fever; now that we’re getting used to the new normal, the market is correcting for that surge and returning to its previously robust-but-not-feverish state.
We can use the year 2010 as a historical precedent: This was about a year after the mortgage crisis hit hard, causing a spike in inventory. More homes for sale translated into less competition; this in turn meant no bidding wars and even access to some homes below market price. Why do I bring this up? The housing market always fluctuates, as it did during and just after the mortgage crisis; but the big picture shows us that the price of homes has continually risen over time. Many families bought property in the 1970s for less than what a car costs these days! This scenario can be applied to us today in 2022. Even without a mortgage crisis, many buyers are taking a break right now, which can provide the perfect window of opportunity for savvy buyers. Now may be a great time to jump in and get your next home at a decent price, without having to make offers that waive contingencies, like back in the spring.
With interest rates ranging from 4-6% at the moment, what does this actually mean for you? You may need to save up more for your down payment, or not spend as much on a home…or maybe it doesn’t even strongly affect you. Our advice is to go through the pre-approval process, which will give you a general idea of how much you can afford to borrow for a home purchase. And here’s a bit more perspective: mortgage rates were at 5-6% right up until 2009, and were even higher (up to 16.63%!) in the 1980s and ‘90s (See this chart from Freddie Mac for more information. Tap “All” in the Zoom menu above the line graph). No matter what, you need a place to live, to celebrate your lives, to cook for yourselves, and to feel safe.
I sense that this fall/winter we will likely see lower than normal transactions happening, as many homeowners will not want to sell their home in a softer market, and/or get rid of their low 3-4% fixed interest rate. It’s also wintertime, which is traditionally a slow season.
While many sellers are worried that home prices will fall, I predict that prices will be relatively flat this winter, and will continue to rise next year. In this area, (Greater Boston), if a property is priced right, it will sell. Read more about setting your listing price here.
For those of you who love to see the data:
We’ve looked at sales prices of condos and single family homes in Cambridge and Somerville from before the mortgage crisis (remember, this was a time of “Everyone can get a loan! We don’t care about your credit! There are no rules!”). Then we’ve crunched those same numbers for 2022 (year to date).
Keep in mind that these numbers take into account both the crash in 2008/2009 and the Covid boom of the last two years.
The average price for condos sold in Cambridge and Somerville from January-October of 2005 (before the crash) was $446,681, while today’s average price (again, from January-October) is $1,016,999. Condos appreciated on average 228% over the past 17 years.
The price for single family homes sold in Cambridge and Somerville from January-October of 2005 (before the crash) was $910,250, while today’s average (yup, you guessed it: from January-October of 2022) is $2,007,450. These single family homes have appreciated on average 221%, over the intervening time.
So, our advice is to do your research, get educated, and pick the right time to buy or sell your home. Need a guide to navigate today’s market? Contact us. We’re here to help.