Essex County 2022 Housing Market Review
Single Family Homes (SFH)
After sharp increases Year-over-Year (YOY) in Q2 and Q3, the median SFH price in Essex County showed a more modest increase (YOY) in Q4, and also showed the usual seasonal decline from Q3 into Q4. Overall, the median price increased 5% for the year to $640,000, taking the increase in the last 3 years to 35%. Reflecting the low levels of inventory recently, SFH sales declined 11% in H1 and 18% in H2.
The share of sales over $600,000 increased from 52% in 2021 to 58% in 2022, driving the median price for the year well over $600,000.
Condos
The median condo sale price moved more steadily upwards in 2022, increasing by 11% in both H1 and H2, and by 34% since 2019. Sales fell 11% in H1 but by a startling 27% in H2. It seems likely that the increase in mortgage rates had a bigger impact on Condo sales – often bought as a first home with a significant mortgage – than on SFH sales, where mortgages – especially at the higher-end – tend to be less important with many buyers using cash or a large down-payment. (more…)
Federal Reserve in Fantasyland: Implications for Housing Market
Immediately following the issuance of the Federal Reserve’s decision on Wednesday to increase the Fed Funds rate by 0.75% and the accompanying, optimistic statement and press conference, both bonds and equities rallied strongly, leading some to think – hope – that the worst was over in markets.
And then came Thursday, when equities resumed their plunge and bonds rallied further – on the belief that a recession was now likely. (See my Are we already in a recession?).
For my part, were it not so serious I would have allowed myself a louder chuckle as I heard Chair Powell say that the Fed would be “data-dependent” – and then forecast that inflation – using the Fed’s preferred measurement – would be 5.2% this year, 2.6% in 2023 and 2.2% in 2023. Based upon what “data” exactly? And what does all this mean for the housing market?
Fantasyland
If you google “Federal Reserve and Fantasyland” you will get a lot of hits. And while many of the comments from Wall Street insiders – particularly those working for investment banks who tend to be optimists – were supportive of the Fed, many of those with perhaps more objectivity were in the fantasyland camp.
The response to COVID
The world’s economy faced a major shock and challenge with the outbreak of COVID. In response the Fed acted swiftly – cutting the Fed Funds rate by 1.5% in two weeks in March 2020 – and with shock and awe – a huge program of Quantitative Easing – injecting vast amounts of liquidity into markets. The Fed became the main buyer of Government and Mortgage-Backed Securities (MBS) and its balance sheet doubled from $4 trillion to over $8 trillion: (more…)
The Real Estate Market Isn’t in a Bubble
The soaring housing market is prompting more “bubble” fears in some corners, but economists say the housing market isn’t getting overinflated: it’s just too much demand and too little supply.
“We have strong conviction that we are not experiencing a bubble in U.S. housing,” Vishwanath Tirupattur, a Morgan Stanley strategist, wrote in a note to clients this week.
Lawrence Yun, chief economist of the National Association of Realtors®, agrees. He told Axios last month: “This is not a bubble. It is simply lack of supply.”
Morgan Stanley points out that this isn’t 2006. (more…)
Is the market slowing down?
Labor Day is gone, COVID-19 infections are rising again in many places, and the Election is just 37 days away, so it would not be a surprise if we saw signs of the market slowing down.
The number of SFHs receiving Accepted Offers each week is a statistic which tracks real-time activity (versus reported sales which reflect activity some 6-8 weeks earlier). Here is a (rather busy) chart comparing the number of AOs each week in 2020 compared with the same week in 2019.
What this shows is that the number of AOs has remained at a high level throughout the summer and has continued even after Labor Day. The apparent drop in the most recent week reflects the fact that many Offers are not recorded in MLS until after the weekend, so I will update this chart on Monday evening.*
That the level of AOs is so high is quite remarkable considering the low level of inventory:
Is the market is slowing down? Not according to the data.
* the numbers were little changed
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
This is NOT Like the Last Time
Below is an article from Keeping Current Matters, highlighting the substantial differences between 2008 and today.
And here is a link to my recent post: Recession and Recovery
5 Simple Graphs Proving This Is NOT Like the Last Time
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
2. Prices are not soaring out of control.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.
There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
4. Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are equity rich, not tapped out.
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:
During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
Bottom Line
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
Mortgage rates after the collapse of bond yields
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Housing Inventory slump continues
Single Family Homes (SFH)
After years of decline, the number of Single Family Homes (SFH) for sale in Essex County on the first of the month compared with a year earlier (YOY) increased from August 2018 until June 2019. Since then the decline has resumed and, in fact, accelerated, as this table shows:
Housing Supply Jumps Sharply
I have been reporting for some time the increase in the number of homes for sale, Year over Year (YOY) in Essex County (see charts below) but first I want to highlight the big jump in the numbers just this week as we head into the spring selling season.
Here are the numbers for the 34 cities and towns of Essex County:
That’s right, a 16% increase in the number of Single Family Homes(SFH) for sale and 8 % increase in the number of Condos in just 4 days!
More inventory means more choices for buyers at a time when mortgage rates are back near 4% after flirting with 5% as recently as last November.
Now, here are the charts for the last 3/4 years. The supply of SFHs in April increased, YOY, for the 10th consecutive month.
Condos
And the supply of condos for sale increased, YOY, for the 11th consecutive month.
Comment
In late December in Is a recession coming soon? I wrote: “the likelihood for 2019 is a slowing, but still growing, economy and a stable housing market.” Recent economic data confirms that the US economy remains on the path of steady growth. What has changed since December is that the 30 year Fixed Rate Mortgage is close to 4% vs 4.5% then.
Is a recession coming soon?
In 1936, British statesman Sir Austen Chamberlain (half-brother of Neville Chamberlain), made a speech in which he said: “It is not so long ago that a member of the Diplomatic Body in London, who had spent some years of his service in China, told me that there was a Chinese curse which took the form of saying, ‘May you live in interesting times.’ There is no doubt that the curse has fallen on us.” “We move from one crisis to another. We suffer one disturbance and shock after another.”
The last comments seem aptly to reflect the last few days and weeks of 2018.
Let me address one important question: is the stock market, which has now declined almost 20% from its high earlier in the year, telling us that a recession is coming soon, or is it just correcting from a sugar high after the huge stimulus from tax cuts and Government spending increases?
And if a recession is coming, what does that mean for the housing market?
In the interests of brevity I shall offer comments in note form:
1. According to many estimates, computer trading accounts for anywhere from 50-60% of equity trading in normal times to 90% on volatile days.Computer trading tends to exacerbate movements, both up and down.
2. The corporate tax cut produced a significant growth in after-tax earnings as companies reported results earlier in the year, leading some analysts to project valuations based on those one-time gains. As it has become clear that corporate earnings growth will return to more normal levels in 2019 so the stock market has corrected to a more sustainable valuation.
3. The Federal Reserve’s mandate from Congress is to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates”. Nowhere does it say that the Federal Reserve should seek to boost stock market prices.The late Fed Chairman William McChesney Martin famously said the Fed’s job was “to take away the punch bowl just as the party gets going.”
4. Following the Great Recession the Federal Reserve embarked on a policy known as Quantitative Easing in which it bought Government and other securities in great volumes to inject liquidity into the economy and drive down interest rates to stimulate growth. Those who argue now that the Fed kept the spigot open too long – which it probably did – may be forgetting that for a long time, as Congress failed to enact fiscal policy to stimulate economic growth, monetary policy carried out by the Fed was the only game in town.
5. In February I published What will happen to Home Prices in the Experimental Economy?. The Experimental Economy was the name I gave to the concept of providing a massive fiscal stimulus to an economy nearing full employment. In the article I wrote:”Those who are predicting that strong growth will follow from the major stimulus to the economy may be proved right. If not, the risk is that stimulating the economy at a time of full employment will cause the Fed to raise interest rates aggressively and choke off the hoped for economic growth.”
6. While the increase in the Fed Funds rate has been getting a lot of publicity very recently, the Fed has actually been raising rates – and indicating that it planned to continue to do so – for 3 years, with the first increase coming in December 2015.It could be argued that the more rapid increase in rates this year has been in response to the major stimulus from the tax cuts earlier in the year. It could further be argued that, on the evidence so far, the Fed has been successful in helping to slow growth to a sustainable level, thereby curbing inflationary pressures which would necessitate even higher interest rates.
7. Another part of the reason that economic growth is slowing from 4.2% in Q2 this year to 3.5% in Q3 and an estimated 2.7% in Q4 is the higher costs – and uncertainty – caused by the imposition of tariffs and the “tariff war” embarked on with China. Uncertainty acts to inhibit investment decisions.
8. The economy is still strong as evidenced by the 3.7% unemployment rate and widespread reports of the lack of applicants for job vacancies.
9. Perhaps the strongest sector of the economy has been consumer spending, which by many estimates accounts for 70% of the economy.
Comment
There is a saying in real estate that buyers buy with emotion and justify with logic. The key – both to real estate prices and to the path for the economy – is the level of consumer confidence. While all recorded reports show that level currently to be high, consumer confidence can also be very fragile.
It is too early to project the impact of the daily bombardment of announcements of policies which do not appear to have been given careful thought and analysis, but a period of silence would do a great deal to help restore confidence. That may be wishful thinking, but confidence is a fickle thing.
At the moment it is intact. As long as that remains so the likelihood for 2019 is a slowing, but still growing, economy and a stable housing market.
Andrew Oliver
www.OliverReports.com
Realtor
Sagan Harborside Sotheby’s International Realty
Tel: 617.834.8205
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