If you haven’t noticed it yet, home prices are rising – and rising fast.
Nationally, home prices increased 5.1 percent in March, according to real estate data firm Zillow. In Massachusetts, the median price for single-family homes sold in March rose more than 8 percent, to $285,000, versus a year earlier. It was the sixth consecutive month that home prices have increased year-over-year.
The question now: is this growth sustainable?
We’ve gone through a housing bubble before. We know what it’s like. Back in 2006, a few years after the dot-com boom and subsequent bust, home prices rose along with easy credit and the thinking that home prices would never decrease. But it all then came crashing back to earth – and along with it, a recession that we’re still clawing ourselves out of.
In Massachusetts – and the rest of the country, for that matter – the number of foreclosures is decreasing, consumer confidence is rising and real estate is being snapped up by buyers like never before.
We’ve heard a lot of talk about bidding wars breaking out over homes and condos in the Greater Boston area that in a normal economy might not get that much attention. Of course, low inventory, low interest rates and a lot of people willing to fork over cash has only accentuated the problem. The very pages of this paper have been filled with tales of a real estate renaissance.
And while we don’t doubt that home prices will continue to increase as the economy improves, we do have concerns that these increases are indeed unsustainable. In a 2010 study, the Boston Federal Reserve said economists will most likely miss the next bubble. And just like the last housing bubble, consumers and Realtors alike do have an expectation that prices will continue to increase.
A recent Zillow survey illustrates the problem with forecasting such a bubble: you just don’t know there’s a bubble until after the fact. Just 4 percent of respondents in the survey said they saw no risk of a new bubble; 48 percent said they saw a little risk; and another 48 percent said there was a moderate to high risk of a new housing bubble forming as a result of current policies.
Whatever happens, one thing is clear at least in the short term: home prices will continue to rise.
Inventory
According to a study by The Warren Group, shrinking inventory is responsible for the second consecutive month of declining housing sales in Massachusetts.
The statistics compiled by The Warren Group in its study are correct, but the conclusion reached is not. While an inventory shortage didn’t help sales, it was weather, not a lack of inventory, that dampened March sales.
March sales are based on February contracts. In 2012, February was a sunny month with weather that was almost spring-like. This year, February produced several significant snowstorms, keeping potential homebuyers from buying.
Given the weather, the 2.1 percent drop in home sales for the first quarter of this year compared to the same period last year is insignificant. It’s not that the shortage of inventory won’t have an impact. Short-term, it will boost housing prices. Even if developers scramble and permits are granted quickly, it will take a year-and-a-half before there is enough new inventory available. Even without new inventory, we’re optimistic.
[Editor’s note: The original version of this editorial had the incorrect percentage increase for home sales nationally. It is 5.1 percent, according to data from Zillow.]
