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Just call it a tale of two real estate markets.
As 2018 closed, the end of the long-running real estate boom that has turned Boston and Cambridge into one vast construction site appeared to be finally running out of gas.
Sales and prices were finally leveling off or even declining, not just in Massachusetts, but across the country.
Four months later and the real estate market has regained its mojo, with prices surging and sales on the rise here and across the country.
What – or more accurately who – accounts for this turnaround?
The answer may not be one that will go over easy here in Massachusetts, our country’s ancient cradle of liberty and one of the most progressive states in the country.
There’s a case to be made that President Donald Trump’s browbeating of the Federal Reserve, which had previously been bent on raising interest rates, may have done just that.
As Markets Gyrated, Real Estate Flagged
Signs of a cooling real estate were mounting as 2018 ended.
It’s sometimes hard to see in Greater Boston, where the only direction prices seem to go is up, but the pace of appreciation and sales both slowed over 2018 as the Fed jacked up interest rates. Mortgage rates followed, and were nearing 5 percent at the end of November, raising the cost for buyers and cooling their ardor.
Prices were essentially flat or slowing in the nation’s largest 20 metro markets, including Boston, the S&P Case-Shiller Index reported that fall.
By Christmas, the jig appeared to be up – not only for the real estate market, but for the economy as a whole.
Wall Street was doing a spot-on impression of the 1929 crash, with stock price having plunged for roughly two months.
Amid the stock debacle, Trump upped the craziness several notches, all but threatening to fire Federal Reserve Chairman Jerome Powell for failing to heed his advice to stop raising rates.
The Fed went ahead anyway and, on Dec. 19 jacked up rates a fourth time to 2.5 percent.
Fed’s Reversal Gave Real Estate a Boost
Financial markets swooned, with Dow plunging 350 points and hitting a new low, with the slump hitting bottom on Christmas Eve.
But then, a funny thing happened on the road to the Great Recession of 2019.
Having followed through with the rate hike in the face of President Crazytown’s Twitter fury, the Fed beat a steady but sure retreat.
First it announced there would be only two more rate hikes in 2019, not three as planned. Then, earlier this year, the central bank pretty much abandoned the idea of raising rates in 2019 at all.
The stock market, which had been in correction mode, began surging the day after Christmas and, except for a few minor steps back here and there, has been surging since.
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Rising stock prices – and strong 3.2 percent growth in the first quarter – have for the moment dispelled recession fears and have given a shot in the arm to a real estate boom that had been showing its age.
CoreLogic recently upped its national home price forecast, predicting 5 percent growth in 2019, with prices accelerating in the second half of the year.
The real estate data and research firm cited the Fed’s decision not to hike rates in 2019.
Here in Massachusetts, the median price of a single-family home hit a record $377,000 in March, up 6.2 percent from the year before, according to The Warren Group, publisher of Banker & Tradesman.
Just Another Quick Fix?
David Bates, broker/associate at William Raveis, author of a blog on the local real estate market and a former contributor to this newspaper, noted the turnaround in the real estate market came up as he chatted with another broker at a recent open house.
“We talked about how strong the market was and one of the first things he pointed out was, ‘Remember when things kind of stopped toward the end of the year?’” he said.
That was just about the time when the Fed was still clinging to its plans for a series of addition rate increases on into 2019, he noted.
“So, you might ask yourself, when Trump yelled at the Fed about raising interest rates, did he save our local real estate market?” Bates said in an email.
Scott Van Voorhis
Still, whether it’s just a quick fix – another Trump sugar high for which we will all pay the bill in spades later – is unclear at this time.
When the next economic crisis hits, we could very well still be stuck with the president who wanted to put pizza mogul Herman Cain on the board of the Federal Reserve.
But for now, the real estate market is rolling again, and it’s the man Massachusetts – including yours truly – loves to hate who probably deserves inclusion in the credits.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
