Housing statistics from the Massachusetts Association of REALTORS (MAR) show that the real estate market is gaining genuine momentum, not just showing a post-crash bounce-back. MAR reported two weeks ago that the number of single-family homes and condominiums placed under agreement in March increased 15 percent and 7.3 percent respectively when compared to March 2013, with the numbers of homes and units under agreement reaching or exceeding pre-crash numbers. Median sales prices have also risen.
Real estate recovery, like the coming of spring, occurs in stages. In this case, investors arrived while the ground was still frozen, attracted by the low costs of properties after the crash. They jump-started the market, often paying with cash, and provided the strong arm that pulls the cord on the old gas-engine lawn mower that’s been in the garage all winter.
Nationally, investors have contributed to a plunge in monthly mortgage originations despite strong sales figures, according to a new report from Black Knight Financial Services, formerly LPS. In Massachusetts, though, investors helped set a floor on prices by snapping up inventory, thus driving up demand for properties that otherwise might have languished.
Those concerned that investors distort the housing market should remember that at some point, those buyers will exit the market the way they came in – when they determine the price is right. If current economic trends, such as job growth, continue, the buyers’ market will be more robust than it was when investors came in, clearing the way for more owner-occupants. Downsizing Baby Boomers will also add housing inventory as they move to smaller quarters.
The part of the yard where the sun shines the longest is where the first crocuses come up. This season, desirable towns have seen bids come in six figures over-asking. Naturally, this doesn’t happen everywhere – the average buyer isn’t liquid enough to bid that aggressively. Excluding the presence of investors and their low-basis-cost acquisitions, the housing market resets from the top down, not the bottom up.
Homebuilders are emerging from a long winter of discontent. U.S. Census figures show new construction permits in Massachusetts were up 35.7 percent in the first two months of 2014, with single-family permits up 4 percent over 2013. Much of the increased demand has to do with the drop in distressed inventory. Foreclosure petitions dropped by a whopping 48.7 percent in February 2014 compared to February 2013, the 16th consecutive month of year-over-year foreclosure petitions decline, according to data from The Warren Group, publisher of Banker & Tradesman. So builders, who hadn’t been able to match the rock-bottom prices of foreclosed properties, have become cautiously optimistic – and building permits have increased year-over-year, particularly in desirable towns outside the Route 128 belt.
As Voltaire wrote in Candide, “We must cultivate our garden.” Responsible regrowth is a choice that lies ahead.
