Forget about the doomsday hype in the media about the coming real estate market collapse. The dreaded double dip in home prices is here. And if you want to see the market someday emerge from its long funk, then it’s time to step back and let home prices crash.
To recover, the real estate market first has to hit bottom. And finally, after years of inept fumbling by Congress and the feds, home prices are being allowed to sink. Indeed, the end of the years-long downturn may be sooner than many realize – some analysts are already calling the market’s bottom for later this year.
That could lift the cloud that still hangs over parts of the Greater Boston market, especially the outer suburbs along Interstate 495.
“Average U.S. home prices will stabilize in the third quarter of this year,” Fiserv and Moody’s Analytics predicted in a recent bulletin. “By the end of 2012, home prices in even the hardest-hit housing markets will level out.”
In fact, we might have already been on the way to housing recovery right now if it had not been for the homebuyer tax credit – a $14 billion program that may go down as one of the worst government-sponsored boondoggles of all time. And I’m not talking about the millions in fraudulent credits doled out to toddlers and convicts, although that was bad enough.
Rather, the credit artificially inflated the real estate market during the depths of the Great Recession, culminating in a frenzy of sales and rising prices last spring before it expired.
Instead of reviving the real estate market, the tax credit simply inflated it before abruptly sending the whole market careening over a cliff last summer after it ended.
Now, after months of faltering sales and falling prices, we are officially in a double dip, with home prices, at least nationally, having fallen below their 2009 levels.
On The Mend
Even Greater Boston, which has seen some of the shallowest declines in home prices of any market in the country, is not immune.
Sure, the bidding wars for condos in hot spots like Davis Square are likely to continue unabated.
And home prices along 128 are not that far from their 2005 peak.
But the farther you get away from Boston and its inner suburbs, the local market looks more like the rest of the country.
It’s a different world along I-495, where a number of towns had already seen declines of 20 percent or more from their peak before the latest round of price decreases.
The good news, though, is that this last leg down in prices – barring more idiocy from Congress – may take only a matter of months to play out, not years.
The economy is on the rebound, with Greater Boston already shaping up to be a leader with its booming biotech and technology sectors.
As companies hire again, falling prices are bound to lure buyers who have been sitting on the sidelines for years, waiting for the market to hit bottom.
But that won’t help the poor fools who rushed to buy last year in order to cash in on $6,500 and $8,000 homebuyer tax credits. Smart Money recently estimated the average tax credit buyer has already lost $15,000 in value, wiping out any gains from the credit itself.
Still, if they don’t panic and sell, even those who fell for the tax credit will eventually do OK.
It may be painful to see home prices sink all over again, but it’s a sign that the end is finally in sight for our seemingly never-ending real estate downturn.
“The first step toward restoring confidence in housing markets is an improvement in consumer sentiment, which we expect will increase slowly through 2011 due to stronger job gains and a falling unemployment rate,” said David Stiff, chief economist, Fiserv, in a press statement. “As confidence rises, the decline in home sales that started in 2006 will, finally, come to an end.”
