It’s beginning to look a lot like Christmas across Massachusetts. But in the state’s real estate industry, market statistics also show it’s beginning to look a lot like the late 1980s as well. Despite similarities between now and then, those in the industry say they aren’t expecting history to repeat itself with a market crash anytime in 2001.

Through October of 2000, there were 78,561 residential property sales in the Bay State, according to statistics provided by Warren Information Services, a sister company of Banker & Tradesman. At the same time last year, 85,683 such sales had taken place, representing a decline this year of some 8.3 percent from 1999.

But by October of this year, the median residential sale price statewide had climbed to $189,000, up from a $167,000 median price in October of last year. Alhough some Realtors say inventory levels are up somewhat from the critically low levels seen in the past few years, the number of sales is dropping while prices continue to soar.

Looking at residential sales data from several years ago, one can see a similar pattern occurring in the 1980s before the infamous crash late in the decade that lasted into the early 1990s and contributed to a recession that struck Massachusetts harder than it did the nation as a whole.

Same Pieces?

In 1986, there were 101,249 recorded residential transactions in the Bay State. That number fell to 93,162 in 1987 and fell again to 71,625 in 1988, a total decrease of more than 29 percent. During that same three-year period, however, the median sales price climbed from $127,900 to $140,000 to $148,900, a 16.4 percent overall increase. That trend changed beginning in 1989, when year-end median sales prices fell and sales volume was almost half what it was in 1986. Sales volume picked up again in 1992 and 1993, with the median price increases quickly following suit until 1999’s record 101,774 sales and 2000’s high-water median price.

Massachusetts real estate experts said they don’t expect the market to perform as well in 2001 as it has done in 2000 or even 1999, but most are cautioning against becoming fearful of a deep trough in the cyclical industry.

“This does not feel at all like the late 1980s,” said Fred Meyer of University Real Estate in Cambridge and the 2000 president of the Massachusetts Association of Realtors. “We were still in a period of high inflation back then, and people were buying several properties at a time.

“People are not buying for investment as much today as they were back then,” Meyer continued. “They’re buying because they want to have a nice home. To me, the market feels more solid than it did back then.”

“I don’t see another late ’80s happening soon,” said Richard J. Loughlin, president of The DeWolfe Co. in Lexington, who has been in the business for more than two decades.

“I’ve gone through the late ’80s and it had an effect on my life, and I don’t see any of the same pieces in place,” said Loughlin, whose real estate company was acquired by DeWolfe in 1989. ” I think interest rates are a key piece of this, and I think [Federal Reserve Chairman] Alan Greenspan is going to want to do a ‘soft landing’ approach to interest rates.”

Hitting the Cycle
While on the surface there may appear to be some similarities between now and then, Loughlin said the underlying foundation of the real estate market in 2000 is more solid than in the late 1980s and therefore less likely to suffer a crash.

“There’s not as much new condominium construction in the market as there was back then, and everything was done on spec,” he said. He does, however, see a slight cool-down coming.

“I think the numbers will back off a bit, and the units sold will stabilize,” Loughlin said. “The units can only go so far up. We’re coming off of three of our best years in history. Even if next year is off of the record [pace], it will still be pretty solid.”

“The two eras have in common rising prices,” Meyer said. “But I don’t see prices rising as much as they did in the 1980s. The prices now are much more solidly based. We have people now who have made great amounts of money in technology. These people today have money.

“In the 1980s, it wasn’t people who had money that was fueling the market; it was that people were buying out of fear that if they didn’t invest they would lose out,” he said. “Now, it’s the opposite. People are not expecting some great inflation.” Meyer added that he does not foresee any large price drops next year that would present major buying opportunities because “the economy is too solid.”

Paul Grover, head of Kinlin Grover GMAC Real Estate on Cape Cod, agreed that the market is different today because buyers are purchasing homes to live in, not just to invest in.

“I started in the business in 1981, so I saw the whole ’80s thing, and before the crash people were buying million-dollar houses with financing and people were buying them on spec. They would sometimes fix them up and sell them for a lot more money, while others would turn around and put them right back on the market without doing anything. I haven’t seen that on this cycle. They’re putting down huge amounts of cash – sometimes all cash – so we won’t see the upheaval we saw before because a lot of places don’t have a mortgage, even if there is a correction.”

At the national level, the chief economist for the National Association of Realtors has predicted a “soft landing” for the 2001 as well.

NAR’s David Lereah said the Federal Reserve has accomplished its goals in slowing the economy through its series of interest rate hikes.

“We do expect a soft [economic] landing; however, the yellow caution flag is up and we need to keep a close eye on the indicators,” he said in a press statement recently. “In fact, the Fed may have to cut interest rates to avoid a hard landing.”

Lereah said higher energy prices and increased volatility in the stock market, with major corrections in technology stocks, have raised concerns.

Easing indicators, such as durable goods, consumer confidence and car sales, further demonstrate a slowing economy. “However, there’s been a tremendous build-up of wealth over the last five years, so even with this year’s stock losses, most people remain in very good shape,” he said.

“Our prices are higher than ever, but our volume has slowed down,” Grover said. “The market is not as heated as it used to be. There may not be that sense of urgency out there to buy a house as there was before. I think there’s sort of a conservatism that has taken over the market. People are still out there looking for the right house, they’re just not buying it in a panic mode.”

Home Sales in State Slip; Realtors Don’t Hear Crash

by Banker & Tradesman time to read: 5 min