Grim. Dismal. Bleak. Those words and more made a flurry in headlines last week after July housing data reports were released.
Sales of single-family homes in Massachusetts dropped more than 26 percent in July. In fact, The Warren Group, publisher of Banker & Tradesman, found the state recorded the fewest number of sales in the month of July since 1990.
Nationally, housing sales were just as depressed.
The July numbers were a wake up call to giddy market watchers who saw soaring sales this spring as a result of homebuyer tax credits. In fact, some reports said economists and analysts were “shocked” by the dramatic drop.
But why weren’t industry insiders bracing for such a plunge? It seems obvious that the demand would disappear once people were no longer getting paid $8,000 to buy a house.
But what’s more surprising is that Realtors are still brimming with optimism, even after the reports came to light. One Realtor on the South Shore told a local newspaper the numbers were inconsistent with the booming business he handled in July.
But based on the numbers alone, there probably aren’t many agents who had a lot to juggle last month.
The worst part is, this Realtor isn’t only one with a Pollyanna attitude. For decades, homeownership has been synonymous with the American dream. And that dream seems to have spurred an undying optimism. Society has relentlessly pushed the concept of homeownership, perhaps so far that it is clouding judgment.
What is lost on Americans is the fact that not everyone is meant to own a home. Some are too old, too irresponsible or too poor. Still, the desire exists.
In an annual survey conducted recently by economists Robert J. Shiller and Karl E. Case, hundreds of new owners in several communities nationwide, including Boston, said they believed home prices would rise about 10 percent a year for the next decade.
Where is this buoyed sense of hope coming from? The median price of single-family homes in the Bay State hasn’t increased at all, never mind by double digits, since peaking in 2005. Now that the bubble has burst, it could take years, maybe even decades, before we see the types of increases we saw in the late 1990s.
This confidence traces back to the real estate boom in the later part of the 20th century, when home values soared. People invested in real estate to make a quick buck. Many flipped real estate to eager buyers or traded up for a McMansion. Being a homeowner ensured a nest egg.
Today, it’s a different story. Some economists previously too hopeful to predict a decline in the housing market are backtracking.
A top economist for the real estate website Zillow says housing will only keep up with inflation. “All those theories advanced during the boom about why housing is special – that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land – didn’t hold up,” said Stan Humphries, Zillow’s chief economist.
It’s natural to search for a silver lining after these persistent losses. Some look to prices, which have remained stable in the Bay State and nationwide. Experts say prices must continue drop to entice buyers back into the market. With mortgage rates at historic lows, experts also say it’s a good time to buy.
But buyers, beware: your purchase shouldn’t be viewed as a budding investment. The days of buying low and selling high are all but over – and we need to learn to accept that.
