Throughout much of this year, market watchers rejoiced after seeing local home sales rise month after month.
Low interest rates combined with good employment numbers and increasing consumer confidence brought a lot of good news. Spurred by affordable prices, Massachusetts home sales jumped as much as 35 percent year-over-year in May. So far this year, Massachusetts home sales are up 22 percent compared to the same 10-month period in 2011. The word “recovery” is on everyone’s lips.
But before we get too ahead of ourselves and party like it’s 2005, we should consider if this recovery is sustainable. Is declining inventory going to slow the market? Will loan availability hamper the recovery? And perhaps the biggest question on everyone’s mind as of late: Is the looming fiscal cliff going to ruin this upturn?
As of late last week, the Obama administration and Congress hadn’t made much progress in dealing with the so-called "fiscal cliff," a scenario in which hundreds of billions of dollars in tax hikes and spending cuts start to take effect next year, driving the economy into recession. With just four weeks left to deal with the budget, economists are less cheery and bright, and more filled with doom and gloom.
Perhaps this uncertainty led to a less optimistic outlook in the Federal Reserve Bank of Boston’s most recent “Beige Book.” The report on economic conditions, which was released last week, found residential real estate showed signs of weakening.
“Slowing growth across much of the region was attributed to the dwindling number of properties in the market and damped confidence in the local economy,” the report read.
Industry insiders remain fearful that ongoing declines in inventory levels will hurt the selection of homes on the market and discourage buyers in the market, according to the Fed. “Some contacts say homeowners interested in selling have been reluctant to list their homes in anticipation of greater future price appreciation,” the report noted.
And those eager to buy and capitalize on the low mortgage rates and affordable prices may get shut out of the market. Tight credit remains an obstacle for the average buyer. In fact, Federal Reserve Board Chairman Ben Bernanke recently said mortgage lending standards now appear to be “overly tight,” preventing creditworthy buyers from buying homes.
Despite increasing home sales and a moderate rise in prices, Bernanke went on to say the housing market is “far from being out of the woods.”
If the Bush tax cuts expire and capital-gains tax rates go up on Jan. 1, sellers in the high-end real estate market could take the biggest hit. Faced with the possibility of owing millions more in taxes on their sales, some of these wealthy sellers are racing to close before 2013. Experts say this could drive up inventory and lower prices in the top end of the real estate market, which has been one of the few bright spots in the economy.
Locally, sales in Nantucket more than doubled in October. Year-to-date sales are up 25 percent, while prices are down 9 percent to almost $1.1 million. In Dukes County, sales from January through October are up 38 percent and prices rose 6 percent to $529,000, compared with a year ago. This beats statewide statistics, which show sales up 22 percent year-to-date, but prices down almost 1 percent at $287,500.
The outcome of the fiscal cliff is uncertain. Its impact could affect every aspect of the economy: small businesses, taxpayers, the stock market and municipalities. This ambiguity could lead to a weak start to 2013. Still, many remain optimistic. Stan Humphries, chief economist of real estate website Zillow, has called the housing market recovery “durable.” In a recent statement, he said, “hopefully lawmakers will cooperate in keeping the housing market on track by successfully navigating the fiscal cliff."
The solution is complicated, and isn’t easy to determine. But, after seven-plus years of a slumped economy and housing market, politicians should go to any measure to ensure we don’t go back down the wrong path in the future.
