Federal Reserve Chair Jerome Powell made clear in his Jackson Hole speech last month that we’re in for an extended period of elevated interest rates. But what that means for the Massachusetts housing market has more than one answer.
Powell signaled that the central bank was likely nearing the end of its rate-hike campaign, and might even take another pause at its September meeting depending on what the economic data shows.
But inflation, while slowing, isn’t yet licked and Powell also made clear in his speech that the Federal Reserve will brook no goalpost-moving that might let it declare victory while inflation is only at the current, modest level. That means its benchmark interest rate will stay high, keeping upward pressure on the average 30-year mortgage interest rate.
The majority opinion of the real estate and mortgage experts consulted by Banker & Tradesman is that this state of affairs – and the lowest inventory levels Massachusetts has seen since the early 1980s – is likely to continue for at least the next eight to 12 months.
Mortgage rates ended last week at 7.18 percent, according to Freddie Mac, and at least one expert B&T spoke to thinks they could rise over 8 percent later this year if investor optimism over a “soft landing” for the national economy grows. This will help keep most sellers who aren’t facing death, divorce or a job relocation locked in their current homes, either because they can’t afford a bigger monthly mortgage payment or they can’t fathom trading in a 3 percent mortgage interest rate.
And with a strong state economy – unemployment is at an unbelievable 2.6 percent – that’s highly diversified among a number of different sectors, so the argument goes, and a huge number of renters in their prime homebuying years, there will still be enough buyers out there to keep prices at or around where they are.
In this scenario, the only way inventory could start to pile up and prices start to soften would be a recession that generates substantial job losses – but that strong and durable state economy makes this less likely. Indeed, the state suffered remarkably little during the Great Recession, compared to the rest of the country, for this very reason.
A minority of experts consulted for this piece, however, are optimistic that a key missing seller demographic – those trading a home they own for a bigger or smaller house that better fits their next phase of life – could become desensitized to high mortgage rates by next spring, possibly in time for the Fed to start lowering its rates. With that additional inventory and a range of low-down payment products available, like those from MassHousing and MHP, life ought to get a bit easier for all buyers, and for first-time buyers in particular.
Both arguments share a through-line, though: Nothing will get truly better until zoning and other policy changes and a drop in interest rates unlock a significant amount of new for-sale condominium and townhouse construction across the state.
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