If you are confused about the state of the real estate market, welcome to the club. A big part of why you are confused is bad reporting. There is so much of it!
Every week, I am running across real estate headlines saying that real estate is about to crash and also that prices are going up. We are in the middle of a wind-shift, so there is data to support both of these headlines. However, the headlines – and the data behind them – don’t help would-be buyers like you to know what is happening.
Things to look out for:
National statistics do not reliably describe local conditions. The only information you glean from them is where the general tide is. Yes, a rising tide will raise all the boats. However, prices do not go up or down evenly throughout the local market, much less throughout the national market.
This is only one real estate moment. Check the dates of the data. In about a year, the statistics will be clear when the market began to change, locally. My agents saw the change after Memorial Day, and more so in August, 2022. Anyone quoting data from April, 2022, is painting a picture of a market that no longer exists. Looking at the height of the spring market in April is useless at best, deceptive at worst.
Quotes about price increases are not reliable.
Median or average? Median is the middle-priced property. Average is all the property priced added together, then divide by the total number of properties. If there are a few very-high or very-low prices in a small sample group of prices, it will make the average figure ridiculous.
Try it with this list of 20 property prices (in thousands): $3000, $600, $600, $600, $600, $600, $600, $600, $600, $600, $600, $600, $600, $550, $550, $550, $550, $550, $450, $450. Median = $600, but Average = $692.5. Even using a median, if the sample size is just 20, the result may not be accurate. If you remove the $3M sale, Median = $600; Average = $571.
How is year over year data calculated? Calculations that are comparing sale prices one year ago to current sale prices have price distortion when the properties that are selling are bigger or more renovated. That accounts for a significant amount of the whopping year-over-year data that buyers are being pummeled with.
- The properties are bigger one of the years. If fifty houses with a median of 1400 square feet sold one year, but the next year, the town’s median house that sold had 1700 square feet, the sales price will be inflated. Yep! After the initial lockdown months, buyers were desperate for more space, not less. A better measure for a real change in prices is looking at price per square foot in a year over year data set.
- Properties are reselling after being renovated more in one year than another. The cost of the renovations is not deducted from the increase in the sale price. Look at 2022, yep again! Buyers are home more now. Contractors are notoriously busy. Supplies are hard to get, especially appliances. This has led to an increase in competition for renovated properties. The house that sold in 2021 would be sold again for $300,000 more in 2022–after $150,000 in renovation.
Bad reporting example of the season:
Wicked Local published some real estate information titled “Are we headed for another housing bubble? Experts weigh in.”
The article starts with a statement that is entirely false. It claims that the 2007 housing bust was due to an increase in mortgage interest rates. Nope. Absolutely not.
Toward the end of the article, the 2007 crash is accurately described. It was not caused by interest rate changes; it was caused by loose borrowing requirements, which led to high numbers of unqualified borrowers buying, then being unable to pay for the properties they bought. When those borrowers started to default, the insurance company that backed those mortgage bonds defaulted. Suddenly, there was limited funding for future mortgages. Would-be buyers could not borrow, foreclosed properties flooded the market in some places; prices dropped as much as 48% in areas that had recently overbuilt (not here!)
The useful data:
Nationally, prices increased year-over-year, 8.3%. The figure was collected in July, which included the bulk of the spring buying season.
Massachusetts, prices increased year-over-year, 15-20%. The figure was also collected in July. It was charted in the article.
The useless data:
The next chart shows the number of sales, statewide, in Massachusetts. Unless you are a real estate agent, this information is not relevant to you. For buyers, fewer sales could be good or bad for you. Is the pace of the market slowing due to reduction in supply? Reduction in demand? Mortgage borrowing conditions?
If the number of sales is down because demand is way down, and there is inventory building up, now that would be good news for would-be buyers. The article doesn’t say why.
So, what IS going on this summer in the eastern Massachusetts real estate market?
Demand is lower. Some people have been priced out of the market because of the market itself or because their buying power has been reduced by higher interest rates. The super red-hot, more-than- half-the-properties-have-bidding-wars market is over. Don’t get me wrong: There are still bidding wars and two-buyer competition. It is still a seller’s market; it is just a more manageable one.
Supply is still too low. We expect to continue to see a competitive market. There is simply not enough quality housing for the people who want it. As long as supply stays low, there will be competition among buyers for some of the properties. If there is one other buyer making an offer when you make one, you have less negotiating power. We at 4 Buyers Real Estate are used to it, and we have ways to help you have a competitive edge.