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Will The Housing Market Continue Its Decline In 2007 Or Start A Comeback?

Rajiv Laroia
02/27/2007

Will The Housing Market Continue Its Decline In 2007 Or Start A Comeback?

KEY POINTS AND OUTLOOK
 
- BUYERS ON THE MOVE AGAIN: This is the best time in recent years to be a buyer. Pent-up buyer demand seems to be loosening, as the market has stabilized and more are making lifestyle purchases and taking advantage of lower prices and better inventory before the spring market is in place. Market Activity has picked up significantly in the past 30-45 days and continues to gain momentum. Buyers are realizing that the CRASH has not materialized and the GLOOM AND DOOM scenarios of the BOSTON GLOBE may have been a good marketing gimmick to increase sales....but even the Globe has been announcing the bottom of the market for the past 2 months.  
 
- A WIDE VARIETY OF HOMES TO CHOOSE FROM: Inventory is still healthy, but beginning to drop as buyers are no longer waiting to time the market. There was a 10- to 11-month supply of unsold single family homes toward the end of last year, down from a high of 15 months last February, according to MAR. Supply is dwindling, since the December number decreased 13% from November’s 35,254 homes. Since November, the number of unsold condo units has DROPPED 7.1% (from12.7 months of supply to 11.1 months of supply).  The market is “balanced” when 7.5 to 8.5 months of housing supply exists.

- MORTGAGE RATES REMAIN LOW: Mortgage rates are still historically low, inventory is healthy, and most sellers are setting reasonable prices based on this market rather than the unusual spiking prices of the past five years. long-term mortgage interest rates will climb moderately this year: The Massachusetts Mortgage Bankers Association, for example, has predicted that the average 30-year fixed-mortgage rate will rise to 6.6 percent and the average one-year adjustable-rate mortgage will remain about the same at 5.8 percent. The National Association of Realtors forecasts a 6.7 percent 30-year fixed rate and a 5.5 percent one-year adjustable rate.

- MARKET AT OR NEAR BOTTOM: Real estate market is experiencing a healthy price correction and return to a “normal” long-term appreciation rate. The New England Economic Partnership, a nonprofit research firm, is forecasting that home prices in Massachusetts will decline about 5 percent through the year because of weak job growth and slow gains in population and the labor force. NEEP predicts that at the start of 2008, home prices will be 7 percent to 10 percent below peak levels seen in 2005.
 
- STILL A GREAT INVESTMENT: Real estate continues to be a great long-term investment. Prices are expected to appreciate an average of 15-17% between 2007 and 2015.
 
- LOCATION LOCATION LOCATION STILL THE RULE: This means that some towns will experience higher appreciation rates while others a bit lower. For Example, in 2006, home prices in the towns of Winchester, Concord and Sherborn increased by 4.83%, 8.8% and 14.4%  respectively while they declined by 6%, 10% and 11% repectively in Lexington, Somerville, and Lincoln. NOTE: statistics quoted here should be used as an indicator of the strength of the communities highlighted rather than as a precise number (price increases and decreases are based on the median price of houses sold in a community and the "basket of homes" sold might vary from year to year)
 
- RENTS RISING: As for the rental market, industry watchers are expecting to see rents inch up. Continued job growth in Massachusetts and nationally, as well as low inflation, should bode well for apartment demand.
 
- COME SPRING, MORE COMPETITION FOR GOOD PROPERTIES: 2007 is expected to mirror 2006, resulting in another historically strong year, although below the market sales and price spikes of recent years (according to National Association of REALTORS®). Median price of single family homes increased $52,000 over past 4 years or 16%, retaining investment value. The AVERAGE price increased $222,110 or 124% over 10 year period. December median condo selling price increased over 2005 figures for the second consecutive month by 1.9% (from $264,950 to $270,000).
 
Buying activity tends to be at its peak in spring and summer.



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