Wednesday, July 28, 2004

The Massachusetts Association of Realtors reported this week that the housing market in Massachusetts is still going strong. Amazingly, the average sale price in the state has risen to $360,000. Single family home sales are up 15% over last June and Condominiums are up a staggering 42% with an average price of $265,000. Condo’s have once again become a first time buyer magnet. I saw something similar happen in the mid eighties when I worked as a Real Estate Broker. Buyers were willing to pay more and more for Condo’s partly because their value increased so rapidly . Many investors also entered the Condo market. The philosophy was “buy high, sell higher”. They were great equity builders. It wasn’t long before the price of a Condominium exceeded the price of a small Cape or Ranch. As you would expect, this led to a correction in the market place. Condo prices sank like a cannon ball. It didn’t end there. As condo values plunged, first time Condo buyers became financially trapped. If they sold, they would lose money or break even at best. This diminished the pool of homeowners that could  “buy up”. The effect rippled through the entire real estate market... I remember sitting in the kitchen of a potential Condominium seller explaining a market analysis to him. Suddenly, a huge moving truck pulled up to a Garden Style Condo across the way from his. He looked out the window, turned to me and said in a serious voice “looks like someone is escaping”...  This is not an opinion of what I think will happen in today’s market, it is more my recollection of what happened then.  Of course, every economic market is different, and no one knows for sure what will happen in this one.  

2 comments:

Dick said...

As long as interest rates stay low, we shouldn't have a repeat of the price plunges that we all remember from the 1980s.

Anonymous said...

The prices have been rising continuously for several years now. I don't think they will drop. Real estate has always been the safest investment you can make.