The Multiple Listing Service’s 2016 Annual Housing Market Report for Massachusetts was officially released this week. It not only includes a review of the past year’s performance but holds some expectations for 2017.
Fed-Level Changes and Interest Rates (What does that mean for the home buyer?)
Since the Fed lowered the interest rates to combat the recession, the common murmur on the streets has been “Just you wait until the fed raises interest rates!” In my head I imagined buyers fleeing the market yelling the interest rates are raising, as Godzilla tears down the newly constructed Millenium tower. Yes, lower interest rates means more purchasing power for the buyer and spurred the great appreciation that we have realized in the past 6 years. But in comparison to other decades and even periods over the last 7 years, sub 5% interest rates is not high at all.
The Fed plans to raise the rates in small increments three to four more times this year, and projections look like it will not reach higher than 5%. Up until December, the Fed had not adjusted the interest rate for the entirety of 2016. Just before the new year, however, the key interest rate increased 0.25%, signifying confidence in a strengthening US economy. In fact, it was only the second time in a decade the rate increased. The Fed uses the interest rate as a tool to stimulate, or in this case, encourage the economy to grow a little slower as the economy has rebounded since the last recession.
What does this mean for homebuyers and sellers? For buyers, it means a slightly lower purchasing power, although that should not necessarily come as a surprise, considering record-low inventory. For sellers, who may have been holding on to their properties due to increasing appreciation values, may be more inclined to sell as interest rates increase. This could increase inventory for the first time in years, giving buyers more options!
Sales, Listings, and Prices
Overall, pending and closed sales increased in 2016 at 7.3% and 7.7%, respectively, with a total of 79,674 pending and 77,120 closed sales. This reaffirms that we are currently in a “seller’s market” and that sales should continue to increase.
It’s news to virtually no one that inventory is low, and the report affirms this, stating “new listings decreased by 3.2% to finish the year at 100,260.” Home supply is anticipated to remain low, although rising interest rates may spur owners to sell.
Median sales prices increased again in 2016, and with a low inventory and high demand, prices will continue to rise. Condo and townhome sales saw more of an increase than single-family homes by 0.6%. However, this trend may reverse in the coming year, where single family units are expected to see more demand in suburban markets, with certain demographics seeking affordability and a higher return on investment.
The top areas for change in average sales price from 2015 include Dukes, Suffolk, and Bristol counties, while the only counties that saw a negative change in average sales prices are Nantucket, Berkshire, Hampden, and Hampshire counties.
Middlesex county, which includes Cambridge, saw the most total closed sales at 17,748, which comes out at a 7% increase for the year, while Suffolk county (Boston) saw 6,099 total closed sales at only a 1.8% increase. However, Suffolk saw the highest percent of original price received at 99.5%.
In part two of this report, we’ll focus on what to expect for 2017.