Monday, February 13, 2006

Boston poised for downturn?

Boston is becoming a favorite exmaple for those expecting a downturn in real estate prices. Case in point, this piece from Fortune: A Tale of Two Markets (free link here). to almost any broker in Boston, by contrast, and he'll tell you that business has slowed in the past several months. Consider John Ford. Just two years ago, five properties was the most he needed to show a prospective buyer before eliciting an offer. "And then it would be a bidding war," says Ford, who employs 30 agents in three Boston area offices. Today he's averaging 14 property tours before a skittish client is ready to buy.

In the city's suburbs, single-family homes have gushed onto the market. Inventory increased to 4,281 by January, 79 percent higher than a year earlier, according to MLS Property Information Network.

LINK, a company that tracks the downtown market, shows an inventory increase of 61 percent in the last year. And 2005 foreclosure filings were up 45 percent in Suffolk County, which includes Boston. Massachusetts was one of just three states in the union to lose population last year -- never healthy for real estate, which depends on population growth. Prices are still holding up, but there are no Gary Wattses in Boston guaranteeing another year of gains.

On the subject of predictions for the coming year, Fiserv Lending Solutions recently came out with price forecasts for 379 markets. No methodology provided, so your guess is as good as mine how they came up with their predictions. The local markets (excluding Western MA):

2006 Predicted Price Changes
Boston-Quincy, MA -1.3%
Cambridge-Newton-Framingham, MA -0.1%
Essex County, MA -0.9%
Barnstable Town, MA -2.4%
Worcester, MA -0.5%
Providence-New Bedford-Fall River, RI-MA -2.1%

Couple these predictions with expected inflation of 2.9% and we could easily be looking at real declines of 5% across many parts of the region. A crash? Not according to this forecast. But the emerging consensus for price declines is likely to have profound and long lasting effects on market psychology. Snowballs rolling downhill start small...

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