“The market is crashing! The market is crashing!” If you scan various online forums, you’ll likely see this sentiment expressed with varying degrees of anxiety and conviction. It has been more than a decade since America witnessed a true real estate market crash or correction, and home prices since have risen continuously. Pessimists assumed the COVID-19 pandemic would spark a real estate catastrophe, but the market soldiered along, strong and steadfast throughout 2020. Still, a lot of uncertainty remains, so I’m forced to turn to my cracked crystal ball to answer the question: What’s in store for the coming year?
The possibility of a market correction is not about if, but when one will occur. Real estate is a cyclical industry with highs and lows that generally shift within each decade, which is why a market correction may happen soon — we are overdue.
Many experts predict a shift into a stronger buyers’ market, which is characterized by more leverage for homebuyers and a greater focus on a home’s condition and price. Yun Rhee, the team leader for Keller Williams Merrimack Valley, agrees a shift might be coming soon, but it may not impact us in the traditional way. According to Rhee, “inventory is still relatively low in the Merrimack Valley, which ultimately preserves leverage for the seller,” and she notes that the pandemic has transferred interest away from cities like New York and Boston. We could see a volatile market for homes located in big cities, and this will impact our own historic urban communities: Haverhill, Lawrence and Lowell.
Rhee worries that some homeowners may be at risk. “I really do believe Massachusetts [real estate and homeowners] are in better shape than most of the country because of the high demand to live here,” she says, “but I worry about the immense amounts of unemployment, because that could push overleveraged homeowners to the brink of foreclosure.”
While most experts predict a market correction or a slight shift, the possibility of a full-blown crash is still a possibility. Real estate crashes are often preceded by waves of foreclosures.
In 2020, landlords played a critical role. This is why in April 2020, Massachusetts Gov. Charlie Baker placed restrictions on all evictions. The ban was intended to protect out-of-work tenants from homelessness, and to lessen the blow if the market dips.
Not everyone agrees with this approach. Investor and real estate property manager Michael Marchetti notes numerous problems with Baker’s eviction stance. “The eviction moratorium was intended to help tenants,” he says. “As a landlord, I believe in relief for tenants, but the state and federal government can do that by providing subsidies for tenants unable to pay their rent instead of forcing landlords to cover missing sums of rent with the risk and repercussion of foreclosure.”
According to Marchetti, the effects of eviction moratoriums extend beyond landlords: “Unfortunately, I now have to screen tenants with more scrutiny. … [N]ow I have to be incredibly careful about applications because I have no protection if they stop paying rent.” Marchetti says the condition of rental properties may decline, noting, “Many landlords these days have stopped reinvesting in their properties. This means many rental units may be kept to mediocre standards that are meant to barely pass municipal code.”
Rhee offers this advice for those concerned about the housing market: “There are still many positive indicators. Mortgage rates are at historic lows, and the Merrimack Valley market is among the strongest in the nation. Whether you are a potential buyer, seller or homeowner, real estate is a long-term investment, and rises and falls are part of a natural cycle.”
For the inside scoop in the local housing market, keep reading Home Beat in 2021.