Interesting piece of information from a study on hedging the risk of lower real estate prices.  It uses data from the last time real estate prices dropped, in the late 1980s.

The interesting part to me, however, is about the drop in prices, and about which cities were affected, most.  Not surprisingly (to me), the cities most affected were those most on the edge, cities with high unemployment, high number of elderly, low number of new residents, outside of major metropolitan areas.

But, my point isn’t that real estate prices went down in Massachusetts.  It’s that, if you take these big cities out of the equation, the overall drop is much less.  So, when people throw around the "real estate prices dropped in Massachusetts by 30% last time", it’s true, but not necessarily relevant.

For example, prices in Brookline dropped a more modest 20%, with the greatest drop between 1990 and 1991 (remember the war and the recession?).

I think there were many reasons why the prices dropped.  I don’t think those same reasons exist, today.  I think if prices drop now, it’ll be for brand new reasons.  That’s not very comforting, though, of course.

"This is exactly what happened in Massachusetts. Thirteen of the 64 areas experienced declines of more than 20% since peak, virtually wiping out all equity for first time buyers between 1987 and 1989. The worst three areas (Lowell -56%, Brockton

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