Boston Housing Recovery

The following is from a JP Morgan analysis

These recent, positive indicators are a little surprising, given the 30-year mortgage rate remains at levels (6% to 7%) that many would have thought too high to promote any stability.

Today’s improvement seems to be due in large part to the fact there are nationally too few single-family homes relative to population pressures. The good news is, these drivers may continue to act as guardrails for the U.S. housing market:

• Demand—More than 30% of young people aged 18 to 34 are still living at home with their parents, according to the U.S. Census Bureau. Meanwhile, millennials (aged 27–42 in 2023) form the largest generation group in the United States at approximately 72 million. The effort of all these young adults to own homes creates a source of demand that is likely going to be a theme for years into the future.
• Supply—Meanwhile, there’s a shortage of housing stock. Since the bursting of the 2008 housing bubble, new home development in the United States has lagged demand. We estimate that today, this gap totals approximately 2-2.5 million too few housing units. And the recent spike in mortgage rates is, counterintuitively, exacerbating this shortage, as homeowners who refinanced when rates dipped are now disincentivized to move and take a new mortgage at a higher rate (2020 had the largest number of refinances on record; 2021 had the third highest, trailing only 2003).³

We think these drivers will not only cushion how low prices will go over the next year, but can also help shorten the lag between the transaction trough, when sales activity bottoms out, and when prices follow to their nadir.⁴

Right now, aggregate home prices are down about 4-5% from the national peak in 2022. We believe aggregate home prices will decline, on average, about 10% from peak to trough when the pandemic’s full fallout is complete.

In other words, we expect the decline to be smaller and come sooner than the crash the U.S. housing market experienced after the 2008 Financial Crisis, when single-family home values depreciated by about 30% from peak to trough. That nadir came a full two-and-a-half years after buying activity bottomed out in late 2008.

Also, unlike the 2008 crisis that depressed home prices fairly uniformly across the country, the amount of volatility an individual city is experiencing depends largely on each locale’s unique market dynamics. 

Cities are on very different paths back to normal

Last fall, as the housing market was cooling, we said that national statistics, while informative, would fail to tell the whole story. We expected cities to experience widely differing drops in home prices based in large part on how overheated their particular housing markets were at the start of 2022, before interest rates rose.

Subsequent home price drops have been dispersed, and in the general direction we anticipated.