Massachusetts Property Values: An Appraiser’s Outlook And Predictions On Future Massachusetts Property Values

by Rich Vetstein on July 31, 2009 · 2 comments

in Appraisals, Massachusetts Property Values, Mortgage Crisis, Rental Housing

I’m pleased to have Donald J. Griffin, MAI, SRA, an experienced appraiser with Don Griffin Appraisals, Inc., who is here to guest blog about a topic very much on the mind of Massachusetts homeowners, buyers and sellers:  Massachusetts property values.

Don Giffin, MAI Appraiser

What Happened?  The Last Three Years

The Massachusetts real estate market was artificially stimulated by forces outside the normal supply demand model. This led to artificially increased values, mostly at the lower end of the value range in communities at the lower end of the income range. Once the stimulation was terminated, around 2006, and market forces returned to normal, the correction process began. The Massachusetts market has to absorb all of the artificially induced value, before it can start to act in a normal supply demand model.  Any particular property will be affected by the market that it is in, therefore to answer the question, “How much has my property value declined?”, look at the community it is in, and the location of its value in the community’s range of value, i.e. low medium and high. In general a high end valued home in a community with high incomes will see little to no loss, while a low end valued home in a community with low income will see high declining value. Most communities will continue an upward trend in average value. The upper end in both markets will continue to feel the pressure of the recession and tight credit for 12-18 months until the recession’s negative effects are mostly dissipated and we have moved into a strong growth mode. Properties at the low end of the value range in all communities will wait a long time to attain the values seen in 2006.

The Broad Strokes

In general, decline in real estate value is a result of an imbalance in supply and demand.  More sellers than buyers, cause reduced prices. If possible sellers wait, hoping the market will improve.

The Impact of the Sub-Prime And Credit Crisis On Massachusetts Property Values

There have been many articles written describing the sub prime mortgage market in relation to the collateralized mortgaged backed security market. For our purposes I will simply state that the effect was to increase demand for real estate, mostly at the low end of the value range. I say the low end because the goal was to bring marginal buyers into the market by lowering the bar for qualification for a mortgage.

This did not affect the middle and upper income value ranges in Massachusetts as much, since high income earners were already in the market.

However, there was an “upsurge effect.” When a low value owner sold for a profit, they moved up to the middle market, creating a secondary effect on the middle and upper markets.

From 2003 to about 2006 we can document an upsurge in Massachusetts property values, which we attribute to the excess demand entering the market during this period.

Case Study, Arlington, MA:  The Middle Market

I’ll use Arlington, Massachusetts as a sample middle market community. I’ve tracked the average sales prices of single family homes from 2003 through 2009 Year to Date, shown here:

arlington graph

Case Study, Wellesley, MA:  The High End Market

I’ll use Wellesley, Massachusetts as a sample upper market community where I’ve tracked the average sales prices of single family homes from 2003 through 2009 Year to Date, shown here:wellesley graph

What Markets Have Been Affected?

In general, middle market Massachusetts communities, such as Arlington, have seen declines at the low end, with recent increases at the middle value ranges, mostly correcting the effects of the oversupply caused by the subprime mortgages. The upper value range in a middle market community has mostly seen steady growth in value, but is now starting to feel the impact of the recession.

High income communities, such as Wellesley have seen similar changes. The YTD value declines at the upper level are more pronounced and reflect not only the recession but also the lack of ready loans for jumbo mortgages.

Property Value Predictions:  What Does The Trend Tell Us?

Following the trend lines we would predict that the lower and middle value ranges in most Massachusetts communities will continue an upward trend in average value. The upper end in both markets will continue to feel the pressure of the recession and tight credit for 12-18 months until the recession’s negative effects are mostly dissipated and we have moved into a strong growth mode.

_______________________________

Thanks so much for the informative post, Don.  We look forward to your future contributions to the Massachusetts Real Estate Blog. As you can see, Donald J. Griffin, MAI, SRA really knows his stuff. So please contact him for your appraisal needs.

Richard D. Vetstein

  • tom

    I want to know if an in law quarters should get a special credit on my appraisal? Also is it fair for an appraiser to suddenly discount or not even include space because they feel it no longer belongs to the house even though the town includes it and I pay tax on in? Thank you in advance for your help

  • I really liked your perspective! look forward to more insightful info.

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