Full Bubble Mode

According to a report by Michael Youngblood of the investment-banking firm Friedman Billings and Ramsey, the Massachusetts real estate market is still in “ full bubble mode”. This comes as no surprise to anyone that is looking to purchase real estate, sell real estate or just follows the market. But an interesting conclusion stated by Youngblood is that the bubble “won’t burst anytime soon”. Of course, this is great relief to those of us who have recently purchase real estate (it makes waking up in the middle of the night in a cold sweat…shall we say…a little less necessary). But…the scary part of the report states that the ratio of median home prices to per capita income is as high today as it was in the late 1980’s. Unfortunately, anyone associated with the real estate market during the late 80’s and early 90’s (yours truly) remembers that it was the beginning of a multi-year downward cycle. But those were the days of 12% interest rates. The fact that consumers are willing to spend a large percentage of their income on housing expenses is a strong indicator of their high confidence in the real estate market. The thinking is simple…”if I pay $300,000 for a house today, it will be worth $330,000 in a year”. Youngblood predicts that the bubble is not going to burst in the immediate future. His report says that the economy would have to shrink for a minimum of four straight quarters before housing prices begin to fall. The report was based on data collected in July, August and September of this year. During this period sales of single-family homes increased 6% while prices soared 11 % to a median statewide average of 350,000. .