The Froth Is Off

The economy is slowly regaining some strength as the unemployment rate continues to drop back (6.3 percent as of May) and factory production improves and consumer spending increases but while this is a good sign for the overall economy, housing itself has not and is not likely to "bounce back" as it has in previous recessionary times.

The froth is off the housing market and that is a very good thing. For now, the cycle of boom, bubble, bust seems to be broken for housing while massive money follows other avenues of making outsized profits.

In the case of housing, investors can only move the market so much and they did influence the moderate recovery in the last few years when major investment portfolios purchased thousands of foreclosed homes with the purpose of renting them out in the short term for investment returns and selling when the values rose once more.

What really moves the housing market broadly however is not Wall Street money but every day singles and families wanting their own homes. This part of the market was hit badly during the recession with thousands upon thousands of homeowners losing their homes due to job losses. That trend appears largely behind us and now as employment improves so too should the housing market.

There is one huge change however, that in effect, will prevent a return of the bubble days of the mid-2000s and that is demographics. Berkshire County is experiencing this trend in a significant manner and so too the rest of the nation with few exceptions. There are and always will be outlier markets where even demographics seem to be irrelevant such as New York City, San Francisco, Miami where foreign influx of high wealth individuals and scarcity of housing options will maintain exceptionally high prices. Aside from these however, in places like Williamstown, Lenox, Great Barrington and Stockbridge demographic trends have a significant impact on the overall market for real estate.

Changes in human behavior and production are also playing a significant role in patterns of preference. Americans appear eager, particularly the younger generations, to gravitate to the cities for the life style they offer, particularly as the cities have become more appealing with better transportation, lower crime, more attention given to quality of life, and diversity and quantity of job opportunities.

As for production, we are all too familiar with outsourcing overseas of our once robust manufacturing base in the US and here in Berkshire County in particular. With the departure of so many jobs, those needing employment who haven’t been able to convert to some sort of internet based career or to one of the remaining stable employers in the area have had little choice but to relocate to find employment.

The demographic trends are just as powerful if not more so, in their impact. The well documented aging of the baby boomer generation that is seeking to downsize if not to relocate altogether, is having a substantial effect on the housing market. Fewer new homes are being built and home prices are settling back to much more affordable levels. Of course there are always exceptions such as those occasional high end sales to second home buyers but those do not constitute the bread and butter of the market.

So the froth is off and now those of us fortunate enough to call the Berkshires home or who plan on doing so can count on much more affordable housing options which means the younger buyers entering the market for the first time have very affordable options now to look forward to and those wanting to trade up also have very realistic and manageable affordability to look forward to.

With the exception of the relatively small number of sellers who managed to sell at or around the peak in '07, the fact that things have returned to a more modest pace and much more affordable prices is good news for everyone else.  A good property presented effectively will still command a good price but with those few exceptions not counted, the rest will trade at sensible and "froth free" prices.

Paul Harsch, president and founder of Harsch Associates, a Berkshire County based real estate brokerage firm, is a licensed real estate broker in Massachusetts, New York and Vermont, serving a diverse residential, business, commercial and land client base for 40 years.