FRAMINGHAM – Luck often comes with good timing, and that was the case with Pat and Kym Parker.
The Framingham couple recently sold their two-story home on Randy Road for $ 655,000 – in less than two days – in a booming real estate market. They put their house up for sale for $ 550,000 on a Thursday and two days later accepted a buyer’s offer, leaving with a net surplus of $ 105,000.
They lived in the house for just over three years, paying $ 420,000 at the time of their purchase, according to the city’s real estate records. Their selling price was 56% more than their buying price.
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âIn May we heard how crazy the market was,â said Pat Parker, 32, explaining that he had spoken with a few realtors about the possibility of putting his house on the market. “We liked the number we were getting.”
The Parkers’ experience is taking place across MetroWest, as many homeowners are cashing in – selling their homes well above the asking price, as potential buyers engage in bidding wars for limited supplies.
But how long can the binge eating last, pushing prices to historic highs? Some fear that everything will collapse, much like the last real estate collapse in 2008-09.
Real estate experts who spoke to the Daily News gave views ranging from the low likelihood of a market collapse to signs that could point to a significant drop in prices.
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“There isn’t a great risk” of outright collapse, said Timothy Warren Jr., CEO of The Warren Group, a Peabody-based real estate data, analysis and market analysis company.
Warren said he was concerned about sky-high house prices because he said fewer people could afford them. This could hamper sales.
To make his point, Warren’s cabinet recently calculated the numbers for Middlesex County. They are posting a median price of $ 650,000 for single-family homes in the first five months of this year, a 16% increase over the same period last year. The year-to-date median price in May was $ 695,000, a 12% increase from the median a year earlier.
The chances of a market collapse like the one experienced in 2008-09 are slim, according to Warren, pointing to speculative mortgages which then led to massive foreclosures and a market bottom.
One of the reasons for optimism, Warren said, is that lenders exercise caution when deciding how to lend money and to whom. Potential buyers today have to prove their income level and they have to put in more money before getting a mortgage.
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“I don’t think we will see a collapse like the Great Recession (of 2008-09),” added Lori Lavigne, who chairs the department of accounting, economics and finance at Framingham State University. .
The basic economics of supply and demand are driving the current overheating of the housing market, Lavigne said. Supply is limited, while demand is robust.
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Lavigne speculated that today’s limited supply is at least partly linked to the pandemic, as many families are content to sit and work remotely from home. But demand is growing as city dwellers seek larger spaces in the suburbs.
Ultimately, Lavigne sees house prices cap as market forces move supply and demand closer together.
Will the real estate bubble burst?
But Richard Goulet, president of The Appraisers Group, a Belmont firm that provides residential and commercial real estate appraisal and advisory services in eastern and central Massachusetts, departs from Warren and Lavigne.
“It’s a possibility,” Goulet said when asked about the prospect of the housing bubble bursting.
Goulet quickly qualified this statement, stressing that he was unsure whether an apocalyptic scenario would play out.
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Interest rates are still relatively low (around 3.25% for a 30-year loan, according to bankrate.com), which Goulet says is the key factor in controlling the overheated real estate market.
âWe are seeing the lowest interest rates in history. It could be the saving grace of a (being) burst bubble, âhe said.
Many factors could contribute to a future decline in the real estate market, according to Goulet.
One is if interest rates rise, which increases the cost of mortgage payments.
Another is the continuing bidding wars between potential buyers. They are under pressure to bid well above the asking price and find the money quickly. And, many of these offers do not include a home inspection. Goulet said he has heard of cases where some buyers are facing expensive home repairs because they were not inspected before closing.
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If the market goes south, those who have overpaid for a house risk finding themselves “under water” where their mortgage balance is greater than the value of the house. That, coupled with a job loss, could be a recipe for disaster.
What happens if the real estate bubble bursts?
Some communities in MetroWest are in a better position to withstand a real estate downturn, Goulet said. He cited Framingham and Natick as examples, due to their proximity to industry and convenient access to Boston. Framingham’s diverse set of properties – including single-family, two- and three-family, and apartments – is another plus.
Property values ââfurther south, including Franklin, could experience a slowdown during a market correction, Goulet said, due to limited industry and moderate transportation services.
As for bidding wars, real estate brokers are contributing to the phenomenon, Goulet said. Some companies deliberately set list prices low to encourage bidding.
âThis is generating more buzz, and we are seeing more bidding wars than ever before,â Goulet said.
Benefited from a popular real estate market
Pat and Kym Parker benefited from such a bidding war. They used the proceeds from the sale of their Framingham home to buy a house in Shrewsbury that is double its size for $ 650,000.
âI wouldn’t be shocked,â Pat Parker said of the possibility of a real estate market cracking. “I never thought in my wildest dreams that this house (Framingham) would go for ($ 655,000).”
Henry Schwan is a multimedia reporter for the Daily News. Follow Henry on Twitter @henrymetrowest. He can be reached at firstname.lastname@example.org or 508-626-3964.