Are we at the top of the market? I don’t know. - by Shaun Fitzgerald

Are we at the top of the market? I don’t know. I can’t predict the future and it’s not my job to do so. But. I’ll have to admit, I am asking that question frequently. I can’t prove it empirically but I have many anecdotal indications that we might be there – or be beyond there.

A few months ago, I was talking with a friend who is a New York City developer. He’s in his early seventies, so he doesn’t have the time and energy to pursue deals the way he used to, but he is an avid observer of the market and has the experience and wherewithal to see trends and opportunities. I told him how the residential markets in which I do much of my business seemed to be soft at the top – the city of Brockton seemed to have a barrier at $400,000 and the somewhat upscale town next to it seemed to have a barrier at $700,000. Under those numbers, things were selling like hotcakes and above those numbers, there was very little activity. My friend replied “I agree; I haven’t seen any condos or apartments in Manhattan sell for over $30 million in about two years” (obviously, we work in different markets). 

So, I started thinking about an appraisal assignment I had in Wellesley back in 2010. When I analyzed the market trends, it appeared that there was a very slight increase in prices, yet just about everything in the rest of the state – and the country – was in steep decline. Upon further investigation, it became clear that Wellesley prices started declining in the 2005-2006 time frame, long before the rest of the world realized we were in trouble around 2008. I took away from this a belief that the smart money sees these downturns coming sooner than the rest of us and pulls back ever so slightly. When the downturn does occur, those folks are ready to buy the bargains and the price ascent starts over again - ever so slightly.

The Realtor organization is telling us that there are multiple offers and rising prices. They tell us that prices are increasing and the reason is a lack of inventory. They are telling the truth. But, the lack of inventory may well be that more experienced folks – people who have actually experienced homeownership and maybe lived through a few market cycles – realize that if they sell the home that they are in now, they may not be able to afford the only offerings that are available. They hold off on selling and thereby create a shortage of inventory. With nothing for sale, newcomers conclude that they will never be able to afford their own home and rush to buy their first house – probably at a high price. Eventually, they may end up overpaying- and then we call it a market top.

If we watch the market through the eyes of the MLS, we might see that the statistical results are different from those who watch the market through the eyes of something like the Warren Group’s TownStats offering. As always, we have to be careful with statistics. Like my experience and that of my Manhattan developer friend, it depends what segment of the market you are watching. And it also depends on whether we are measuring mean, median, mode etc.

My final concern about market top is arson. It’s been many years since arson was in the news. Just recently, however, there have been three apartment/condominium construction projects underway where the building were involved in a significant fire. At least one is being investigated as arson; the others are considered “suspicious” by many. This is a situation where the demand has been overestimated. When the demand for a brand new apartment dries up, sometimes strange things happen.

Quite honestly, I can’t predict the future and it’s not an appraiser’s job to do so. When we miss the top of the market – or when we see it and don’t proclaim it from the rooftops – somehow the public thinks that we should have seen it coming. For now, I’m going to watch things closely, and on a market-by-market basis.

Shaun Fitzgerald is the owner of Fitzgerald Appraisals, Easton Mass