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2022 also brought about a decrease in Lynn home sales, with 58 homes sold in December 22 — 19 fewer than the 77 sold in December 2021.
North Shore Community College Economics Professor Moonsu Han said that the drop in housing prices stem from inflation costs, which bring about higher mortgage rates, and consequently, a reduction in demand.
This past year, The Federal Reserve Bank increased its interest rates from close to zero percent to 4.5 to five percent, the Fed’s most significant rate hike in 15 years. The housing market drop, Han said, reflects a national trend.
Greater Boston Association of Realtors reported Tuesday that the median-priced single-family home in the greater Boston region dropped by close to 1.3 percent between 2021 and 2022 —the first such annual decline since 2018.
Han predicts the housing market will remain the same, if not continue to drop, for at least the next year, as the Fed looks to lower inflation.
“For at least one year, the housing market is going to be very, very slow, because we expect that the Fed is going to raise interest rates. Not dramatically, but the Fed is going to keep raising interest rates up to slightly higher than five percent,” Han said. “If inflation is still there, the Fed is not going to lower interest rates, making our economy a lot slower, and the housing market a lot cooler.”
A dropping housing market caused by inflation, Han said, will disproportionately harm Lynn’s working class. He said that a dropping housing market stunts municipal tax revenue and reduces local consumption, placing financial strain on residents and local businesses.
“When the housing market goes down, rich people are going to lose a lot of money, however the top pain for everyday life, will be placed on underserved people, or relatively poor people.When they lose their equity level, their consumption is going to be reduced, which will affect their daily consumption […] the housing market, inflation, all of those factors, will be a lot more painful for needy people,” Han said.
Lynn’s housing market, Han added, did not take as hard of a hit as other cities across the country. Austin, Texas saw nearly a 10 percent market drop in 2022, and Washington DC housing prices dipped by approximately seven percent.
Although increased federal interest rates wreak havoc on the country’s consumer price index (CPI) and gross domestic product (GDP), Han said that it’s the Fed’s primary line of defense against inflation.
“If the housing market goes down, CPI is going to go down, GDP is going down — that’s the negative impact, but there might be a positive impact to control inflation,” Han said “If inflation is controlled, or if the Fed believes inflation is under control, the Fed is likely to stop raising interest rates. That will bring a positive impact for all industry, including the housing market.”
