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December 24, 2018 Economic Forecast: Banking & finance

Economic slowdown: Housing prices are nearing their peak while interest rates kick up

New home construction has been slow in Worcester County.
Edward Manzi, CEO, Fidelity Bank

Will home prices peak?

The median sale price for both single-family homes and condominiums increased year-over-year in October as inventory levels remained low across the state, according to the latest numbers from Boston real estate data firm The Warren Group.

In Worcester County, the number of home sales for the first 10 months of the year was down nearly 1 percent, less of a drop than the state average and in Middlesex County, where the number of sales was down more than 2 percent.

In the meantime, prices for the year were up 6 percent in Worcester County, hitting a median of $275,000, and up 7 percent in Middlesex County, hitting $552,000.

How much higher can prices go? A cooling stock market may signal an economic slowdown ahead, which would affect prices. So could legislative changes, such as Gov. Charlie Baker's housing bill, which aims to create 135,000 new housing units by 2025. The bill, which would work in part by lowering the threshold for approving certain local zoning changes, is no lock to pass into law, particularly at the end of this legislative session.

Interest rate questions

With low unemployment rates and a humming economy, the Federal Reserve has slowly raised interest rates in the last three years and has signaled it intends to continue inching the rate up.

Fed Chairman Jerome Powell has occasionally been the target of criticism from President Trump for not keeping the rate lower, and in late November, he said the interest rate was just below neutral after saying a month prior it still had a long way to go before reaching that point.

The rate could continue rising into 2019 or, with recent upheaval in the stock market and a potentially cooling real estate market, the new year could see the Fed start to pull back or hold steady.

More commercial lending opportunities

While banks largely took a break from mergers and acquisitions locally in 2018, a few did make moves toward offering more commercial lending opportunities in Worcester.

Wells Fargo, one of the country's largest banks, opened just its fifth New England office this year with a new foothold in Worcester. The office on Park Avenue caters to the local business community with credit, treasury management and deposit products and services for companies with revenue of $20 million or more.

San Francisco-based Wells Fargo first opened New England offices in 2015. It is now in Boston; Providence; Portland, Maine; and Manchester, N.H.

Rockland Trust is making a move into Worcester for the first time.

The bank said it will open a commercial lending, investment management and treasury management office at 100 Front St. in downtown Worcester. The office will be helmed by Michael Crawford, formerly the executive vice president and chief operating officer of Worcester's Commerce Bank, which was acquired last year by Berkshire Bank of Boston

Fidelity Bank has set up microloan funds to help small businesses in Gardner and Winchendon, two northern Worcester County communities where Colonial Co-Operative Bank, with which Fidelity has merged, previously had branches.

Fidelity has earmarked $300,000 for the fund, called The Colonial Bank Loan Fund-a Fidelity Bank Endowment, as part of a commitment it made when the merger with Colonial was announced.

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