As the first quarter of 2023 comes to a close, the housing market is a topic of discussion for many. One question that keeps coming up is whether the higher interest rates have impacted housing prices, and by how much. In this market update, we will explore this question and discuss the biggest X-Factor contributing to the market. We will also consider what interest rates mean for home owners, home sellers, and home buyers.
To begin with, let’s consider a statement made six weeks ago. “I see home prices in Greater Boston being somewhere between flat to up 5% on a year-over-year basis by end of 2023”.
I broke down the top 30 greater Boston suburbs and it turns out, there are a number of towns that have gone down significantly since last year, which might lead one to conclude that the rates are causing prices to crash. However, there are also towns that are experiencing dramatic price appreciation from last year to this year. When we look at the median group, we find that those towns are down between 2% and up about 1/2%, which is almost exactly in line with our prediction from a few months ago.
What about the city of Boston and the condo market? Looking at a sampling of a bunch of neighborhoods, we again see vast differences in numbers. However, we can’t just take them at face value. For example, Brighton has a massive jump in median price point because a couple of large new construction buildings began closings this year, and those price points are a lot higher than the median price, thus raising it up dramatically. With any numbers or statistics that are out of the ordinary, we need to take a look under the hood to see what’s actually going on.
Before we give ourselves too much credit, it’s important to take these numbers with a grain of salt. We should remember that some of these towns have less than 10 total closed sales in the first three months, which skews the numbers greatly. These numbers will continue to fluctuate throughout the year, but we think that by the end of the year, the majority of towns will finish in the 0-5% growth range for appreciation, with a few outliers in either direction.
The biggest X-Factor controlling what happens in the real estate market is Inventory, and we are well below normal levels. Looking at the graph of total inventory in Massachusetts on Easter weekend, we can clearly see how far below we are compared to the last normal year, which was 2019. This past Easter was barely above 2022’s record low.
More expensive towns and price points are up considerably from 2022, however, even those aren’t back to pre-pandemic levels. From Boston to the I-95 Corridor, homes between $700,000 and $900,000 have a lot of demand, but even single-family homes in the $1.5 million dollar range in towns like Winchester, Belmont, and Arlington are selling after the first weekend.
As long as mortgage rates remain over 6%, that will dissuade enough sellers from listing their home, therefore keeping supply low and prevent home prices from falling. The gap between their current mortgage rate and their new one is simply too high and they are choosing to either renovate their current property, or buy a new one and hold onto the old one as a rental. My opinion is if we can get into the 5’s, that will spur more sellers into listing and create more options for home buyers.
One more note on rates, there are lenders with loan options in the mid to low 5’s for those of you who are putting down 20-25% on a home, and have excellent credit.
If you own a property in Boston or the Greater Boston area, I don’t see the value coming down for 2 reasons. 1-The lack of supply will not be solved anytime soon, unless somehow rates jumped to 4.5% or lower, because there’s no new construction communities coming to greater Boston. 2- what happened at SVB and a few other regional banks, collapsing in March, I don’t think interest rates will reach 8%, which is the level I think a significant amount of buyers would drop out. If I were a betting man, I think rates will be closer to 5.75% than say 7.75% at the end of this year, and that is good news for home values.
If buying a home is a goal in 2023, it’s crucial to understand your local market and what the activity level is in the price point you are looking in. For example Inventory in Lexington, MA is more than double than last year, however 75% of available homes are $2.5 million and up. If you are looking in that range, you’ll have good options and negotiating power. On the other hand the town of Melrose, MA currently has 1 single family home below 800K, so if that is your target town and price point, know it will be competitive and understand your offer will need to be aggressive from both a price standpoint and contingency standpoint. The good news is that after Easter weekend is when we see a spike in new inventory, and you will see your options increasing every week until about the 4th of July.
If I am a home seller in 2023, I’m doing my best to get listed in April, May or June, because the buyer demand is always stronger in those months compared to the second half of the year. Presentation and pricing are crucial right now. Homes that are clean, organized, staged well and priced a little below market value, are almost always selling on the first weekend and with multiple offers. Buyers make a judgement in 3 seconds about a home, so… A pro tip for sellers, is step outside your house, then walk back in and freeze. Look at everything you can see from that viewpoint, and then go make sure it looks amazing.
The key thing to understand at this time is that a 20-30% decrease in home prices in Boston or Greater Boston will not happen (except maybe 1-2 communities that had big increases in 2022 and don’t have as many sales as most towns). Real estate is a great investment over the long term, especially in Eastern Massachusetts.