The Boston Real Estate Market is Hot but Cooling
For a couple of years, Boston’s real estate market has been red hot and booming. Investors have experienced low inventory with high demand, which means they’ve been able to enjoy comfortable profits amid a very competitive environment. Now that Autumn has begun, the market is beginning to soften, but gently.
A glut of new homes has hit the market and that has investors ecstatic. Boston Magazine reports that listings are up and sales are down. In fact, just a few days after Labor Day more than 300 new homes hit the MLS listings. That’s giving home buyers a new level of confidence, but it’s not bad for home sellers and real estate investors either. Many are still calling it a seller’s market. Demand is still outpacing supply, so prices continue to rise.
Colin Leland, Sharestates’ new director of sales in the northeast region, confirms that diagnosis. “Pricing has slowed down and inventory is creeping up, marginally, but demand far exceeds supply,” he said.
In September 2020, the median price of a single-family home was $680,000. This year, it was $750,000 representing a 10.3 percent year-over-year increase. The median sales price for condominiums rose 4.6 percent year over year. Single-family home sales dropped 13.1 percent year over year and 21.2 percent month over month from August to September this year.
Overall, Suffolk County, Massachusetts, where Boston is the county seat, is looking good. PwC lists Boston as the 10th best U.S. city for real estate investing in 2022.
Where Are the Best Boston Neighborhoods for Real Estate Investing?
Charlestown is the most expensive neighborhood in Suffolk County with a median listing price of $899,000. Chelsea, with a median list price of $517,000, is the most affordable. In Boston proper, Beacon Hill is the most expensive of the 65 neighborhoods with a median listing price of $2.4 million while Commonwealth is the most affordable at a median list price of $515,000.
Seth Williams, vice president of sales at Ledge & Young Real Estate, said home prices were decreasing in Beacon Hill until recently when they started fluctuating. That makes it a unique market in Boston and increases the competitive nature of the investing segment. “Single-family housings in Boston are getting colder considering other perspectives of the real estate market,” Williams said, but he was quick to point out that it’s the single-family home prices that are cooling and not the overall housing prices.
In Andover, home prices in October were up nearly 20.5 percent from a year before. On the other hand, the number of new homes on the market was down to 57 from 70 last October. Redfin gives the Andover market a “somewhat competitive” rating and notes that houses sell for 3 percent higher than the list price in around 33 days. Hotter homes in the market sell for 8 percent above the list price in 15 days. That’s great news for fix-and-flip investors. Realtor.com reports the median home sold price in Andover as $737.5K dollars in October 2021.
Neighborhood Scout ranks the top three most appreciating neighborhoods for real estate in Andover to be Lowell Junction, Shawsheen Heights/Shawsheen Village, and West Parish.
Roxbury has experienced an inflation rate of 125 percent in the last five years, which is 25 percent higher than Boston’s overall. This is driven largely by Roxbury attracting residents who are priced out of more expensive neighborhoods. Roxbury is also home to several opportunity zones.
Leland pointed to the Seaport district as a land of great opportunity, especially for commercial development. One of Boston’s newest neighborhoods, the city filled in some of the underwater areas and created new land for development. As a result, businesses are popping up all over South Boston along with new living quarters.
Another thing driving development in Boston is continued urban sprawl. Because of limitations and restrictions on building, developers are building around the outer edges of the city. That makes the outlying edges of the suburbs and exurbs rich for rental property investors who want in on the ground floor in Chelsea, Revere, South Boston, Quincy, and other outer neighborhoods. Boston is growing and development can’t keep up with demand. That makes rental properties and fix-and-properties good for investment, but Leland said the real opportunity is with rental properties.
Great Boston Single-Family Rental Market
Boston has always been great for investing in rental properties. For one thing, real estate prices are so high that many people can’t afford to buy a single-family home, but they still need a place to live. Families with children and pets often prefer single-family homes because children can have a backyard to play in and there is more privacy than in a multi-family dwelling.
The pandemic had a big impact on real estate markets across the country. That impact was felt in the buying and selling market as well as rentals. Due to layoffs and remote work practices adopted by many businesses, many families moved out of the city and toward the suburbs. In August, single-family rents went up 9.3 percent. That represents the fastest rise in year-over-year single-family rents in 16 years. Because there is a shortage of homes on the market, more people are renting. That’s forcing rents higher. Even in a cooling market, the reality is rents are on the rise. That spells a huge opportunity for single-family rental property investors.
What’s changing in the rental market is that renters are looking for more roomy living conditions and better amenities. In other words, detached rental units are more popular than townhomes, duplexes, and condominiums. Detached property rent growth in August 2021 was 11.7 percent compared to 6.4 percent for attached property rentals. Now that people are looking at the pandemic in their rear-view mirrors, so to speak, people are moving back to the city to be closer to work again. This is driving a surge in the single-family rental market.
Mashvisor lists the top three Boston neighborhoods for single-family rentals to be:
- Mission Hill
- South Dorchester
- and South Boston
Their favorite neighborhoods for Airbnb rentals are:
- and Mission Hill
We expect Boston to continue to be a hotspot for single-family rentals.
The Boston Real Estate Investing Market Is Still Hot
While Boston is slightly cooling, the real estate investment climate is still hot. That goes for single-family rentals and fix-and-flips. House prices will continue to climb, as will rents. If demand continues to outpace supply, that will remain true. Demand will likely continue to outpace supply for the next year or two simply because the cost of materials has gone up. While new developments are happening, they aren’t happening fast enough to keep up with housing demand. And Leland said he believes fix-and-flips will take off again.
Are you a real estate investor looking for your next big opportunity in Boston? Get in touch with Colin Leland today.