A reader sent me a spreadsheet of all the new projects recently completed, under construction, or ready to break ground, in the South End.
He noticed that there will be as many new units hitting the market over the next three years, as hit the market over the past five years.
Trouble is, there’s 50% more inventory, out there, already (a mix of old and new stuff) (3,000 units on the market vs. 2,000 units on the market, last year).
And, only 75% as many buyers, as last year.
Therefore, his question is:
Are we headed for a condo bust in Boston similar to the one that happened in the early ’90s?
My (unedited) answer is:
Ah, the early ’90’s. I remember those days, fondly. William Jefferson Clinton was elected President, Pearl Jam had a hit record with
’10’ ‘Ten’, and cheap heroin was for sale on Haight & Ashbury streets.
The good old days, I call them.
Anyway, what was I about to say?
Thanks for the email. You have done a great analysis of the current, past, and future condo market, in the South End.
I don’t think there will be a glut at all, is my first, gut reaction.
Even after looking at the numbers, more deeply, I’m still confident that there will be enough buyers for these new developments.
Although there is currently a high level of inventory, I think it is temporary, and will work its way out, over the coming months (6-9 months).
I think a lot of the properties on the market are for sale by sellers who will sell, but only if they get full-priced offers. Otherwise, they are content to wait out the market.
Buyers will have to decide whether they want to deal with unrealistic sellers, or go the new construction route. Many may choose to go the new construction route, especially if they can get developers to offer up some concessions at closing.
There are many reasons for the current glut; everyone seems to have an opinion about it.
One reason may be uncertainty over the direction of the real estate market.
Plus, Boston (ne, Massachusetts) trails the nation in job growth, so we don’t have a replenishing supply of workers looking to buy, apparently.
In addition, we are coming off a year’s worth of interest rate hikes.
Once the national economy stabilizes, we may see more movement on the part of buyers.
One of the other reasons for the slowdown is that sellers who wish to move, perhaps to new construction in the city, are unable to do so, because they can’t sell their current homes. This is true for urban dwellers looking to trade up, as well as for empty-nesters, looking to move into the city.
It’s a big circle, and it’s anyone guess what needs to happen to break the logjam. Presumably, sellers will price-chop, bringing more buyers back into the market. Keep in mind, personal incomes are still going up, every year (maybe not, after inflation), while housing costs stay constant.
Another thing. I don’t think that the developers are reaching out to the same market. They may be looking for empty-nesters and for first-time homebuyers, not people looking to trade-up (yes, this contradicts my last point).
First-time homebuyers don’t need to sell off any property in order to move. They are waiting for the market to stabilize. Once these buyers feel that the market has “bottomed-out”, they may end up coming back in. Sales prices may not come down (I don’t think they will, by much, contrary to popular opinion), but buyers will feel confident they have gotten in at the lowest point, and start buying, again.
Definitely, it looks like there will be a lot new development coming on the market, and, as you say, not just in the South End.
I think whether or not units sell, depend on the specific project.
I’m not optimistic about the Penmark, or the MacAllen Building. I am optimistic about The Bryant and The Modern. I am wildly optimistic about Fan Pier, the Seaport District, and Fort Point Channel.
285 Columbus Ave (The Red Cross Building) may never turn into condos, in my opinion – perhaps they’ll wait, perhaps they’ll turn into apartments. Same is true of Columbus Center. The final mix of condos, rentals (none planned yet), and hotel rooms could change, based on market conditions.
I don’t worry too much about unsold units in buildings currently under construction. I don’t know of many people who are willing to put down 10% cash 18-24 months before their new home will be completed, especially if the developer hasn’t even broken ground yet. Especially if it’s not refundable!
There are several other buildings coming online over the coming months – 360 Newbury and the InterContinental come to mind. They aren’t sold out. 360 Newbury will probably fill out, over the coming months, and the InterContinental can be patient. They aren’t necessarily going to be indicative of whether or not the market can absorb the increase in supply.
In three months, I may have a completely different opinion.
But, at this point in time, I’m still leaning toward the positive side.
I don’t have any empirical data telling me otherwise.
(For more past sales data, from 2000 – June 2006, go to the Otis & Ahearn website, and click on “market studies”.)
(I might add, a lot of the time, a quick edit of my posts would go a long way toward making them readable, if not comprehensible.)