Are Boston condo investors leaving the market?
Boston Condos for Sale and Apartments for Rent
Are Boston condo investors leaving the market?
A year ago Boston condo mortgage rates were roughly 4.1%, while the current rate is approximately 6.2%. So, rates today are much higher, yet demand for Boston condos for sale is the same. That’s a powerful statement.
How does this rise impact real cost of capital? To answer that question, let’s look through Boston real estate investors’ lenses for a moment.
A Boston property investor’s balance sheet calculates a rate of capitalization (“cap rate”) that factors in debt service and net income and is weighed against the yield of what is considered to be a “risk free” investment such as a 2-year Treasury. During the 2015–2019 period, the risk : return ratio for leveraged ownership of a Beacon Hill apartment was palatable because the return on the Treasury bill was almost nothing.
But now, not only are mortgage rates significantly higher, that same T-bill is returning 4.5% without the expense and effort of a Seaport condo transaction.
So, Boston condo investors purchases — we can safely assume — have waned, but end-users have filled the void. Said differently, investor demand for downtown Boston is down, but homeowner demand is up. Despite mortgage rates. Despite the real cost of capital.
