The Boston condos for sale market has exploded in value appreciation in the last several years. It’s finally coming to a stop in 2019. The reason for this slowdown is simple. It’s just unaffordable for many. The affordability factor has two prongs for home buyers: 1) Price of a Boston condos for sale and 2) Mortgage rates. Both have gone up so much beyond the growth of the average income in downtown Boston, it’s about time for a market correction. Mainly, the increase in mortgage rates is now contributing more than ever to the slowdown in the Boston condo Midtown market as well as the national real estate market.
Prices won’t increase much in 2019
So far in the last quarter of 2018, Boston condo values have been rather decreasing in certain areas of Boston. Compared to the median value from 12 months ago, I am seeing an actual decrease in value from last year. Arguably the winter market is generally slow and fluctuations are not uncommon, but this was the first time in a long time that the numbers are coming back lower than the year before.
However, the Boston condominium market will bounce again as usual comes spring time in 2019. The market will be hot briefly earlier in the season from March to June. By July, expect a greater slowdown than what we witnessed after July of 2018. The hot market in the spring will be largely due to the surge of home buyers finally jumping into the market wanting to lock in interest rates before they continue to increase throughout the year. Overall, expect about 2% growth in 2019. That growth will occur from March to June. After that, the fall and winter market will probably tank again with home values similar to or lower than 2018’s winter season. Most of the growth will occur within the segment of Boston condos under $400,000. Homes over $500,000 won’t see any appreciation.
Relax, the housing market won’t crash
Is the housing market on the verge of crashing like it did in 2008? Absolutely not. In fact, the Federal Reserve believes that our economy is very strong as of now. When the economy is strong, it causes inflation, and the Fed increases interest rates to battle such inflation. We are not seeing any signs of a recession like we did in 2008, the great housing market meltdown. If there is a recession in the near future, it is likely caused by high interest rates causing businesses to stop borrowing and expanding. This is part of the natural cycle of the economy. I don’t think there are any signs of unusual vulnerabilities in the housing market. It’s just becoming unaffordable and the market needs to let people’s income catch up for a while. It’s likely that starting from 2020 for a few years, the housing market will be slow and steady turning into a buyer’s market.
Boston metro suburb housing market
Overall, the suburb housing market will do much better than the Bosotn market in 2019. Suburb markets generally come with less inflated prices compared to inner Boston neighborhoods. Many Boston metro home buyers weigh the option between living in the city versus surrounding cities like Arlington or Waltham. Sure, there is more entertainment and culture in Boston but at what price is it still worth it? More first-time millennial home buyers are jumping into the housing market with increasingly smarter valuation of what they are willing to pay. For the most part, you can live in a better house in a safer neighborhood with decent schools in a suburb city and simply take the T to work.
For how long will mortgage rates continue to increase?
First, the mortgage rate for a fixed 30 year home loan is different from short term interest rates. When the Fed increases rates like they have been recently, it affects short term interest rates, which directly affect adjustable-rate mortgages. For 30 year fixed mortgage rates, its increase or decrease coincide with the Treasury bond yields. Higher the yields, higher the mortgage rates. So what happens to bond yields when the Fed increases rates to keep inflation under check? Bond yields will go up. So the Fed increasing rates is linked to fixed 30 year mortgage rates after all. There have been mixed messages from the Federal Reserve on whether how much more they will increase rates and how far we are away from the neutrality. The stock market has been plunging downhill recently due to the fear of further rate hikes. It’s very difficult to say where the mortgage rates will go but for now in 2019 and 2020, we won’t see the rates dropping. It will probably go up. Some say it won’t go up much due to how the job market and the economy have been responding to rate hikes.