Downtown Boston condo and Home prices have surged in most markets across the country. What should investors do?
The problem with giving a good answer is that there aren’t any good reasons why prices are higher. It’s a pandemic phenomenon that’s unrelated to ordinary economic factors – and therefore we don’t know how it will develop.
One thing we do know is that there isn’t a great surge of pent-up demand. Last year 5.5 million homes were sold, just a few hundred thousand more than in previous years; this year it’s likely to be close to 6 million, well within the normal range. 8 million homes changed hands the last time home prices rose across the board, in 2007, when the big bust in real estate was just around the corner.
I think it is most likely that the biggest cause is tight supply. During a pandemic that also imperils their finances, many people just don’t want to sell their home and move. The few homes available start a bidding war, sharply higher prices tempt more sellers – and all of a sudden the momentum of upward prices takes over.
The problem with all these scenarios, including mine, is that there’s no hard evidence to back them up. So we don’t know what will happen next. I think the surge in prices will fade fairly soon – but I don’t know when. Booms have a life of their own.
In real estate the tail wags the dog – only one out of every 200 homes is sold in any month, but from that one sale we think we know what all the others are worth.
Boston housing inventory
July brought some good news for first-time homebuyers. New listings grew as smaller, more affordable homes hit the market.
Realtor.com’s July monthly housing report found new listings grew for the fourth month in a row, and those listings included a higher number of smaller homes. Homes for sale nationally dropped 33.5% year over year last month, and while inventory is still lower than it was a year ago, the report found the rate of decline is slowing.
Realtor.com chief economist Danielle Hale says July’s housing trends show the market is starting to reflect seasonal patterns of years past, even as the number of new listings grew higher than normal this summer.
“This is shifting the housing market balance in a more buyer-friendly direction, but buyers may not see as much price moderation as suggested by the national trend because it’s partly attributed to a shift toward smaller homes for sale,” Hale said in a press release. “Still, if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year.”
New listings are continuing to surge as summer continues, while inventory is declining. More sellers entered the market in July, as inventory increased 6.5% year over year, higher than June’s 5.5% increase from 2020. While newly listed homes usually decline from June to July, this year, they remained steady down just 0.6% from June, the report found.
In July, these newly listed homes were smaller in size than in 2020, helping first-time homebuyers looking for something within their price range.
According to the report, the share of single-family homes between 750 and 1,750 square feet increased from 30.2% in July 2020 to 36.3% last month. Inventory of 3,000- to 6,000-square-foot homes decreased from 24.2% to 20.1%
New listings on average grew 11.1% year over year nationally, and more than half of the country’s 50 largest cities posted double-digit gains. Regionally, the largest increases were seen in the Midwest and West, where listings grew 19.8% and 11.3% respectively.
In Boston, new listings were actually down 10.7% in July.
Home prices held steady in July, due to the addition of more affordable homes to the market. The median list price of a home in July was $385,000, an increase of 10.3% year over year. As a benchmark, a 2,000 square-foot single-family home was up 18.6% year over year in July.
In July, Boston’s median list price grew just 0.6% year over year to $679,000.
Almost half of the country’s largest markets had lower median list prices in July compared to a year earlier, again attributed to more affordable options.
A year after COVID put a stronghold on housing inventory, a recent surge in new listings may mean the inventory crunch homebuyers have been dealing with for months may be showing signs of easing.
With the seasonal rise in new listings, for-sale inventory fell only 1.1% month over month, a marked improvement after months of drops, according to Zillow’s Monthly Market Report. That monthly decline was the smallest since last July and is due to inventory rising 30% from late February to late March, signaling a more traditional pattern of sellers listing their homes in the spring.
“March often sees a boost in inventory, and then return to some seasonal norms is a positive sign that supply is beginning to catch up with demand,” said Zillow economist Treh Manhertz in a press release. “With home values skyrocketing, vaccination rates rising and employees getting long-term guidance on where they can work, we expect an increasing number of homeowners to join the market and list in the coming months. That will come as welcome news to home shoppers who are seeing bidding wars and homes plucked from the market weeks faster than usual.”
In March, home values rose a record 1.2% month over month to $276,717, according to the report, the largest monthly rise in Zillow records since 1996 and jumping almost $3,200 in value from February to March. Annual appreciation also had its largest jump in 15 years, rising 10.6%.
According to the release, Zillow economists expect 6.4 million homes to sell this year, an increase of 13.5% from 2020 and the strongest since 2006. They also expect home values to increase by 10.4% over the next 12 months.
The fastest monthly home value growth rates were in Austin, Texas at 2.4%, Phoenix, Arizona at 2.4%, and Riverside, California, at 1.9%, the report found. The slowest growth was seen in San Jose, California (0.05%), San Francisco, California (0.6%), and Orlando, Florida (0.7%). Boston’s home values grew 1%
Additionally, March saw growth in rents nationwide up 0.9% over February, the largest monthly increase since 2014. Boston rents remain some of the lowest at -5.2%
Click on Boston real estate inventory chart to enhance.
Housing inventory in Boston, which is typically highest in the spring/summer and lowest in the fall/winter, peaked at 45,412 in June 2006. The lowest housing inventory level seen was 19,327 in January 2011.
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Updated: Boston Real Estate 2021