Why are Boston condo prices still rising?
Boston condo for sale prices are on the rise – the topic that has been in the news, including here.
The fallout from the pandemic has undoubtedly made its mark on all aspects of the economy. But the housing market differs from other industries in that it’s stronger than ever… for the seller. High demand and low-interest rates keep pushing home prices up, igniting bidding wars across the nation. According to Realtor.com, median sale prices went up 17.2% year over year in April. Now, that number is so large partly because at this time last year we were hitting the worst of the pandemic for the real estate market. But the median home price – $375,000 – still marked a record high.
But for how long will real estate prices continue to rise?
If you’re a downtown Boston condo buyer, you may be pondering to wait out the market? If you’re selling, you may want to know how quickly to list your home. To demystify what’s happening in the Boston real estate market right now (and in the future), let’s take a close-up look at why prices are so high right now, what will curb that rise, and when the experts expect that to happen.
What’s Causing Home Prices to Increase?
First off, let’s understand why what causes Boston real estate prices to rise, and which are at play right now. It’s possible you’ve heard nervous chatter about the possibility of another housing bubble, like the one that caused the 2008 recession. We won’t go into too many details. But safe to say that nearly every expert out there agrees we aren’t in the same situation as we were in 2008. At that time, banks were regularly approving subprime mortgages, subprime borrowers were accepting them, and there was a surplus of construction.
Now, what we’re looking at is an actual, rather than “artificial” demand, and low supply. Here’s a breakdown of how that came to be:
- Covid (and Pre-Covid) Demand. The suburbs had already risen in popularity before the global pandemic drove more and more people to want more and more space. Single-family homes then became the most desired, and also the least listed.
- Lumber Prices Up. Lumber prices have soared even more than home prices since the onset of Covid-19. The National Association of Homebuilder’s clocks that rise at 300% since April 2020. Their estimate puts that at $36,000 added to the price of a new home.
- Low-Interest Rates. The pandemic has kept interest rates at reasonable, or even record-breaking lows. That makes buying a home more attainable for consumers.
- Millennials. Love ’em, hate ’em: millennials are now one of the largest demographic groups in the nation. And they’re entering the age at which many people choose to buy a home. Supply, meet demand.
What Needs to Happen to Stem Rising Home Prices?
So we’ve got a handle on why home prices are increasing. But what needs to happen in order for them to decrease? Any combination of the following factors would stem the flow of rising home prices.
- More New Construction. Partly due to the high lumber prices referenced above, new construction has slowed. April saw a big hit, according to the U.S. Census. New starts for single-family homes dropped by 13.4% from March to April. With supply at a low, a surge in new construction would slake demand.
- More Existing Homes for Sale. Likewise, if a flood of existing homes came on the market, balance would be restored. In the past three months, existing home sales have consistently declined, according to the National Association of Realtors.
- Buyers Being Priced Out of the Market. Whether due to higher interest rates or a continuous rise in home prices, if enough buyers get priced out of the market, supply and demand will find a better balance. Buyer pessimism is at an all-time high, as the latest statistics from Fannie Mae’s Home Purchase Sentiment Index show. The question everyone is waiting on, then, is when will buyer pessimism outweigh buyer determination?
Will Home Prices Rise in 2022?
So, when can we expect some of these counteracting influences to kick in? There’s no strict formula to predicting the future of the housing market. But we can turn to some of the country’s top experts for reasonable expectations. With an eye towards that expertise, we’ve gathered up the following projections from trusted analysts.
- The National Association of Realtors’ chief economist, Lawrence Yun, has publicly stated to the New York Times, Vox, and others that he believes prices will continue to rise but not at the current rate. In the short term, rising prices and bidding wars are likely to continue. But as early as the last quarter of 2021, interest rates may go up. Yun predicts that in the coming year we’ll see a decline in multiple offers but that prices will still be higher than they are now – just not astronomically.
- In early May, Ali Wolf, chief economist at building consultancy Zonda, made a similar statement to Realtor.com. Wolf postulates that prices will continue to rise, but again, at a slower pace as we enter 2022.
- CoreLogic, an analytics company that provides the leading data on housing prices, recently tipped Forbes to look towards the end of the year when more buyers will be priced out. They predict more new construction and lower demand.
Will Home Prices Decrease in 2022?
The predictions we’ve gathered above do seem to reach a consensus. According to the experts, there won’t be a bubble that suddenly pops. Instead, prices are likely to continue increasing, just at a more gradual pace as the market recovers from the aberration that is Covid-19.
Remember, though, that moderately increasing prices isn’t necessarily all bad news for buyers! Not a lot of people buy property without expecting it to appreciate. On top of that, we’ve reached a time of year during which home prices typically go up. There are ways to get the best price possible – from working with a top agent to knowing the best time of year to buy or sell. And for those who are feeling priced out, don’t count out down payment assistance programs, which the Biden administration has plans to expand upon.
When you’re ready to take the plunge, get in touch with our Ford Realty Inc team. They’re prepared to get you the most out of your real estate transaction, no matter what the market is up to!
Why are Boston condo prices still rising? It is a simple answer. There are more purchasers in the market right now than there is available Boston condo for them to buy. Especially under the $500,000 price point. This is an example of the theory of “supply and demand” which is defined as:
“The amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.”
When demand exceeds supply, prices go up. This is currently happening in the residential real estate market.
Here are the numbers for supply and demand as compared to last year for the last three months (March numbers are not yet available):
In each of the last three months, demand (buyer traffic) has increased as compared to last year while supply (the number of available listings) has decreased. If this situation persists, home values will continue to increase.
Boston Real Estate and the Bottom Line
The reason home prices are still rising is that there are many purchasers looking to buy, but very few homeowners ready to sell. This imbalance is the reason prices will remain on the uptick