As we enter the final quarter of 2022, it seems like decades of growth for the Boston real estate market are coming to a halt. The latest MLS data shows that rising interest rates effectively stifled demand for Boston real estate in the third quarter. Total 30-day sales since September are down -37.24% YoY. Meanwhile, the total number of sales offers increased by 25.10% over the same period.
As a result, Boston’s 30-day average selling price has slipped from a record high of $876,091 set in May of this year. Last month’s 30-day median selling price of $807,303 is still up slightly (+3.64%) compared to September 2021, but the latest data trends show that year-over-year price growth in Boston is about to turn into the red is advised. Let’s take a look at the trends driving Boston’s real estate market.
Demand for real estate in Boston is waning
In September, the City of Boston recorded 455 residential real estate transactions across all property types. This represented a -37.24% decrease in total sales compared to September 2021 and was the lowest recorded total sales in September in the last 5 years.
|Month||30 Day Sale||Change 30-day sales YOY|
Total monthly home sales in Boston have remained below 2021 levels throughout 2022, but that margin has increased significantly over the past quarter. This rapid fall in demand coincided with three large 75 basis point rate hikes announced by the Fed in June, July and September of this year. As a result, prices trended downwards over the same period.
Downtrend in Boston median selling prices
Boston’s average 30-day selling price for all types of residential property in September was $807,303. While still slightly higher (+3.64%) than September 2021, it is down -7.86% since the average selling price hit an all-time high of $876,091 in April this year.
|Month||30-Day Median Selling Price||Year-over-year change in 30-day median selling price|
The Fed will meet again in early November to discuss inflation and most agree it will be raising rates for the sixth time this year. This will further reduce housing demand in Boston, causing average prices to slide further down. Keep an eye out for year-over-year average prices in the red through the end of 2022.
Uncertain times for the Boston real estate market
The outlook for Boston’s real estate market looks far from optimistic as we head toward 2023. The combination of rising interest rates and recession will continue to shrink demand for Boston real estate for at least the next 6 months. As a result, all short-term projections point to moderate price cuts. Soaring energy prices, based on incoherent national oil and gas production policies, are driving inflation in almost every aspect of the economy. Inflation appears unlikely to be brought under control until greater domestic production and refinement of fuels is accelerated.
Because property development and major property renovations are highly energy dependent; We’ve seen a dramatic slowdown in the ability to bring new products to market. Destroying demand can, in a sad but awkward way, actually keep prices from falling further when new developments stall. In the long term, demand destruction due to high energy costs will affect consumers’ decision to explore more real estate options. Properly building a new construction requires large machines with immense amounts of horsepower and that means energy. If we want the construction cost per square foot to decrease, we must work to increase the supply of readily available and affordable fuel supplies.
The long-term prospects for the Boston real estate market are less clear. Boston’s growing tech and biotech sectors have continued to fuel demand for housing as the city adds more high-paying office jobs. While the US economy is certainly entering a recession, the impact on the local economy in Boston may not be as severe. There may be enough high-paying consumers willing to bear the high construction costs due to lower labor force participation rates and runaway inflation. If Boston can avoid the widespread corporate layoffs and store closures that typify recessions, house prices are likely to fall by a smaller percentage than nationally. We will continue to report on these trends as they develop.
Release date: November 1, 2022
Demetrios Salpoglou is CEO of bostonpads.com, an information and technology based services company that provides real estate companies with state-of-the-art resources. Demetrios has developed over 90 real estate related websites and owns hundreds of domain names. Demetrios also owns and operates six leading real estate offices with over 140 agents.
Demetrios has assembled the largest home rental team in the Boston area and is responsible for sourcing more rental homes than anyone else in New England – with over 100,000 people finding housing through his services. Demetrios is an enthusiastic real estate developer, peak performance coach, educator, guest lecturer and motivational speaker.