Boston’s real estate market has been one of the nation’s storylines for the past decade. The housing market has exploded in the metropolitan area as the limited supply of real estate stock simply has not been able to keep up with the growing demand. Now Massachusetts holds the fifth-highest median selling price among all 50 states, and Boston is not far behind San Francisco in real estate prices.
Many were predicting that Boston’s sizzling real estate market would cool off in 2022 amid record inflation, rising interest rates and a looming recession. Midway through the year, it looks like these predictions may become a reality. Property sales are down slightly compared to the start of the year and inventories are up significantly compared to last year. However, home prices in Boston are still rising so far in 2022, albeit at a slower pace than last year.
Boston home sales down -3.82% through H1 2022
Total 1-year home sales in Boston are down -3.82% for the first six months of the year. As of July 1, 2022, 7,457 properties in Boston were closed for the past 365 days. That figure was 7,753 on January 1, 2022, suggesting that housing demand has been dampened by rising interest rates this year.
The supply of homes for sale in Boston is increasing
If you look at the total supply of housing stock in Boston for the first half of the year, you’ll see more signs that demand is slowing. The total number of listings for sale in Boston as of early July was 1,605, an increase of +44.20% since September 2021 when only 1,113 were available. For the first time since 2018, the number of properties for sale in the greater Boston area has increased year over year. When you combine rising inventories with a drop in sales, you’re seeing the first signs of a possible price correction in the Boston real estate market. So far, that hasn’t been the case as prices are still rising in Boston.
Despite the increase in inventory for sale, the total supply of real estate in Boston is still tight. This has been the main reason for median home price growth over the past decade. Combine these high prices with rising interest rates, and now even more potential buyers are being pushed to rent in 2022. This trend is contributing to the record high occupancy the Boston rental market is seeing this year.
Median selling price growth in Boston will slow in 2022
The median 1-year selling price for a single-family home in Boston as of July 1, 2022 is $810,057. This number has increased by +3.66% compared to January 1, 2022 and by 7.29% since September 2021. Similarly, the 1-Year Selling Price The median price for a condo in Boston ($718,814) is up 2.69% year-to-date and +5.71% since September 2, 2021.
This shows that mean price growth in 2022 has slowed by about 50% so far compared to the final quarter of 2021.
Boston real estate market forecast 2022
The data clearly shows that the Boston housing market is showing the first signs of a slowdown. This should come as no surprise given the economic uncertainty we are facing. Bad tax and energy policies have far-reaching consequences for housing markets, some directly, some indirectly. Here are 5 trends to watch out for that will impact home prices over the next year.
1. Rising interest rates dampen the demand for housing
According to the latest CPI updates from the US Bureau of Labor Statistics, inflation is showing little sign of slowing down. CPI is up 9.1% since last June and the Fed is planning another rate hike to try to get it under control. Some say it could be the biggest rate hike in decades. As the Fed continues to hike rates, it will continue to price out many buyers from the Boston housing market, which will counteract price growth. The impact of inflation on the housing market is not just limited to interest rates.
2. The trickle-down effect of bad energy policies
The price of diesel fuel is having a serious impact on housing markets. The change in the price of diesel compared to the previous year is +84.9% in May 2022. As a result, the prices of building materials increase by +9.1% with significantly larger margins than the increase in consumer goods. As diesel prices rise, so does the cost of shipping large, heavy building materials. With the additional shipping costs stapled to the final price, the cost of building and maintaining real estate increases for developers and property owners. Developers are now paying significantly more to build new homes in Boston, which in turn will help drive new home prices even higher in the near term.
3. Labor shortage in Massachusetts
Another factor affecting development companies is the labor shortage that has prevailed since COVID. Massachusetts’ labor participation rate of 66% is down one percentage point from 2019 and is struggling to recover from April 2020’s plunge to 60.5%. When developers can’t find workers, new construction projects stall. The developer bears the cost of these delays in the form of loan payments and delayed cash flow, which eventually drives up the cost of new construction housing when it comes to market. The labor shortage is also slowing the city’s new housing construction, which is badly needed in Boston, where housing shortages have pushed home prices higher in recent years. This trend will continue to limit supply and push house prices higher in the short term as long as demand for housing remains stable. In the long term, the demand for housing appears more uncertain.
4. Recession and its impact on housing demand
Aside from inflation, the impending recession is everyone’s biggest economic concern. Some would argue that we have already entered the recessionary phase that is an inevitable consequence of inflation and rising interest rates. If we see demand for Boston real estate falling so far in 2022 due to rising interest rates, imagine the demand destruction that would occur if we saw massive corporate layoffs and downsizing in Boston’s tech sector. We are still in the early stages of the economic downturn, so it is difficult to predict if and by how much house prices will fall over the long term.
5. Supply chain disruption and construction costs
Since the outbreak of COVID-19, we have seen unprecedented supply chain disruptions across all types of industries. As ports in China and around the world were shut down by strict lockdowns, the global distribution of goods was frozen and cargo ships were held up in almost all major ports. This has had a significant impact on the construction industry as shipping containers are still scarce and building materials take up a lot of space in containers.
When builders cannot source the materials they need to complete projects, it delays the development of new homes. That will limit the supply of houses for sale, which will push up house prices. It also increases developer costs, which in turn are passed on to the buyer.
Boston Real Estate Sales Market Forecast 2022-2023
We expect Boston house price growth to slow further this quarter before flattening out in the fourth quarter. We expect prices to fall next year due to current economic factors. It is still unclear to what extent prices will fall next year, as numerous market forces are putting pressure on prices. Inflation is at its highest level in decades and a recession seems imminent if not yet.
The median selling price in Boston is expected to peak around $830,000 for single family homes and nearly $730,000 for condos towards the end of September. In 2023, it is quite possible that average prices will fall by 5-10% as a result of: higher interest rates, the broader impact of incoherent energy policies, global security uncertainty and lower demand. Average prices for condos are likely to fall more than single-family homes. This is because the supply of single-family homes is significantly lower than the supply of condos in the Boston housing market. We will continue to follow these real estate market trends as they develop.
Release Date: August 3, 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.