High mortgage rates have eroded homebuying demand in much of the U.S., and Boston is no different. In the last year, the metropolitan statistical area (MSA) has seen falling home prices, dipping consumer sentiment and an overall decrease in building activity.
Still, the market remains strong – thanks largely to its low supply levels, which, despite recent events, just aren’t enough to meet local demand.
As David McCarthy, president of the Massachusetts Association of Realtors, explains, “Inventory is tight and not looking to increase by a statistically significant amount any time soon.”
What does that mean for local buyers and sellers as we get into spring? Here’s what the data tells us, using information from the U.S. News Housing Market Index.
How the Boston Housing Market Changed in 2022
Single-family building permits largely held steady in 2022, only nosediving in the last quarter of the year. Since then, permits have continued to decline.
From December 2021 through February 2022, Boston saw 1,096 single-family building permits approved. For the same period this year, it was just 829 – a 24% decrease over the year.
Multifamily permits followed a similar trajectory, only they saw a notable bump midway through 2022, at one point hitting their highest levels since at least 2014. Still, permits have steadily declined since then. For December through January of last year, a whopping 3,090 multifamily permits were approved in Boston. This year, it’s just 2,271, a decline of 26%. However, February 2023 showed a slight uptick from the previous month.
Boston Housing Supply and Demand
Housing supply in Boston is tight. The metro has just a 2.1-month supply of homes, down about half a month from one year ago and below the nation’s 2.6-month average. A 6.5-month supply is generally considered a balanced market.
“Supply is close to an all-time low,” says Vincent Forzese, a real estate broker and owner of Realty ONE Group Nest in Newburyport, Massachusetts, a suburb of Boston. “Sellers do not want to sell, as the interest rate they have in their current home is a lot less than the rates they would be buying into. Also, many sellers just do not have another place to go due to lack of inventory, which is creating a vicious circle.”
Despite the lack of homes to buy, rental vacancies have actually increased in the Boston MSA, according to the U.S. Census Bureau. The area’s vacancy rate is now at 3.1%. That’s up 0.8% from a year ago but still well below the nation’s 5.8% average.
Recent drops in mortgage rates (they’ve now fallen for the last five weeks straight, according to Freddie Mac) have fortunately kept demand steady. According to the seasonally adjusted Purchase Index from the Mortgage Bankers Association, applications to purchase a home were up 8% in the first week of April, though they’re still 31% lower than this time last year.
Still, mortgage rates are much higher than they were in 2021 and early 2022, and that has pushed consumer sentiment downward some. According to a survey from the University of Michigan, overall consumer sentiment has dropped 2.3 points in the last year.
“Buyer demand took a slight break over the holiday season and winter but since then has increased dramatically due to the continued lack of inventory,” Forzese says. “Many of buyers are taking the ‘marry the house and date the rate’ approach.”
Median Home Price in Boston
Boston’s median home price has been on the decline since June of last year, just after mortgage rates started to climb. According to real estate brokerage Redfin, the median price in the metro is $593,000 – down from its $705,000 high last year and a 0.3% decrease compared to one year prior.
“Values have trended slightly down, which was related to the recent interest rate hikes over the past few months and buyer fatigue from the housing market bidding wars,” Forzese says. “Based on a continued lack of inventory, though, and buyers still needing a home, we have already seen this trend stabilize and, in many cases, multiple buyer bids are happening again.”
Despite its recent dips, Boston’s median price is notably higher than the national average, which clocks in at $387,000 by the most recent numbers.
Rent prices are on the opposite path. According to the Zillow Observed Rent Index, rents in the Boston area are up 9.5% compared to last year and now clock in just under $3,000 per month. That’s significantly higher than the national average of just $1,976 per month.
For prices to make any notable decrease, the market will need more inventory. As noted previously, though, building permits have trended downward and, according to the U.S. Census Bureau, construction costs nationally are up more than 10% compared with last year, only further discouraging new building activity in the region.
Unemployment Trends in Boston
Unemployment is currently at a low 3.6%, according to the Bureau of Labor Statistics. That’s down almost a full percent since last year and is right on par with the national unemployment rate of 3.4%. About 1.9 million people are employed in the Boston MSA, with 54,400 jobs gained just this year.
The area has gained more than 1,000 jobs in the construction sector alone this year. Per the BLS, about 17,400 residents are currently employed in this industry.
Boston’s low unemployment rate is likely why foreclosures are rare in the area. According to Black Knight, only 0.3% of local properties are in foreclosure. While that’s up 0.1% compared with last year, it’s still below the national rate of 0.45% and is well below the area’s 2018 numbers, when 0.6% of homes were in foreclosure.
Builder Confidence in Boston Improves
Construction costs may be up and mortgage rates have eaten into demand, but builders are still feeling confident – at least more confident than they were a few months ago.
The National Association of Home Builders/Wells Fargo Housing Market Index currently rates local builder sentiment at a 46 out of 100 in the Northeast part of the U.S. That’s down 19 points over the year but is up considerably from the 32 seen in December. It’s also right on track with national numbers.
Nonresidential construction, which is measured using architectural billings, has been volatile in the last year, but it’s largely holding strong in the Northeast. According to the Architecture Billings Index, they’re up 4.1% compared with last year and have increased quite a bit since 2022’s November low of 42.4.
Boston Real Estate Market: Predictions
With unemployment low and both consumer and builder sentiment improving, things are looking up for the Boston housing market – particularly as we enter the typically hot spring season.
Inventory will play a key role, though. Our forecast projects an uptick in single-family permits, which could mean additional supply, but it’d likely need to be quite a bit to move the needle any significant amount.
“We expect that prices will remain level,” McCarthy says. “There simply aren’t enough housing units on the market to create downward pressure on pricing.”