We are just over ten years since the housing bubble burst across America. The subsequent recession impacted the Boston downtown real estate housing market, but economists now say we have made a complete recovery. Just in time for another slow down?
Is it true? Many home buyers entering the downtown Boston real estate housing market today may not have been there when the housing bubble burst. In this post, we cover what happened and highlight the key lessons learned.
1. Boston Downtown Real Estate Market
Most experts now agree that the housing market bubble that formed in the United States in the early 2000’s happened when too many homes were sold to people who couldn’t afford them. For most of the 21st century, the homeownership rate hovered around 65%, but starting in the mid-1990s more and more mortgages were being approved even for buyers who didn’t have the income to keep up with payments. By 2006, 70% of Americans owned a home. In most housing markets, competition for a limited number of homes for sale drove prices up to an all-time high.
Many homeowners here found themselves underwater, owing more on the mortgage than their downtown real estate was worth. Homes went into foreclosure or were listed as short sales. New construction ground to a halt and, as the financial crises spread, many people lost their jobs.
2. The Big Lull in Downtown Real Estate
However, this period in time also saw strong population growth for Boston overall . Inevitably, the high rental prices and simple lack of availability drove people back to the Boston downtown real estate market to buy, not rent a Boston condo
Still, this time period in Boston was a distinct buyer’s market, and it was difficult to sell a home unless the owner was willing to accept a very low offer. Going into early 2000’s, the MLS reported that Boston had months of inventory sitting on the market. Downtown Boston condos took months and months, not weeks to sell. Millennials, delayed by the economic recession, were not buying homes as early as their parent’s generation, and in fact were moving back in with their parents! In addition, with tighter mortgage restrictions in affect, buyers were not able to obtain financing as easily before, even with mortgage rates kept low by the federal reserve.
3. Boston Home Values Skyrocket
After the big lull, there was a surge in Boston downtown real estate buying activity that drove home prices to historic highs, with constant bidding wars on the most desirable properties. In 2013, home prices made a huge jump, the highest since before the crash. Inventory fell to 2.5 months by May of that year. As Boston population and desirability continued to rocket skyward, millennials finally entered the housing market and were willing to pay more for Boston home ownership. Many other buyers were pushed out, with no end in sight to climbing home prices. By spring of 2014, the median sale price for a Boston home exceeded pre-crash levels.
Because the national housing market was still lagging, the fed kept mortgage rates low, making it fairly easy for anyone with a solid income to purchase a home — if they could come up with a down payment. Meanwhile, rents continued to climb, making Boston downtown real estate attractive investment market for out-of-state buyers. The feverish pace of Boston home sales — record low inventory, total market time falling to less than 60 days — gained national attention. The increased demand, however, was not being met with an increase in the housing supply. New home construction still hadn’t picked up. As a result, these years also marked significant home-value growth and new development in Boston area suburbs (not in the city proper).
4. The Portland Real Estate Market Cools
With high home prices, increase in constriction condo projects in last 5 years , and increasing interest rates, the Boston downtown real estate market is in a cooling state. Luxury homes saw significant inventory increases and so did the entire condo market over $500,000. These two stats, are the canary birds of the real estate industry. Regular priced condos under $500,000 are still poised to appreciate in 2019, but more and more of the market will fall flat or decrease. By 2020, even the hottest areas could cool, and by 2021 the Downtown Boston real estate market could turn into a buyer’s market.
All that being said, there will be no crash. Local economics are simply too good. Prices will dip, not crash, which is a much more historic regular occurrence of a healthy housing market. Buying a home now or in the next few years is a terrific idea. Once the Boston real estate market starts heating up again, it will shoot up fast, and every Boston home buyer turned home owner will be very, very happy.