Boston high rise condos: Is a luxury condo crash coming?

portland housing bubble crash — **Boston Midtown high rise condos**

Boston midtown high rise condo home values, average income, and demand for real estate in downtown Boston have all grown steadily over the past few years. Many Boston midtown condo owners, buyers and sellers – not to mention their real estate agents – are wondering: How long will it last? In 2018, the Boston real estate market saw double digit appreciation. That is not going to happen in 2019. Most analysts are predicting closer to 3% – 5% appreciation in 2019.

Fear of high rise condo crash

Another housing bubble burst is the fear at the back of everyone’s mind. It’s true that some of the same factors we saw before the last housing meltdown are at play again to today. There are, however, many important differences.

Before we get into them, let me remind our readers that I am a real estate agent, not an economist. My perspective is based on over two decade of selling Boston luxury condos, primarily in the Beacon Hill and the midtown/downtown Boston talking to home buyers, and saturating myself in the data about Boston downtown luxury condominium market.
However, being a real estate agent does lend me some expertise on how Boston real estate trends work. While Boston’s rapidly rising home values may have come into the national limelight, my real estate team is confident that what we are experiencing is a housing market slowdown, not a pre-apocalyptic situation.

To understand why, let’s take a look at what happened the last time the bubble burst.

The Housing Market Crash in Boston

According to Investopedia, “A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance.” So named because they literally resemble bubbles on a graph, with home prices rising and then falling dramatically, bubbles are actually part of the normal real estate cycle. Unfortunately, when they grow out of hand, the results can be catastrophic, as we saw several years ago in some parts of the country.

Across the United States in the early 2000s, real estate prices were increasing dramatically as new prosperity encouraged families of all income levels to buy homes. Unfortunately, many loans were made to purchase homes that were truly out of the buyers’ price range. Meanwhile, home values also skyrocketed: Around the latter part of that time period, the foreclosure rate began to climb. Homeowners were stretched to their limits to pay their mortgages, and any unforeseen financial trouble could cause them to fall behind.

At the peak of the crash, around 2006, one in every 100 homes in the United States was in foreclosure. The housing market crash trigged a wider economic recession that impacted just about every person in the country.

Fortunately, Boston escaped the worst of the action of the crash, with only one in every 357 homes in foreclosure at the peak. Generally, rural counties in Massachusetts saw even higher foreclosures than cities like Boston. Still, many real estate agents closed shop. I managed to last through the recession by working hard to sell homes and being honest with sellers about Boston’s market conditions.

Many economic indicators are now back to pre-recession levels, home values being one of them.

Boston Housing Supply Versus Demand Today

Remember that housing bubble definition? “Fueled by demand, speculation and exuberance.” For today’s high Boston home values to be indicative of a housing bubble, we would have to prove that demand is driving the action.

That’s hard to do. While demand has been strong, it’s not above pre-recession levels yet, whether you look at migration to Boston, rising incomes or the rate of college graduation. For the past several years, we’ve seen some record low inventory levels on the Boston real estate market, but the real culprit has been supply. For example, as of the time of this writing only 18 Boston Beacon Hill condos for sale.

Without new homes coming on the market, any level of demand is going to lead to low inventory, skyrocketing prices, and bidding wars. So why is the supply of homes in Boston not keeping up with the needs of home buyers? especially Boston condos for sale priced under $600,000

The Reasons:

1. Cost of labor is high. New Boston condos for sale require workers to build them, and right now unemployment in Boston is very low. That means the supply of construction workers is limited, or the wages they are getting are too high to be financed by developers.
2. Lack of readily buildable lots. As a result, developers must invest more money to make them so, and they could be waiting for home values to increase enough to make the cost worthwhile.
3. The underlying reason: Financing. After the big housing market crash, federal regulations went into place to restrict lending to builders as well as home buyers. Most builders need a line of credit to develop lots and build new homes; if their access to these funds is restricted, no new homes are built.

Boston Housing Market Adjustment in 2019

Economists don’t normally use such dramatic language as “crashes” and “burst bubbles” – they call the ups and downs of the market “adjustments”. When there is more supply than demand, but prices are still high, the natural fall in prices to follow is referred to as an adjustment in the market.

To look at the most recent MLS report for downtown Boston, it appears that some adjustments are happening today. Unlike in 2006, we don’t have a huge volume of homeowners who are underwater on their mortgages, and banks have not spent the last few years lending money to everyone who walks in the door. As a result, it’s unlikely that a huge number of homes will come on the market and burst the bubble, even if prices go down a little bit