No one can argue that the Massachusetts real estate market is not hot for 2017. In general, housing prices are rising, demand is high, supply is tight, and developers are building like crazy to get a piece of the action. Let's look at some important factors in today's Massachusetts real estate market.
Supply Vs. Demand
It's a classic economic principle. When supply is low and demand is high, prices rise. Just over a decade ago in 2006, Massachusetts had more than 9,600 homes on the market. This year, that number of available homes is under 2,000. According to the Massachusetts Association of Realtors, the inventory of homes for sale throughout the greater Boston metropolitan area is the lowest it's been since the organization began recording these statistics about 15 years ago.
Those selling homes today can easily set their prices and their terms and expect to see their property fly off the market. Those on the buying side of the equation will have to come to the table with their finances in order, bid quickly and often, and expect to pay list price or more to grab the house of their dreams.
Naturally, this economic situation encourages additional development to help meet the rising demand. Those in a position of providing new homes in a hot market can expect to earn a tidy profit in doing so. In fact, Marty Walsh, the mayor of Boston, set a goal of adding 53,000 units and is about 60 percent there.
Popular Boston area neighborhoods like Newton are knocking down split-level ranches and adding luxury homes. Suburbs such as Dorchester and Brighton are reworking old neighborhoods to give them new life and character.
The Jamaica Plain area is investing in revitalizing Washington and South Huntington streets. Area communities like Metromark and Seaport are adding new luxury contemporary condominiums with state-of-the-art appliances. Certain neighborhoods such as Seaport and Fenway are developing more rental units to ease the housing demand.
As more new homes appear on the market and interest rates climb, buyers and sellers may be forced onto more equal ground in the Massachusetts real estate market.
Looking at the Numbers
The median home value for Massachusetts is $377,000, which indicates about a 7 percent increase in the last year. Experts believe the increase will continue into next year at a rate just under 3 percent.
The median list price per square foot in the state is currently $243. If you look at all the homes on the market today, you'll find that the average listing price is about $420,000. The average rental price, in comparison is $2,600.
The most expensive area in Massachusetts is Newton, where average home values hover near $900,000. More modest areas like Springfield have median prices at around $134,000.
Understanding Characteristics of Massachusetts Real Estate
With 2.5 million homes, condominiums and apartments available in Massachusetts, it's important to understand the make-up of the real estate landscape.
Nearly half of all properties are valued between $231,000 and $461,000. Less than 5 percent of properties are priced below $115,000 while just over 7 percent are above $865,000. Homes have appreciated by nearly 5 percent over the last year across the entire state. Roughly 60 percent of homes are owned while 40 percent are rented. Only about 10 percent are currently vacant.
The majority of homes are single-family dwellings with two or three bedrooms. Just over half of all homes were built between the years 1940 and 2000. Thirty-four percent of homes are older than 1940, and only 8.5 percent of homes have been built since 2000.
Renting Vs. Buying
Although this age-old question never has a clear answer because so many factors enter into making the decision, it's important to look at the Massachusetts real estate market and weigh the pros and cons of each.
Putting aside factors such as length of anticipated stay, family and career issues, and love or hatred of home maintenance, let's take a look at renting vs. buying on a purely financial level.
If the median home value in Massachusetts is $379,000, a monthly mortgage payment on a 3-year note with a 4 percent interest rate would be around $1,800. Average rent across the state is just over $1,600. Typically, the average size home would be larger than the average rental unit.
Obviously, these numbers would vary greatly by the location you select. For instance, in the Boston area, a 490-square-foot studio apartment runs $2,100 per month while a 1,300-square-foot, three-bedroom apartment costs $3,800 per month. The average home value, on the other hand, is upwards of $500,000 in Boston, depending on the neighborhood.
Top Appreciating Massachusetts Cities
According to Neighborhood Scout, the following areas have appreciated the most since 2000:
- Somerville has experienced a 9 percent increase in median home sales. The average price per square foot rose from $539 per square foot to $590 per square foot. Condominium prices in Somerville have increased about 32 percent this year.
- Cambridge is the second most expensive area with average home prices just under $670,000. Like Somerville, condominium prices rose 32 percent this year, but the average price for a condominium in Cambridge is $100,000 more than in Somerville. Home values have increased by more than 10 percent over the last year.
- Chelsea sees median home prices sitting at $284,000 with a price per foot just over $300 per square foot. Rent prices are averaging about $1,900 per month. Over the past year, prices have appreciated more than 13 percent and are expected to continue.
- Provincetown, located on the far northeastern peninsula tip of Massachusetts on Cape Cod, sold homes that averaged nearly $500,000. Price per square foot is $730, and average rent is $24,000. The market has increased just over 3 percent over the past year and is expected to continue its upward climb.
- Boston has an average home value of $560,000, which represents an 11 percent increase over the previous year. This upward trend is expected to continue. Many high-priced neighborhoods in the greater metropolitan area boost the median list price per square foot. While the metro area sees price per square foot around $260, the entire Boston area has a $650 per square foot price on average.
- Hadley, located in east central Massachusetts, sees a median home value of $321,000. The real estate market in this city have increased by nearly 4 percent in the last year and are expected to continue moving upward into 2018.
- Edgartown, on the east side of Martha's Vineyard, has seen home values increase by more than 5 percent during the last year. The average home value in this area exceeds $800,000 while the median price of listed homes is $1.1 million. The median list price per square foot is $670.
- Arlington is an extremely hot area when it comes to real estate. The median home value is nearly $686,000, indicating a rise in nearly 10 percent over the last 12 months. Although the rise is expected to slow down a bit to a growth of just over 3 percent within the next year, it will continue. The median list price per square foot is over $400 and the price of homes on the market average $634,000.
- Nantucket represents a wealthier area of Massachusetts, sitting off the coast in the Atlantic Ocean. The median home value is nearly $1.4 million. Home values in the area have increased by more than 3 percent in the past year with the median list price at $1,100 per square foot. Those homes currently on the market have an average list price of nearly $2.4 million.
- Oak Bluffs, located on Martha's Vineyard, has a median home price of $900,000. The average price per square foot has skyrocketed from about $525 per square foot a year ago to $760 per square foot today.
According to the Massachusetts Association of Realtors, condominium sales have increased by 12 percent in recent months. Just like single-family homes, condominium prices have continued an upward climb as the real estate market in Massachusetts continues to boom.
As Boston's reputation as a growing international city continues to develop, fancy high-rise residential condominiums are sprouting up around the city. Many inner city spots previously neglected by high-end property developers are now becoming prime hot spots for new condominiums.
Condominium developers want a piece of the profits and are flooding the area with new units. During the third quarter of 2016, the median price of a Boston condominium reached more than $913,000, which represented a 43 percent increase from the previous year. In addition, a new Boston real estate record was reached when a private equity billionaire investor purchased a penthouse condominium for $35 million.
The bottom line for the Massachusetts real estate market is that it's one of the fastest growing in the country. Supply is tight, and home buyers are still chomping at the bit to invest hundreds of thousands of dollars into homes located in the hottest cities in the state. As interest rates climb and more new homes and condominiums enter the market, things may come into a greater balance, but growth is expected to continue.