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Is an overheating rental market going to drive condo sales in Boston?IGNITION Residential

Is an overheating rental market going to drive condo sales in Boston?

overheating Boston rental marketThere’s been a lot of talk lately about how “hot” the Boston rental market is. From articles in the Boston Globe about rents hitting all time highs in Boston to reports about how no improvement in rental affordability should be expected in the foreseeable future , the case has been stated: it’s not easy being a renter in Boston right now.

But is there a light at the end of the tunnel?

Possibly.

There are finally some new large apartment developments in Boston coming out of the ground with much needed inventory due to open in the next couple years.  But the development dynamic in Boston is such that the only way for developers to make a profit is to charge “luxury” level rents.  These projects will most likely increase the average rents in Boston rather than moderate them.

So what’s the alternative?

Buying.

Buying has become cheaper recently – substantially so. Even without the major downturn in prices that much of the country has felt, Boston home and condo prices have moderated to a degree.  At the same time, mortgage rates have been declining and now are hovering at all time lows under 4% for 30 year fixed rates (and even lower for adjustable rate loans).  With the Fed indicating they will keep short-term rates near zero through 2014, mortgage rates are expected to remain low for some time.

While the overall sales volume in Greater Boston has been flat for the past 4 years, on an anecdotal basis we’re starting to see more and more renters turn to buying because the rent vs. buy equation has flipped in Boston in many cases.  The question to rent or to buy is now tilting towards buying more often.

But why haven’t we seen more condo sales in Boston yet if buyers are out there?

Simply put: Lack of quality inventory, reasonably priced.

Small sample, but at Charlesgate Realty, we just came to market last week with 6 two bedroom units priced between $489,000 and $639,000 on the border of Boston and Brookline in the Audubon Circle neighborhood at 909 Beacon Street.  Five of six units are now under agreement after the first weekend – and some units received multiple offers. While I’d like to think that is only a testament to our superior marketing skills, it is also a telling sign for the market.

The Boston real estate market needs inventory for sale.  If  I were a developer, I would be doing whatever possible to bring a condo project online soon. All the better if it’s a reasonably priced product (like the upcoming Charing Cross 55 unit condo project in Brighton) but even the smaller “luxury” projects are very doable if the marketing is done right.

What do you think?  Are condo sales in Boston due for a comeback?

 

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About Michael DiMella

Michael DiMella is a Founder & Principal of IGNITION RESIDENTIAL. Frequently quoted in publications like the Boston Globe and the Wall Street Journal, Michael is a recognized expert in the real estate industry and was selected as one of the Top 30 Under 30 Realtors in America. Michael is also the Managing Partner of Charlesgate Realty Group and Publisher of 23 Neighborhoods: a boston real estate blog. --

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