Though at first glance it seems that Boston was no exception to the urban exodus experienced by many large cities across the United States in 2020, a closer look at the data indicates that the COVID-19 pandemic may have accelerated a trend that was already taking place. Boston has the highest concentration of millennials in the country, who are at or approaching the average age when they seek to purchase their first home – 32 years. This, combined with (1) low-interest rates, and (2) a diverse economic base focused on relatively recession-proof industries such as education, biotech, and healthcare, created the perfect storm for a shift to the suburbs and exurbs.
“Closer look at the data indicates that the COVID-19 pandemic may have accelerated a trend that was already taking place.”
This is probably not a surprise to anyone. But as we plan for 2021, a deep dive into the numbers and a closer look at demographics may be helpful to gauge which areas to find your next opportunity.
2020: A Review
The market for real estate investing in Boston started out strong at the beginning of the year. As per this Boston Real Estate Market Report in Curbed:
The number of closed single-family sales was up 5.9% year over year in January, to 3,249, according to the Massachusetts Association of Realtors. And the median sales price was up 6.6%, to $405,000. That represented the ninth straight month that the median tag was above $400,000.
As for condos, the number of closed sales was up 15.7% annually in January, to 1,294, while the median sales price was up 9.7%, to $401,613. That median has been up or flat for much of the past three years, the realtors association (MAR) said.
→ This was a continuation of the steady increase in home values since the Global Financial Crisis, and was probably due for a correction.
The real estate market started taking a turn in March, once the state locked down and construction was halted. According to RealPage’s monthly rent collection survey, “Boston landlords collected 68.6% of rents between Oct. 1 and Oct. 6, compared with 80.3% for the same period in 2019.” This is the largest drop compared to other large markets and is just one of several indicators that the market is struggling. Apartment List reports that rents have dropped by 18.2% since March, and occupancy fell below the U.S. norm in recent months – “a position the market hasn’t found itself in for at least two decades.” Though an occupancy rate of 95.4% as of September 2020 doesn’t seem like a large drop from the 97% peak it experienced a year earlier, this should translate to a staggering ~366% gain in available inventory if we were to use the listings on Boston Pads as a guide.
The Greater Boston market has a slightly different story – it remained strong in terms of price, despite a few dips in activity. While there were fewer single- and multi-family properties sold in the first three quarters of 2020 as compared to the same time period in 2019, the average sales price stood strong, and generally increased in almost every town tracked in the CENTURY 21 Adams Market Report (summarized below).
| Single-Family | Condos | Multi-Family | |
|---|---|---|---|
| 2019 Number of Sales (First Three Quarters) |
2,330 | 2,095 | 470 |
| 2020 Number of Sales (First Three Quarters) |
2,043 | 1,894 | 363 |
| % Change YoY | -13% | -10% | -22% |
| 2019 Average Sales Price | $1,103,090 | $689,515 | $1,044,196 |
| 2020 Average Sales Price | $1,172,468 | $743,598 | $1,115,488 |
| % Change YoY | 6% | 8% | 7% |
Source: CENTURY 21 Adams Market Report
That said, there was a sharp increase in new listings during the last month of the third quarter; total listings increased by 15.2% from August as more sellers entered the market. Consequently, there was a 38.2% increase in year-over-year pending sales in September, as per the Greater Boston Association of REALTORS® (GBAR).
→ Homes were being sold almost as soon as they were released to the market, commanding high prices. The data suggests that there has been pent-up demand, and the YoY decrease in the number of sales may be attributed to the lack of supply.
Takeaways / Looking Forward
- The demand for single family homes remains strong, presenting an opportunity for developers to build homes to not only meet that demand but have a strong exit. The Zillow Home Value Index is currently forecasting that home values will increase by 7.9% over the next year.
- While there seems to be light at the end of the COVID-19 tunnel with a vaccine expected to become widely available imminently, the economic recovery may take a little longer. We expect further market dislocations over the next few months as moratoriums on foreclosures lift, generating opportunities to purchase distressed properties to renovate and put back on the market.
- With prices remaining relatively high in the suburbs in neighborhoods such as Arlington, Winchester, Medford, and Lexington, we believe there will be more activity in the exurbs, or Central Massachusetts, the South Shore, and the Cape.
- Demographic shifts matter. An increasing population in the suburbs may increase demand for amenities such as gyms and warehouses, suggesting opportunities in the commercial space. With 17.0% of the population 65 years and over, there may be more senior citizens seeking to sell their home – usually ripe for renovation – as they move to either a senior living facility or a warmer state.
- With the advent of the vaccine, we expect that Boston will recover… eventually. Students will return to their world class institutions by fall and bring some vibrancy back to the city. Immigrants will likely return for their secure and high-paying jobs. And Generation Z may return to coworking and coliving for some reprieve after living with their parents for the last 10 months. This may come later in the year, however, as the vaccine may take some time to roll out.
Though landlords in Boston city proper are currently struggling, this is certainly not reflective of the abundant opportunity in the Greater Boston real estate market overall. The next few months are sure to bring even more shifts, and RD Advisors is available to help you take advantage of them. To learn more, complete a loan request form here.