| Change is coming in 2017 – and not just in the Oval Office.
Mortgage rates are ticking up and have been for several weeks. Debate rages about what effect this will have on the housing market. On the one hand, Boston’s economy is quite strong and is full of young professionals looking for housing; on the other, not all of those jobs are high-paying enough to save a down payment on a house or condo in our market. Increased rates may lock out some first-time buyers who would otherwise qualify. Increased rates may also dissuade potential buyers – who purchased four or five years ago and are carrying mortgages with rates in the twos – from selling and moving up, thus not releasing their relatively affordable homes and further exacerbating our inventory problem.
Increased rates will also have an effect on the commercial market. When rates rise, so do cap rates – and collateral values decrease, along with LTVs. Boston’s CRE landscape however is dominated by huge investors with deep pockets – a best-case scenario for waiting out market fluctuations. As good loans dwindle, banks become increasingly competitive – and we all remember how well that turned out.
Boston also ranked as one of the few metro areas in the county that is seeing a decrease in rental rates. In its most recent report for the month of November, Yardi, an investment and property management software development firm, reports that nationally multifamily rents fell 0.2 percent on a trailing three-month basis; in Boston, that figure was down 0.6 percent. The six metros that fell furthest in their rankings “were at the high end of rent growth earlier in the year; the flip to the bottom reflects the facts that rents were due to revert to the mean and/or that the markets are feeling the pinch of new supply.”
Perhaps Boston is seeing a market correction – or, as impossible as it may seem given the endless harping on our lack of housing supply, perhaps we are indeed seeing the beginning of the end of the luxury apartment boom. It is important to note that our lack of supply does cross all socioeconomic lines – but it is more pronounced at the lower end. Also important: there are plenty more luxury buildings currently under construction and in the permitting stages.
Change comes from beyond our nation’s borders as well. International relations with China are never particularly stable, but that relationship – as well as the Chinese economy – must be considered in the Greater Boston housing market. Not just the empty luxury investment units are at risk; Chinese buyers also concentrate in several of the more exclusive suburbs.
None of this takes into account what may happen under the Trump Administration. A lot of buzzwords have been tossed around, and a lot of promises have been made, but politics is never fast or easy at the best of times.
Enjoy the last few weeks of 2016, readers, and buckle in – 2017 is going to be a bumpy ride.
