Developer Hines’ office, hotel and residential tower at Boston’s South Station, seen under construction through a Red Line subway station skylight. Photo by James Sanna | Banker & Tradesman Staff

Condominium sales volume in the Boston urban core dropped to the lowest level in five years as rising mortgage rates favored rentals over home ownership, according to a Boston brokerage.

Sales of condos in the under $1 million segment felt the brunt of the downturn, declining 22 percent in 2023 from the previous year, The Collaborative Cos. reported.

“There are so many people who would have bought housing in the last year-and-a-half had the interest rates been more compelling,” said Sue Hawkes, managing director of TCC. “They simply can’t justify or afford the monthly cost.”

The report tracks condominium market activity in 15 Boston neighborhoods. Average prices per square foot ranged from $663 in East Boston to $1,990 in the Seaport District.

The 2,940 sales in 2023 represented a decrease of 17 percent from 2022 and 36 percent from 2021.

The short-term financial equation favors renting, with one-bedroom apartment rents averaging $3,491 in the urban core markets tracked by TCC. By comparison, a $750,000 condo with no down payment would cost nearly $5,000 per month at a 7 percent mortgage rate.

Condo developers will need to offer heavy concessions to move inventory, the report predicts.

In the Seaport District, developer Cronin Group held a limited bid auction of 10 unsold units at its St. Regis Residences in October.

Overall, average prices rose 18 percent year-over-year to $1.4 million, a 9 percent increase on a per-square-foot basis.

Hawkes said the price appreciation reflects a pause in completion of major new condo projects in neighborhoods such as the Seaport District, Back Bay and downtown after a building boom during much of the previous decade.

The Davis Cos. is nearing completion in fall 2024 of a two-building project at 1515 Commonwealth Ave. in Brighton, one of which will include 102 condominiums. Hines’ 166-unit Ritz-Carlton Residences at the South Station Tower is scheduled to open in mid-2025.