Three key factors drove the dramatic, unprecedented seller’s market that the Boston area has experienced for the past decade: a housing shortage (for rentals and sales), high rent prices, and historically low interest rates.
The severe lack of rental housing coming out of the last recession drove landlords to hike up rents or cash in on their investment by selling their units. That instability for tenants motivated them to buy, at whatever cost.
And with the mortgage interest rates dropping to lows that we had never seen (dipping into the 4% range around 2012 and then to as low as the 2% range in the early pandemic), would-be homebuyers found themselves with buying power that allowed them to compete fiercely, at times up to 25% above the listing price to purchase a home.
Where do we find ourselves now, in mid-June, at what’s typically the most fast-moving, competitive time of year for home buying and selling? It’s increasingly quiet, everywhere. As mortgage rates tick up close to 6% (a result of the Fed’s attempt to curb inflation)––and we don’t know how long rates will continue to increase––buyers seem to be receding from the market. They just don’t have as much purchasing power, and there’s still so little on the market to pursue. With the uncertainty of a possible recession under way, buyers are getting choosier about what they’ll compete for in terms of location, a functional layout and amenities that accommodate their needs over time.
And it’s summer, so buyers’ attention may be pointing to travel while they wait for something to shift. But what will that be? With a housing shortage, and the cost of borrowing steadily creeping up, buyers may wait for competition to slow down further. There still may be too few homes to choose from––as would-be sellers also wait for more housing options before they make a move.
For those renting in the meantime, they’re now facing a tightening rental market, where there’s so little to choose from that tenants are competing at higher-than-asking prices for rentals.
So what’s going to give? Could high mortgage rates lead to housing becoming more available (or at least more gettable) on the purchase market? Could that let up housing pressure and therefore prices on the rental market (in Boston, not likely)? Does that all depend on how long mortgage rates remain relatively high?
We’re watching to see.
If you’re considering buying or selling (or both) sometime this year, get in touch. Our team can help you think through all these evolving factors strategically.