A look at the Greater Boston residential real estate in Q2 2023 as compared to this time last year.

So we’re just over a year beyond the “big rate hike” in 2022. Are you wondering how it’s affected the market? What’s changed? What’s remained the same? We ran some numbers.

So what hasn’t changed? For one, values haven’t really softened. Across Suffolk, Norfolk, Middlesex, and Suffolk counties, with only one exception, condominium and single Q2 2023 values rose on average about 2.5% from Q2 2022. The biggest jump were Middlesex county single families which rose over 8% from $1.026M to $1.10M. The largest drop were single families in Suffolk county which fell about 5.8% (from $1.04M to $982K). In general, however, residential homes didn’t lose really any value since before the rates jumped.

Aside from the rate, what has changed? A few things.

• Inventory

• Taking longer

• Buyer exuberance

• Rents continue to rise

Residential inventory, which has already been riding historical lows for years, has reached anemic levels. This is the driving force behind keeping values stable. In almost every market, listings are harder to come by. The next two charts reflect a housing inventory in decline. Typically, there’s a surge in available inventory for second quarter in an average year. This year listing units went down.

Look at the each county a little more closely, almost every graph shows a pretty big drop (golden trough) in 2023, but the values (blue bars) remain steady.

As I was running numbers, I made a pivot chart that reflected “days to offer” and “sale price to list price” ratio, two metrics that can be used to gauge a market’s health. I noticed something interesting.

Sale-to-List Ratio, which reflects how much above or below the average list prices homes are selling, gives some insight into the market’s exuberance. The average days to offer reflects how quickly things are getting scooped up. There’s usually a correlation between the two. If you look at the graphs below, you’ll see that this year there’s an inverse of a typical spring. Yes, at tail end of June there’s an inflection, but it’s less pronounced and, as we head into the dog days of summer, that should return to longer days to offer and purchase prices closer to their list.

Each of the graphs shows a significant rise in the sale-to-list price ratio compared to last spring. The market was aware of the impending rate hike and experienced a frenzy, driving up property values. Consequently, the number of days to receive an offer dramatically decreased as the market moved swiftly.

So far, we have low inventory and a more discerning buyer pool, as indicated by buyers taking more time to reach agreements and making offers closer to the list price. Unfortunately, the rental market hasn't provided much relief either. In Cambridge, Somerville, and Boston, the average rent for 2-3 bedroom units has increased by 15% since this time in 2022 and is up over 30% since 2021. First-time buyers find themselves caught between a relentless rental market and rising property values and higher mortgage rates. Many first time buyers, with rising rental prices on one side and increasing property values and high interest rates on the other side, are caught between Boston’s housing market’s own version of Scylla and Charybdis

So, what can we take away from this? Where is the local housing market headed for the remainder of 2023? When it comes to whether interest rates will continue to rise, stabilize, or drop in 2023, there is no consensus among my most trusted sources. The rates appear to be dropping now, but that could turn on a dime.

Will property values continue to rise? Most likely. Perhaps, as they have done over the past few years, they will level off for the Fall market and remain stagnant through the winter, only to rise again in Spring 2024. This is where my bet lies. I don't foresee rents decreasing anytime soon either.

What about whether it's a good time to buy or sell? On the buying side, buyers face less competition and can be more pragmatic in their search. In most markets, buyers can negotiate contingencies like home inspections and financing into their purchase contracts. They can make decisions with less haste. Need to schedule a second viewing? That's much easier to arrange in 2023 compared to the past few years. In terms of interest rates, there are numerous options available, and with a bit of creativity from your lender, you may find a viable solution until/unless rates drop again in the future. Moreover, given that rents aren't softening, it's always an excellent time to invest in a solid income property.

On the selling side, it's evident that property values have reached unprecedented heights. Aside from strategically timing a listing within the market cycle, there is no benefit to trying to time the market and wait for a better opportunity. If you have investment properties secured at lower interest rates and are enjoying excellent cash flow, it wouldn't make sense to sell unless you're relocating or consolidating your investments through a 1031 program.

Overall, it's important to note that the sky didn't fall when the rates rose. The market did respond, and these changes have had an impact, but there is no housing bubble here in Greater Boston. Unless we experience another building boom that exceeds our regional population demands, the only bubbles we'll see in this market are from bubble gum.