2023 was a challenging year for Real Estate in and around Boston. Rates began climbing from the COVID-era lows at the start of 2022 and kept reaching new highs throughout 2023, peaking over 8% in late October/early November. While rising rates tamed demand throughout the country it still outpaced supply, driving prices to continue higher and keeping pressure on buyers.
In the wake of what the Fed has been able to accomplish over the last 12-18 months, 2024 brings renewed hope of improved affordability via lower rates, likely reigniting buyer demand to new highs… all while inventory remains at very low levels.
The aftermath of the pandemic has also reshaped the way we perceive homeownership, with a heightened emphasis on remote work flexibility, outdoor living spaces, and access to recreational amenities. As a result, suburban and rural markets in and around Boston are likely to experience even further increased demand and increasing prices this year.
Home Prices: The tale of home prices in Massachusetts in 2024 is expected to be one of resilience and robust growth. According to data from the Massachusetts Association of Realtors (MAR), the median sales price for single-family homes statewide reached $500,000 in 2023, representing a notable 8% increase from the previous year.
Similarly, condominium prices experienced a significant uptick, with the median price climbing to $450,000, marking a 10% year-over-year increase.
This upward trajectory in home prices reflects the enduring demand for housing, driven by a combination of factors such as strong job growth, low unemployment rates, and a persistent influx of buyers.
While affordability concerns persist, particularly in the Boston neighborhoods but generally state-wide, the overall outlook remains positive for prospective homeowners and sellers alike.
Inventory: As is often the case in thriving real estate markets, inventory constraints continue to pose a challenge for potential buyers in Massachusetts. The MAR (Massachusetts Association of Realtors) reports that inventory levels statewide hit a new low in 2023, with the number of active listings dropping by 12% compared to the previous year.
This scarcity of available properties has created a highly competitive environment, characterized by bidding wars, lack of buyer contingencies (home inspections, seller concessions, etc), and rapid sales.
The shortage of inventory is particularly acute in key metropolitan areas where demand outpaces supply, driving up prices and placing added pressure on buyers to act swiftly. Despite efforts to incentivize new construction and alleviate housing shortages, inventory constraints persist, posing a significant barrier to entry for first-time buyers and contributing to market imbalances.
Ultimately, the “golden handcuffs” of 3% interest rates are still keeping many home sellers out of the market. As rates trend lower it is anticipated that more sellers will enter the market, placing greater value on their next home rather than the interest rate they currently have. If we see inventory gains throughout the year it will go a long way to balancing (or at least improving) supply and demand overall.
Interest Rate Expectations: There is growing speculation about what the Federal Reserve will do with their interest rates this year and how that may play into improving mortgage rates. It’s important to remember that the Fed does NOT directly impact mortgage rates, however their actions and decisions will undoubtedly have an impact.
Until the most recent Fed meeting at the end of January, market activity had been forecasting up to 6 Fed rate cuts during 2024 with the first cut expected as early as March. Mortgage rates improved on this assumption in mid-December, dropping to the lowest rates in almost a year. However, employment and other economic factors have remained remarkably strong lately, forcing a recalibration of expectations.
To add context – the probability of the Fed decreasing rates at the March meeting was as high as 80%+ in early January, which has now dropped to under 20% based on the most recent economic data. There is still some hope for a cut to take place in May (there is roughly a 65% probability of a rate cut by May), but the general consensus is for a cut to happen by June.
So… if the Fed doesn’t control mortgage rates… why does this matter?
To simplify things, the Fed will only cut rates when the data supports that decision. At the same time, mortgage rates will fluctuate based on the same data, so it is fair to say that while they are apples and oranges, mortgage rates are likely to react in a way that is closely tied to decisions made by the Fed this time around.
Forecasts indicate that we could see mortgage rates touch 6% later this year, which would go a long way towards improving affordability and (hopefully) increasing inventory levels to a more normal balance.
Looking Ahead: Uncertainty still reigns supreme! While the market has proven to be remarkably resilient in the face of adversity, challenges in the form of inventory constraints, affordability, and interest rate fluctuations will likely persist a bit longer.
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Anthony Lapolla is a seasoned mortgage lender with over a decade’s experience in qualifying his clients at their best rates during real estate purchases. He and his team have built a foundation throughout Boston and its surrounding areas around integrity and transparency that feels like “home” the moment you meet him. Anthony and is wife Meaghan have been married for 8 years, live in Peabody and recently welcomed their first child in the summer of ’22!
