Real Estate Cycles and The Boston Real Estate

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It’s an intriguing time to discuss the state of the State of The Boston Real Estate Market and explore your housing options, as it relates to your residence or even future residence.


  1. Boston’s real estate market is very strong and condo and home values continue to appreciate.
  2. Interest rates are low, and cheap debt has led to an increase in home buying.
  3. An imbalance oflow supply and high demand in the Boston housing market has led to considerable price appreciation.
  4. And the overall economy is strong: unemployment is lowest in years, Consumer confidence is at its highest level in years and the equity market is at its highest level ever.

However, as our economy eventually slows, markets will take a downward turn, as history tends to repeat itself:

  1. The markets are cyclical and the natural course of the real estate cycle will lead to an eventual downturn.
  2. A potential sell-off in the equities market and/or a potential downturn in the global economy could slow down growth or weaken the housing market; and
  3. We are entering a rate tightening cycle, which could also slow growth and even potentially lead to a recession. Additionally, with higher financing costs and mortgage rates on the rise, there is also a strong possibility that buyers’ demand for homes will flatten or decrease over the next several years.

For buyers, a major benefit to buying now is interest rates are still low and there is still time to take advantage and lock in these low rates. For sellers, your chance of timing your sale at the exact peak of the cycle is slim. If you have reasons to sell your house beyond the strength or weakness of the housing market, now is an excellent time, especially while there is still strong demand for your property and countless financially strong buyers.

The Boston real estate market is currently very strong.

Local Supply and Demand:Real estate markets have appreciated greatly. There is high demand and low supply of inventory. This trend has created an excellent situation for homeowners, who have seen the value of their property drastically increase. According to Zillow, the median home value in Back Bay, for example, has increased from $570,000 to $983,000 from February 2010 – now and it’s expected to increase again in 2018. Anemic inventory and low financing costs are some of the key factors dominating the appreciation of Boston’s real estate market.

Strong EconomyOur economy currently is very strong, despite lower than average GDP growth (currently 2-2.5% vs. an annual average of 3.22% since 1947). Equity markets are at all-time highs. Unemployment is at 4.1% and remains at its lowest level in 17 years and consumer confidence is at its highest level since 2000. The economy has experienced strong wage growth and wages have grown at their fastest pace in eight years. Current market conditions have helped lead to the surge of home buying and property values.

Real Estate CycleWe are in the expansionary period and still in the boom years of this real estate cycle. When could this market turn? That’s the million-dollar question. The average duration of housing appreciation and depreciation in a typical housing cycle is approximately five to seven years. We are in the 10th year of this cycle since the market bottomed out in 2008.

As our economy slows, the Boston real estate market will eventually take a downward turn.

Tightening of RatesWe are entering into a rate tightening cycle. Eleven out of the last twelve times that the Fed went on a rate tightening cycle, it led to a recession. Generally, as the economy slows down, housing prices can decrease or flatten as people begin to lose their jobs and income growth slows. Economists anticipate that we will experience five to six rate hikes by mid-2019. The Federal Reserve has begun reducing its holdings of U.S. Treasury securities and mortgage-backed securities. This should put upward pressure on mortgage rates. Rising rates will translate into costlier loans, which could discourage potential new homebuyers.

Potential Correction in the Stock MarketThe stock market is experiencing all-time highs. While some say there is no direct correlation of the stock market to the real estate market, I believe that if there is a turn in the stock market, the real estate market will be negatively impacted and housing prices could flatten or decrease. Why? Because people will lose money, and when people lose money on securities, they often unload other assets such as real estate (particularly people who buy on margin, using real estate as collateral). Lastly, a stock market correction also causes a crisis in confidence, affecting other asset classes. People start to worry about losing their jobs so they stop buying (cars, houses, etc.).

Next in the Real Estate Cycle – Hyper SupplyWe are at the top of a cycle and have been for several years. The market strength and lack of supply may continue to keep pushing prices higher and it’s possible we will enjoy a long period of expansion. However, due to the cyclical nature of the markets, there will be an eventual shift in supply and demand, called hyper supply (over-supply). Over-supply can be caused by overbuilding, or from a pullback in demand from a shift in the economy. It is debatable how long it will take for the market to make this shift.

Having grown up in Boston’s Back Bay, I have a deep understanding of the city’s rich architectural history as well as its growth and infrastructure development. I am passionate about the real estate market and identifying trends and opportunities, and would like to meet with you to discuss the market, your future real estate needs and options. Together with industry leading marketing at William Raveis, I am able to provide best in class service.

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