Massachusetts Real Estate Market Trends & Analysis
The Massachusetts real estate market has seen prices ascend to new highs due to supply and demand constraints created by the pandemic. Due, in large part, to insufficient amounts of available inventory and historically low (but rising) interest rates, sellers have been able to increase asking prices in the wake of heightened competition.
However, it is worth noting that the latest price increases appear to be losing momentum. While real estate in Massachusetts remains poised to appreciate for the foreseeable future, increases should occur at a much-tempered pace. The latest rise in interest rates has put downward pressure on mortgage applications and may signal a cooling off in the housing sector. That's not to say the Massachusetts real estate market is in trouble, but rather that the latest activity may represent the start of a return to normalcy.
There’s no doubt that the Massachusetts real estate market has a long way to go until both buyers and sellers are accommodated equally, but the latest trends are a step in the right direction. When inventory can finally keep up with demand, activity will increase and benefit everyone involved.
The Top Massachusetts Real Estate Markets
While the best real estate market in Massachusetts is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Total Sales (February): 3,428 (-19.3% year over year)
Pending Sales (February): 4,844 (-8.7% year over year)
Inventory (February): 3,908 (-91.2% year over year)
Months Of Supply (February): 0.5 (-44.4% year over year)
Days On Market (February): 40 (-20.0% year over year)
New Listings (February): 5,086 (-7.9% year over year)
Median Rent Price: $1,742 (+15.8% year over year)
Price-To-Rent Ratio: 26.60
Unemployment Rate: 4.8% (latest estimate by the Bureau Of Labor Statistics)
Population: 6,984,723 (latest estimate by the U.S. Census Bureau)
Median Household Income: $84,385 (latest estimate by the U.S. Census Bureau)
Massachusetts Median Home Prices
To understand home values in the Massachusetts housing market, it’s important to reflect on the last 15 years. If for nothing else, the median home price in Massachusetts is the direct result of more than a decade’s worth of volatility. Before the 2008 recession, local home prices had reached record highs in many parts of the state, only to succumb to the same fate as the national housing market. In about four years, prices in the Massachusetts real estate market bottomed out. By the first quarter of 2012, the median home value sank to about $275,000. However, once the recovery took hold in the first part of 2012, prices began what would turn out to be ten consecutive years of appreciation. From January 2012 to today, the median home value in Massachusetts increased about 102.2%. Today, the median home value in the Massachusetts real estate market is approximately $556,081.
To put things into perspective, however, a great deal of the appreciation has taken place in the grips of the pandemic. In fact, the median home value in Massachusetts has increased 28.1% since COVID-19 was officially declared a global emergency. Prices increased predominantly on unbalanced supply and demand metrics. Over the last two years, supply hasn't been able to keep up with demand. The combination of government stimuli and low interest rates created so much competition at a time when nobody was willing to list, and contractors were unable to build.
Over the last 12 months, the unbalanced market has increased the median home value in Massachusetts by 15.6%. Moving forward, the same indicators are expected to remain in place. However, 2022 may be the year appreciation rates start to temper. The latest interest rate increase by the Fed has already caused a drop in mortgage applications, and fewer applications mean competition won't be quite as stiff as in years past. If interest rate hikes continue, which they are expected to, there's a chance home values can drop to a much more affordable level.
Massachusetts Median Rent Prices
Not unlike every other state in the country, Massachusetts has seen its median home value impact the local rental market. Home values have grown exorbitantly expensive, effectively pricing more people out of the market. Consequently, even those who can afford to buy at today's prices may not be able to beat out the competition. All things considered, more people are being forced to become renters in 2022.
The added attention on the Massachusetts rental market has increased rental rates by as much as 15.8% over the last 12 months. Today, the median rent in Massachusetts is $1,742. The latest increase in rents hasn't kept pace with home value appreciation over the last year, but it is closing the gap. As a result, renters can expect to pay the following in rents (for now):
For context, the national average rent price is about $1,321, or 31.9% less than the average renter pays in the Massachusetts housing market. The difference is significant and may continue to widen for the foreseeable future. Despite expensive rents everywhere, landlords will be able to justify rent increases as long as inventory is tight. If that's the case, the Massachusetts real estate investing community still has time to get into the long-term rental space.
Massachusetts Foreclosure Trends & Statistics
According to ATTOM Data Solutions’ February 2022 U.S. Foreclosure Market Report, a total of 25,833 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) throughout February. The same report acknowledges that foreclosures are up 1.0% from the previous month and 129.0% year over year.
“February foreclosure activity looks a lot like what we can expect to see for at least the next six months – double-digit month-over-month growth, and triple-digit year-over-year increases,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “This isn’t an indication of economic turmoil, or of weakness in the housing market; it’s simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially impacted homeowners from defaulting.”
Foreclosures are rising in every state, and the Massachusetts housing market is no exception. However, as recently as February, Massachusetts ranked somewhere around the middle of the pack regarding foreclosure activity. "Of Massachusetts’ 2,897,259 housing units, 374 went into foreclosure, making for a foreclosure rate of one in every 7,747 homes," according to SoFi. Investors interested in the distressed property market should pay special considerations to the Massachusetts counties with the most foreclosures per housing unit:
Tax Lien Investing
Tax Lien or Deed: Can have Tax Lien State but most counties have Tax Deed Sales
Interest Rate: 16% for TLCs (but barely any exist)
Redemption Period:No redemption period following tax Deed Sale; (6 months for TLC sale but barely any exist)
Massachusetts Real Estate Investing
Not unlike every other housing market in the country, Massachusetts real estate investors have made a habit out of investing in distressed homes. Distressed properties traditionally award investors with more attractive profit margins. Additionally, as their names suggest, distressed homes are typically in the possession of owners who may be better off without them. Therefore, distressed real estate across Massachusetts may not only be had at a discount, but it may also be easier to acquire.
However, it is worth noting that while foreclosures are on the rise, they are still historically low. Distressed inventory will continue to allow investors to rehab and flip homes, but the opportunities are growing fewer and further between. In addition to fewer foreclosures, appreciation has made profit margins shrink. Again, there are plenty of opportunities to flip homes in the Massachusetts housing market, but the pandemic has shifted what looks to be the most optimal exit strategy.
Rental investments offer investors the ability to offset today’s high prices with equally impressive rental rates. Given the right property with a proper cash flow, there’s no reason to avoid homes that cost considerably more than they did one year ago. Rent checks could easily make the acquisition well worth the price in a relatively short period.
Additionally, borrowing costs are doing their best to offset today's high acquisition costs. While up year to date, interest rates are still relatively low. Lower interest rates will inherently lower monthly mortgage obligations and allow investors to increase cash flow.
Massachusetts Housing Market Predictions
Real estate in Massachusetts has followed the same trends as the rest of the country. However, there’s no guarantee it will continue to do so for the foreseeable future. Therefore, instead of assuming the Massachusetts real estate market will continue to follow national trends, it’s better to take a more local approach and listen to what the market is saying. Let’s take a look at what is most likely to happen in the Massachusetts real estate market sooner rather than later:
Prices Will Increase: Supply and demand constraints have already increased home values drastically over the last year.
Moving forward, however, prices are expected to continue increasing. While it's too soon to tell just how high prices will go, most Massachusetts real estate forecasts call for appreciation to temper. Higher interest rates will likely lower demand eventually, but not before a temporary increase. There's a good chance the threat of rising interest rates will increase prices as buyers jump in before rates increase even further.
Interest Rates Will Rise: Mortgage rates are now higher than they have been in years, jumping 1.07% year over year. The increase resulted from the Fed's latest decision to increase benchmark rates, but it is expected to be the first of many. Provided the Fed keeps to their word, acquisition costs will increase throughout 2022, making homes even less affordable than they already are.
Passive income portfolios should prevail: Few states have seen rents increase at a faster rate than in Massachusetts. The asking prices of rental properties are leaning heavily in favor of landlords at the moment. Perhaps even more important is the state’s demand for rental properties. With home prices as high as they are, many would-be buyers are relegated to renting, propping up the rental market.
The Massachusetts real estate market is at the forefront of national trends. Thanks primarily, in part, to the state’s strengthening economy, Massachusetts has set a high bar. The entire state has made drastic improvements to nearly every economic indicator, and real estate is better off because of it. Everyone involved (buyers, sellers, and investors) has reason to be excited for what’s to come. All things considered, the Massachusetts housing market is hot, and there are no signs of it cooling off anytime soon.
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