Here is the latest installment of Bates By the Numbers, a weekly feature by broker David Bates that drills down into the Hub's housing market to uncover those trends you would not otherwise see. This week, he diagnoses what's driving the torrid Boston condo market. (Last week, he deep-dove into the Back Bay market in particular.)
The Boston condominium market is clearly under the influence of a performance-enhancing drug known as "low interest rates."
If you doubt it, take a look at the current inventory. It's all muscle! At the end of January 2010, the Boston condo inventory stood at 1,554 units. At the end of January 2012, it was 1,000-plus. Yet, this past Jan. 31, it was barely 500 units. Hey, Barry Bonds' metamorphosis from elite player to all-time home-run king had less of a physical transformation!
Not only is the market fat-free, but it has gotten quite a bit faster, too. Note the speedy absorption of for-sale condos by ready, willing, and able buyers. In the last month (Jan. 8 to Feb. 7), 295 Boston condos went "under agreement" and an additional 126 went into "active-status-back-up," according to the multiple-listing service. This means, in the last 30 days, possibly as many as 421 Boston condos found buyers. As there were only 463 available Boston condos on the market as of Feb. 8, at the current sales pace it would take buyers slightly over a month to buy the entire available inventory. That's incredible and it's a pace about as natural as Lance Armstrong's in the Tour de France.
Consider also the incredible borrowing power of today's buyers. It was just a few years back, when very good buyers would spend $2,000 a month to borrow around $335K (at 6 percent interest). However, today's low-interest-rate-enriched buyers can borrow over $100,000 more with the same $2,000-a-month payment (at 3.25 percent interest). Is that fair? It might be about as fair as Sammy Sosa being able to hit 64 homers in a single season.
Simply put: Without any special coaching, experience or expertise, and lacking the aid of a promotion, raise or bonus, today's buyers can buy more house than virtually any of their predecessors. Incredible! Like Jose Canseco, these buyers can get results without doing the work.
Low interest rates can benefit would-be sellers as well. Take all the folks who were going to retire their Boston condo and put the equity toward a dream home—that is, until they found out that, with low interest rates, their condo could be rented for a profit. The success some of them enjoyed in the following rental seasons puts even the post-Red Sox glory of Roger Clemens to shame.
While the price to be paid for performance-enhancing drugs is not always apparent in the short term, it becomes more obvious as time goes by. Some members of the brokerage community undoubtedly recall the challenge of selling homes when interest rates were in the teens. Future sellers may want to consider their listing services down the line when interest rates hit what some may deem another phenomenal high: 6 percent. LOL.
· Our Bates By the Numbers archive [Curbed Boston]