Greater Boston’s housing market over the last few years has been anything but normal.
Prices soared to staggering heights in 2021 and 2022. (Remember last summer when the median-price for a single-family home in the region hit $900,000?) And now things have cooled dramatically. Home prices have declined year-over-year three months in a row for the first time in years, hitting new lows in February.
Through it all, one thing has remained constant: It is immensely difficult to buy a house here.
When homes change hands at a faster pace, it relieves some pressure on the rental market, as renters with enough income have more options to choose from for a first home. When they don’t, those renters stay put, tightening up the rental market and leaving prices with nowhere to go but up. That’s what’s happening now.
So after a rocky few years, what comes next? Could we finally see the housing market return to normalcy?
These charts offer a glimpse of where things may be headed in the spring:
The explosion of home prices in 2021 and 2022 accelerated a trend that had been years in the making: Residents are moving farther and farther away from Boston to purchase homes that meet their needs, and that they can afford. And if they’re still seeking an urban environment, there are a few obvious choices.
Worcester, Springfield, and Pittsfield were high on that list in 2021 and 2022. Sales of single-family homes were way up in those cities, and prices were too. Realtors expect that trend to continue in the spring and into the next few years as people continue to strike out in Greater Boston’s supercharged market.
Prices in and around Boston are still sky high, and that’s not likely to change anytime soon, barring some massive increase in supply to relieve pressure on the market. Just look at suburbs like Wellesley, where the median-priced single-family home cost $1.8 million in 2022.
Prices hit an all time high last summer, but have drifted down considerably since. That’s in large part due to interest rates, which have nearly doubled over the last year. In February, the median-priced single-family home in Greater Boston cost around $700,000, $200,000 less than the June peak.
But don’t expect that to last. The winter months nearly always bring about a seasonal downturn in the housing market, and prices are likely to start swinging up again in the coming spring and summer. Though interest rates may well keep a lid on things this year.
Mortgage rates are largely to blame for the downturn in the housing market. The average 30-year fixed-rate mortgage had hovered between two and four percent for more than a decade, but has shot up over the last year. This week, that rate sits at 6.42 percent, according to Freddie Mac.
The rapid rise in rates means that people who were thinking of selling may be reconsidering, because they don’t want to give up the rate they’ve locked in on their current home. A recent analysis from Goldman Sachs found that 99 percent of loan holders in the United States pay a lower rate than today’s average on a 30-year mortgage.
And if nobody wants to sell, the housing market freezes up.
When interest rates double as they have, the costs facing new homebuyers become substantially higher. A monthly payment on a median-priced house in Greater Boston is now almost $1,000 higher than it was on the same-priced house a year ago.
For a lot of people, that means their monthly payment would be significantly higher than what they pay in rent.
It’s anybody’s guess as to what happens with interest rates in the coming months. If they go down, economists believe we could be in for an upswing in housing market activity, and that home prices will likely return to their typical upward trajectory. If not, home buying will likely still pick back up in the spring and summer, but not at the same pace that we’ve seen over the last few years.