2023 has been a challenging year for residential real estate and everyone is eager to guess, anticipate and predict what 2024 will bring. Without a crystal ball and a magic wand, it is hard to anticipate and change what will happen next year but before we move into the future, it is important to see where we are in December of 2023 and utilize this information to guess what might occur in the new year.
Residential interest rates in 2023 have been the focus of everyone’s attention as this is a key factor in evaluating the economy. In December of 2022, the interest rate for a thirty-year residential mortgage averaged about 6.33%. The latest numbers reported that the average interest rate is 7.03%. The good news is that this average is actually lower than interest rates in the proceeding weeks and months. Similarly, fifteen-year fixed mortgage rates which averaged 5.67% in December of 2023 are now at 6.29% but like the thirty-year rate, the current rate is a decrease over where interest rates have been in the prior weeks and months. While home sales are down from 2022 levels, housing inventory has increased slightly, offering some hope to buyers and potential buyers as inventory levels have been low over the last few years.
Even with the slight increase, inventory levels are at about one-half of what residential market analysts consider to be “normal.” The increased inventory and slightly lower interest rates are offering some hope as mortgage applications have increased over the last six weeks. Most analysts agree that interest rates need to drop further to re-invigorate demand by buyers, but the market appears to be improving. While this may not be great news for buyers, for sellers, this is likely to mean that home prices will likely remain at current levels which is beneficial for sellers who are thinking of selling in early 2024.
Interestingly, when Realtor.com just released its predictions for the hottest housing markets for 2024, two Massachusetts’ cities were in the top ten – Worcester and Springfield. According to Realtor.com, these cities and others on the list have a good combination of affordable housing, robust job markets and a quality of life that they believe will attract buyers. In contrast to Worcester and Springfield, Boston continues to face a housing crisis. A significant portion of residential properties in Boston, approximately twenty percent, are being purchased by investors and more than half of those purchases were cash transactions. Again, this can be attractive and beneficial to sellers as the transactions can close faster. Interestingly, investors appear to be targeting high-density areas of the city with low housing prices, such as two and three family properties. The downside of course is that individuals and families have a harder time purchasing such properties as there is limited availability of stock, they are competing with investors who can offer cash, and interest rates make such purchases unattainable for many.
On the other end of the spectrum, the high-end condominium community is facing some challenges but there are glimmers of hope. Boston has seen a surge in new construction of luxury condominiums and many projects have struggled to meet sales expectations and projections. The Boston Globe reported that more than one thousand condominium units have been built in the last ten years and several major developments, such as The Parker, Cronin Development’s St. Regis Residences, have come online in the last five years. Again, higher interest rates have been a major factor for new construction and existing condominiums. Many existing condominium owners have chosen not to sell because owners are concerned about a lack of inventory and high mortgage rates, so they have remained in place. With interest rates appearing to be coming down and the increased inventory of such new construction and stagnant availability of existing condominiums, developers are hopeful that buyers will return to the market and buy these newly constructed condominiums. Those who have bought these high-end condominiums over the last few years have been largely cash buyers (it is estimated that 70-80% of buyers have paid cash.)
Affordable housing continues to be a focus for elected officials, activists, and the public in general. In 2021 the state passed the MBTA Communities Law which has as a goal that the one hundred seventy-five towns with access to the Massachusetts Bay Transit authority system are to have at least one, reasonably sized zoning district in which multi-family housing is permitted as a matter of right. With the adoption of this law and the recent adoption of the regulations to implement this law, many cities and towns have responded by approving zoning plans that allow for more multi-family housing as a matter of right. Lexington, Arlington and Brookline and other communities adopted zoning changes to comply with the MBTA Communities law requirements and in many cases, went even further to promote such affordable housing. A lot of attention has been focused on Newton which only adopted a new zoning plan in early December after rigorous debates, multiple meetings and drastic changes to the plans which reduced the number of housing units. The final plan would allow approximately 8,745 residential units in six different areas of Newton and while the number of units exceed the statutory minimum, the number is fewer than the original plan for over 9,000 units. The plan as adopted by Newton may be subject to challenge by the state as there are concerns that lower allowed building heights and increased minimum parking could violate the new statute. Some question whether the adopted plan will be economically feasible let alone profitable for developers.
The residential market in Massachusetts continues to be in limbo. There are some signs of hope as of December of 2023 with slightly lower interest rates, efforts to permit and encourage affordable housing, and changes in supply that could impact residential inventory, all signaling that the residential real estate market may be improving. Whether these glimpses of light will continue to grow and cast aside the grey pall that has dominated the Massachusetts residential market in 2023 is yet to be determined.
Please contact us at Orsi Arone Rothenberg Turner LLP for help and guidance on this critical area of the law.