When will the condo market loosen up?
For a couple of years we’ve seen condo prices in Brighton MA surge. But is this market slowing down soon?
Since the beginning of 2012, median prices of condos on market in Brighton increased from $259,000 to $337,000 this past week. This is a 30% jump in prices.
The laws of supply and demand play out in the real estate market, as inventory has steadily dwindled. In 2008, 150 condos on market was not unusual in zip code 02135. Today there are less than 40.
If lack of condo inventory drives the price up, what causes inventory to be so low? There are a few variables which keeps housing inventory low and prices rising:
Rents in Brighton, and Boston as a whole, have increased considerably. Even though there is no reliable index to measure rents, I estimate rent in Brighton increased approximately 20-25% in the past two years.
Low Interest Rates
Low rates have made it easier for homeowners and investors to refinance and reduce their monthly expense on their condo. Furthermore, many homeowners have become landlords as both low rates and rising rents made it possible to keep the Brighton condo while buying a house in the suburbs.
Expectations of Rising Value
Many potential home sellers witness the market heating up. With every condo selling for a bit more than the last, the homeowner prefers to wait. If there is no rush to sell, why not wait and realize another 5% or 10% in home value?
The 2008 Financial Debacle
Many condo owners in Brighton who bought in 2005-2007 were first time home buyers with little or no money down. Without equity in their homes, the market downturn in 2008 meant many were upside-down in their mortgage.
When the home is worth less than the mortgage on it, it is difficult or very expensive to sell. Many couldn’t afford it. Other than the mortgage payoff, there are other transaction costs of selling approximately 6% of the sale price.
For many condo owners in Brighton, breaking even just starting to look like a reality.
Low Housing Inventory All Over Greater Boston
Brighton homeowners are often first time home buyers who will upgrade to a larger home. As I meet young families to discuss moving to a larger home, I explain the challenge they face is not in selling the condo, but in buying the new home.
The home purchase dictates their ability and timing of the sale . When my clients are not finding homes in their chosen areas and budgets, I advise against putting the condo on market. Where will they go?
Is the Brighton MA condominium market ready to loosen up? When and how will the inventory pick up, and thus the frenzy end?
My prediction is to see a turnaround later in 2014. The turnaround will mean a slowing in the home prices increase, as more inventory comes on market. The buyer-seller relationship will be more even handed.
Most buyers for condos in Brighton will be first time home buyers and investors will exit the market. Once income return on the property falls below a threshold (which I estimate at 5.5-6%), these properties will be too expensive to investors and home buyers will out bid them.a
Frankly, I expected a turnaround by Spring 2014, but so far this year we are not seeing inventory pick-up. This could be because of the weather, so my theory may hold true after all. But as of now, I expect the inventory pick up and condo price frenzy in Brighton to slow late 2014.
Do you want to learn how much your condo’s value increased? Tell me a bit about your home and I’ll give you a current, in depth market analysis.