Is Boston Real Estate a Good Investment?

Is Boston real estate still a good investment today in the face of runaway inflation, ridiculous energy prices and high interest rates? Should you continue to sit on the sidelines and wait, or is it time to look elsewhere? Have prices reached the top, and are they about to go down? This article seeks to dig into the fundamentals of whether or not now is the time to invest in Boston Real Estate.

With over four million people residing in the greater Boston metropolitan area — roughly 80% of the state’s population — Boston real estate has had a long storied history of increasing values and rising rents. And while its steady appreciation and high demand aren’t going away anytime soon, recent economic events have people wondering, is Boston real estate still a good investment? What are the factors that could make it change? Historically, property prices nearly always come down in the face of higher interest rates. It’s a simple math equation that borrowing costs go up as interest rates rise. Your higher monthly payments eat into the size and quality of the home that you can buy. Yet the market is still holding on to high prices. Interest rates went up so fast that inventory levels rapidly decreased which has momentarily caused prices to continue to rise even in the face of these higher rates.

Why is this happening?

Could it be that we are simply not developing enough properties to meet demand and that people do not want to give up those 3 percent rates they locked in years ago?

We have a lot to unpack here on why Boston still could be a great real estate investment.

First things first, always keep an eye on the unemployment rate in the Greater Boston Area. Right now there is still close to record low unemployment, hovering around 3% compared to a long term average of 5.32%. Even when someone loses their job or gets fired, they are quickly hired elsewhere. People rarely leave the Greater Boston area unless they can’t find work. However, our incredibly diverse amount of technology, financial, and medical industries just keep chugging along despite the headwinds of a mismanaged national economy. Boston seems almost impervious to a significant real estate correction.

Our stock market is doing quite well and this can lead to people selling stocks at a profit and putting more of a down payment to reduce the amount of mortgage they need. Quite frankly, it is simply too early to expect a real estate market correction. You can nearly always expect property prices to start to go down when you start seeing about an 6% unemployment rate – but we are nowhere near that figure. If you take out the pandemic, Boston hasn’t seen a six percent unemployment rate in almost a decade. Last month we saw an incredibly low 2.70% rate, and right now we are at 3.20%. There are still more jobs offered on Indeed than we have unemployed people to fill them in the Greater Boston Area. You can expect wages to continue to rise as supply and demand always works in favor of the person being hired when you are around a 3% unemployment rate.

Will this super-low unemployment rate have an impact on real estate continuing to perform?

In a word? Absolutely. You can expect stability in real estate prices at minimum, but more likely than not appreciation will occur. The appreciation will probably be tempered in 2024 by our train wreck national energy policy and accompanying inflation; but bad policy has also slowed down new construction and housing starts which unfortunately keeps prices high. Right now we are locked into a low inventory, high interest rate, low unemployment and high construction costs matrix which is keeping property prices high. Something in this equation will have to change to unlock lower prices. Perhaps gas prices will drop and lower overall inflation which could then spur development. It’s also possible that we could see six rates cuts next year and if at least two of them are a half point; we could get property sales moving again.

Aren’t Boston Real Estate Prices Too High?

They’re not cheap, that’s for sure: but “too high” is a relative term that deserves some deeper introspection. There’s no denying that the cost of Boston real estate is more expensive than the national average, but that figure alone doesn’t tell the whole story. Median sale price, average rent — these things absolutely matter, but they don’t exist in a vacuum. Boston is also a far more internationally appealing city due to our: universities, hospitals, high tech, and financial services. In recent years there has been significant amounts of capital that have poured into our city to propel a wide slew of investments including but not limited to real estate.

With the United States looking as one of the better places to invest world wide right now; there seems to be a flight to quality so expect additional purchases of real estate by outside investors. While inflation has hurt America, it has hurt many other countries much harder because they are not endowed with the vast natural resources that we take for granted. If we could get back to better energy policies here in the USA; inflation could be tamed in rapid manner. This could also usher in another round of real estate prices going even higher- although builders would be ready to jump back in a major way and create more supply.

What you want to look at is real estate prices compared to local income.

You also want to look at how many permits a city is issuing. Different cities across the country have far more land than Boston. Venture capital is still being poured into numerous tech and bio tech companies and this has a powerful effect on the local Boston economy. Until you see venture capital making a significant pull back into new companies; real estate should continue to be a great investment provided you buy correctly.

You also must remember the old adage “A great deal is a great deal no matter what the economy is doing.” Conversely a bad deal is a bad deal no matter what the economy is doing. The key is to figure out if you are buying a great real estate deal in Boston. Look for value add opportunities in real estate to unlock true gains. Repositioning tired real estate assets with tasteful renovations can often be a great way to creating wealth in a higher priced market.

What About a Possible Housing Bubble?

What goes up must come down, right? Well… yes and no. With apologies to Sir Issaac Newton, the metaphor doesn’t quite fit in this case. Like any modern market, Boston real estate is a complicated mix of factors. Fortunately, a lot of those factors point to a resilient Boston real estate market, even in the case of a recession. While Boston’s economy isn’t bulletproof (no one’s is), most experts agree the city’s unique mix of finance, tech, colleges and universities, and medicine provide it with a wildly robust and rugged economy. The kind of economy that weathers storms with grace.

What are the other factors that always keeps property prices high in Boston? We simply can’t develop enough properties to keep up with national population growth. Boston simply doesn’t have enough land and we are running out of places to go up. Traffic is also a big deterrent to additional development and neighborhood groups make it nearly and impossible fight to get larger projects developed. Even if projects do get developed they are often delayed for years. Recently we have seen several magazines in Boston complaining about the traffic and it’s toll on productivity.

Truth be told, when the unemployment rate is so low, more people hit the roads for their jobs, and have more money to spend. So between extra nights out for dinners and shopping to driving consistently to work our highways and backroads get more congested than ever. This causes more community groups to complain that we don’t need anymore development and this has the twin scissor effect of never delivering enough housing that we need and this keeps our prices higher. Boston has never had a supply problem and probably never will into the foreseeable future.

Boston’s Job Market is Simply too Strong Right Now

Boston’s powerful job market is looking as strong as ever. With Massachusetts constantly amongst the top states for employment in the United States (remember, 80% of the state lives and works in the greater Boston metropolis), as of this writing, Boston boasts an impressive median salary of $73,500, and a miniscule 3.20% unemployment rate. Boston’s job market is not just healthier than the national average, but according to U.S. News, Boston’s job market is significantly healthier than metropolises of a similar size.

Healthcare, tech, education and finance are all big here: but so are hospitality and tourism, thanks to Boston’s historic landmarks, myriad green spaces, and of course, legendarily fresh seafood. From fresh graduates to tenured professors, wide-eyed interns to wizened CEOs, Boston’s job market — and thus, it’s real estate market — casts an impressively wide net. People of all backgrounds and experiences continue to make Boston their home, year after year.

And they all need to live somewhere. In fact, the development into what used to be considered capital starved neighborhoods has begun it’s march toward significant improvement.

Appreciation and Cash Flow are Both High

Boston real estate does have a fairly high bar for entry: but once you’re in the game, it’s a great place to be. With rental rates well above the national average and one of the highest appreciation rates in the nation, the Boston real estate market is built on solid economic fundamentals. Apartment vacancy rates are incredibly low in Boston. Savvy investors are utilizing square footage better than ever to produce better returns.

Yes, it can take a fair bit of capital to get your foot in the proverbial — and literal! — door, but once you’re in, Boston real estate can generate serious passive income if you give it the opportunity. If you’re looking for cash flow from your investment, Boston real estate is both a safe bet, and a lucrative one. In fact if you are ever looking for strategic advice on whether to rent or sell your property for the best possible outcome; please feel free to contact me directly. We spend a considerable amount of time helping landlords and investors make the best decisions possible on whether to buy, sell, rent and hold, develop as condo’s, or renovate-rent-sell. Our focus is on helping our clients win.

So, is Boston Real Estate Still a Good Investment?

According to Forbes, there are three main factors that make for a good real estate investment:

1. It pays a fair return
2. It isn’t too risky
3. It doesn’t require a lot of time or managing

The high value of Boston real estate can mean solid returns each month. Boston’s universities and employers make it one of the most stable markets in the country. We also do a ton of data modelling to help landlords and investors make solid purchasing and positioning decisions. We look at return on investment for renovation projects and how to spend wisely to gain more positive cash flow over time. Our formulas and strategic advice have helped thousands of landlords in Greater Boston achieve returns they never thought possible.

Greater Boston is still a great place to invest your money in real estate. Bostonpads.com is designed from the ground up to make things as easy as possible for anyone investing or purchasing real estate. From the novice buyer to the savvy investor, we have solutions for you. We can help mitigate your risk and stress through powerful solutions based on real time data and market knowledge spanning two decades. If you’re looking at breaking into the Boston real estate market but don’t know where to begin, we’d be more than happy to help you get started. Contact a property management or real estate sales professional, and we’ll get you set up in no time.