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The Chaotic Greater Boston Housing Market Can Provide a Great Return on Investment. Here’s How to Navigate It

The Greater Boston real estate market has always been hard to predict, and that’s never been more true than the current moment, with lots of fluctuations during and after the pandemic. As a result, staying on top of projections can be daunting for many prospective homeowners, and knowing what to do with that information can be an entire challenge unto itself.

But even though there’s volatility in the short term, there’s opportunity in the long term: Greater Boston houses are often good investments, as they tend to appreciate over time. With the right info and the right approach, you have an opportunity to land a great deal on a home in Boston, whether in the city or suburbs–and with the right financing from a local lender who understands the market, you can lock down that deal at a great rate and set yourself up for big gains in the long term. 

To help you take that first big step–from when to buy a home, to how to pay for it–we reached out to the mortgage experts at South Shore Bank for their insight into the market (as well as a little data analysis of our own). Here’s what we found out.

Prices Are Still Going Up

While initial sale prices can present a challenge to bargain hunters, there’s evidence that an investment in a Boston home can offer up immediate return on investment. Sale prices have gone up consistently for the past 30 months, with the Greater Boston Association of Realtors (GBAR) reporting that the median selling price for single-family homes jumped 11.2 percent from $760,000 in April 2020 to $845,000 this April. September’s median home sale price even set a new record, rising up to 4 percent higher than the record set in April 2018. All in all, that’s resulted in a rapid increase in home values–a six percent increase in one year, according to Zillow.   

The rise in value holds true for mortgages as well: Redfin reports that mortgage rates have surpassed 6 percent for 30-year loans. (For reference, in 2021, the average rate was 3 percent.) And there’s no sign of a slow down—the rates continue to rise by the week. According to the Associated Press, rates have not been this high since the Great Recession in 2008. 

These mortgage rates create a challenge for many new buyers in pursuing the reliable opportunity presented by Boston real estate. So finding the right mortgage plan will be critical in helping you tackle the high costs. Reaching out to a local lender, rather than applying online, will help you get a handle on the complexity of the local market, and they can guide you to the right plan for your needs.

Fortunately, there are several mortgage programs for buyers that make it possible for them to afford and keep up with monthly payments. Jumbo loans, for example, help make buying a particularly expensive home possible–and when it comes to Boston, “expensive” may just mean a standard cape or colonial home, depending on the neighborhood. While jumbo loans require better credit than typical loans, they do allow you to land homes that you might never have had a chance to own otherwise–so if you can find the right investment, the initial cost will pay off in the long term.

A particularly great way to take advantage of the market is through adjustable rate mortgages (ARMS), which create lower prices upfront to help tame the current market. Adjustable rate loans are a good choice in the Greater Boston market, in part because houses so consistently increase in value over time. That’s especially true when considering a 10/5 ARM, which use adjustment caps to protect you from market fluctuations. If you choose the right bank for your situation, there are additional advantages and protections. 

”At South Shore Bank, we will talk clients through their personal goals and work together to determine the best option,” says Dan Picha, chief banking officer at South Shore Bank, regarding ARM loans. “A 10/5 ARM has been very popular now as it provides home buyers with flexibility and security, including adjustment caps that offer protections against uncertain fluctuations in rates.”

Those protections, Picha points out, come from personalized service, including “monitoring adjustable loan clients and reaching out prior to the first adjustment period to discuss the best financial options which could including refinancing with  no pre-payment penalties,” he says. That’s a significant differentiator from online-only mortgage companies.

The Market Is Slowing Down

As we know all too well, the last two years were difficult for those looking to buy a new home. Demand was high, but supply was low, causing bidding wars with several offers on the table. 

However, a slow down in the market is making buying a home a lot more accessible for new home buyers. Data from GBAR shows that Boston home and condo sales have gone down in the last few months. Single-family home sales have decreased by 13.5 percent in the last year, going from 1,026 homes sold in April 2021 to 888 homes sold in October 2022. Homes are also spending more time on the market, with demand slightly lower. Real estate brokerage Redfin reports that Boston homes are now spending an average of 29 days on the market, compared to the average of 27 days last year.

Lower sales and longer time spent on the market means that sellers are more willing to compromise. More inventory, stabilizing prices, and fewer bidding wars mean your chances of a successful offer are higher overall now, especially if you’re looking at properties in Boston proper—competition has been lower in the city as buyers are flocking to the suburbs. 

Overall, these factors make it a buyer’s market. So, if you can make your offer attractive with the right financial plan, you’re almost certain to lock down your dream home. 

That means you should find the right plan for you by working with a lender in the Greater Boston market, who can help you find the ideal plan for the current moment. If your credit score is high, conventional or even jumbo loans would be good options to look into. For lower credit scores, government-issued loans are easier to secure and can be more doable for the borrower.

Deciding if you want a fixed or adjustable-rate mortgage is important too. Fixed-rate mortgages are exactly what they sound like: set monthly payments for the duration of the loan. Adjustable-rate mortgages adjust monthly payments with the market. These loans are better for those who want a lower interest rate, but have the extra cash to dish out when rates become high.

The Next Generation of Home Buyers has Arrived

Though millennials have been known to delay home buying due to the state of the economy, they are now the largest home buying demographic in Boston. The homes they are purchasing are small compared to older generations, but this is likely due to the location of the homes. Unlike older generations, millennials are largely opting for the bustle of the city over suburban life. 

If you’re a first-time home buyer, trends and data can seem daunting. However, many companies offer financial packages for first-time buyers that take some of the weight off of borrowers’ shoulders. Down payment assistance (DPA) loans and grants can help first-time buyers cover the other costs of buying a home, like closing costs. DPA loans will have to be paid back, but grants do not.  

Handling a Potential Market Cool Down

The current outlook of the real estate market is positive overall, according to Multiple Listing Service (MLS) data. But The Federal Reserve is likely to continue to hike interest rates to combat inflation, so prospective buyers should be prepared. MLS data showed the rate of price growth is starting to decrease, and around 20 percent of sellers have dropped their original asking price.

That means a downward trend in home prices may be possible in the near future, if you can wait it out. Demand is expected to continue dropping, creating the perfect combination for buyers who have been struggling to find a home. 

If you’re looking for the perfect time for a steal, the next year or two may be right. For a spot that will pay long term dividends, East Boston has been rapidly growing and is expected to continue to develop. For maximum ROI, look to the suburbs–hotspots like Quincy and Winchester, with easy transportation to the city center, reliably accrue value.

New developments are also bolstering even classic city residences: Dorchester, for example, is benefitting from the new South Bay concept. If you want to maximize your return on your investment, just look for where new shopping centers and public amenities are being planned, particularly along the waterfront. 

If you have been waiting for a sign to finally buy a home, now may be the time to take your chances and put in an offer. The ball is in your court to negotiate and striking while demand is lower may be your best bet. Take advantage of the mortgage financing program that works for you. A mortgage plan that allows you to maximize gains when purchasing in a down market is something everyone should think about.

What’s critical is that you find the home you want, at the rate that works for you. With the right plan for action, you can make that happen, no matter what the market is doing at the moment.