According to a recent analysis of Boston-area market data, supply is drying up quickly on the lower end of the market. In fact, many communities in Eastern Massachusetts have very few homes available for less than $500,000. As such, the traditional path to home ownership has been essentially blocked for many people who are looking to purchase their first home.
A Market in Hyperseed
One of the reasons why new homeowners are having trouble with purchasing a starter home is the fact that the market is in hyperseed. In other words, homes are selling in just a matter of days or even hours. Traditionally, inventory builds up over the course of the season as new homes come on the market. Instead, they are being purchased almost as soon as they are listed, thereby leaving buyers with only a few choices. In fact, in Reading, there were only five single-family homes for sale under $500,000 at the end of May. Four years ago, there were 53 homes available at that price point. In North Reading, there were only five homes available compared to 36 in 2012. Malden had only 10 condominiums and seven single-family homes available for less than $500,000, while Melrose had just seven single-family homes available at that price point. With inventory moving so quickly, simply waiting for something to come to the market is not an option for many who are interested in purchasing a starter home.
A Surge in New Housing Construction
To address housing demand, there has been a surge in housing construction in the Boston area. Unfortunately for those who need a starter home, this surge has mostly been at the high end of the market. Furthermore, much of the new construction has been in the rental market, thereby doing very little to assist those who are interested in purchasing something at the starter home price level. To compound the problem, high housing costs has resulted in many homeowners who are reluctant to put their properties on the market in order to trade up. This has created a bottleneck in the industry as listings continue to drop.
In an effort to have their bids accepted, buyers are finding themselves having to bend over backwards to sweeten the deal for the seller. In addition to stretching their budgets, they are making sacrifices on space, waiving inspections and even writing personal letters to homeowners in an effort to tug at their heartstrings and convince them to accept their bid. Ultimately, some buyers are simply giving up on purchasing a home, thereby further increasing demand for rental property. This, of course, continues the cycle of increased rental prices.
In addition to being a problem for first time homebuyers, the rising costs coupled with the absence of lower-cost housing could have a strain on the Boston economy. Many experts are concerned that the costs will drive out professionals who do not wish to spend such a larger portion of their income on housing. This is particularly true as young professionals form families and look for more cost-effective, family-friendly options.