Housing Crisis in Boston—How to Cope? Where are We Going?
Many experienced realtors and myself agree that the real estate market this year is crazier than last year, much more competitive and higher prices. In many cases we are seeing a higher number of offers in the same area. The stock market has gone up a lot in the past two years. The economy has been doing well and wages have gone up steadily. Cash rich investors and corporate leaders have scoured the urban market for the steadiest returns, eager to park their cash. Many millennial first-time home buyers also find it difficult to compete with empty nesters trying to downsize for the same limited inventory.
I have seen more first-time real estate investors entering the market in the past year, eager to gain some landlord experience. Some of these investors have already held their cash for a few years, attempting to test out the rumors that the market was going to crash, and when the much hoped for crash didn’t come for a few years more, they decided to jump in, afraid to be priced out. Indeed, now we are entering the fall market and 2018 has seen another home-buying craze.
Take 2014 for example. At the end of that year I bought a two-story Cambridge townhouse. It had modern renovations and appliances, garage parking, a private yard and deck, and the townhouse was relatively spacious for the location. I paid $632,000. The townhouse was very close to the Red Line. Now, the same money can barely get a similar condo on the far side of Arlington and one has to take a bus all the way to Alewife. While many have argued for years during 2014-2018 that the housing market has reached the peak, and appreciation has indeed slowed down during that period compared to 2012-2014, the market has still gone up a lot in the past few years. The strong housing demand has continued and the strong job growth has continued to fuel the bidding wars.
Many millennials are paying a significant portion of their income toward rent, sometimes as much as 30-50%. Many are faced with the choices to either rent in the city (much better location for work) or buy in the suburbs (less desirable location from a commuting standpoint). Some have decided to just rent for years in the city to be near all the fun things that the city has to offer.
Many first-time home buyers have asked me whether it’s better to rent or to buy. In most cases after we sit down and analyze the numbers and timeline, it turns out better for them to buy than to rent, even if they only live in the area for a year or two. Many can make back their original investment after they sell the place in a year when they relocate for jobs, even taking into account broker fees, taxes and various transaction fees. This is because the appreciation of the market works in the home owner’s favor.
Even in the worst-case scenario, the home-owner can easily rent out their place after they relocate and an experienced property management professional can make their experience as a long-distance landlord as stress-free as possible. Which one is worst—taking the above controlled risk knowing that you have a high chance to win or not lose, or continuing to rent knowing that you for sure are losing money from the rent and missing out on the appreciation? The Boston rental market has seen steady returns that were recession proof. In fact, the rent went up during the last recession in many areas because more people had to rent instead of buy, which drove up rental demand. Actually, many renters I talked to didn’t realize they could already afford to buy even with their perceived low savings. There were many things our partnered lenders could do for you and the consultations were free, so it doesn’t hurt to ask! Many of my friends and clients were surprised to find out what they could afford after talking to lenders.
For first-time home buyers who cannot save up the first down payment, there is no easy solution, but one can always start small and work their way up. If buying in further locations seem like a good start instead of paying hefty rent for years in the city, that might be what you need for now until you get a better job later so you can sell your current home to buy in a better location, or refinance and buy another place! You never know what pleasant surprises you may find later.
