Experts have warned that housing prices are only going to rise, and Boston will be the next city where buyers will need a million dollars for the average family home.
A perfect storm of spiraling construction costs, desperate buyers, and existing homeowners sitting on their homes has caused home prices to double in 68 of America’s 100 largest cities in less than ten years.
The median sales price for a single-family home hit a record $950,000 in Greater Boston last month, and local real estate agents have said it’s likely to reach seven figures this summer.
“I don’t think there’s any clearer signal to the legislature that they need to work on all fronts to alleviate these price pressures,” said Luc Schuster of the Boston Foundation.
“There is no doubt that this is a crisis.”
It now takes $1 million to buy this average single-family home in East Boston
And a whopping $1.2 million is needed for this four-story home with a semi-finished basement and a small backyard in the city’s Brighton suburb.
The average rate on a 30-year fixed-rate mortgage is now 7 percent – a 23-year high – as authorities try to squeeze inflation from the economy.
High interest rates have traditionally weighed on home prices as buyers factor in the cost of mortgage payments.
But Jared Wilk of the Greater Boston Association of Realtors warned that a decade of ultra-low interest rates has left existing homeowners unwilling to move house and take on new mortgages at much higher rates.
And that has left buyers desperately competing for the few homes that come to market, with more than a third of homes being paid for in cash.
The White House has announced plans to give $25,000 to first-generation homebuyers for their down payment.
But it still leaves those who can’t pay cash needing to find nearly $200,000 just for a down payment on a $1 million home.
“The reality is that if rates go up or down, if more homes or less come on the market, prices are going to go up,” Wilk told Boston Globe.
“There is a lot of pent-up demand and an imbalance in supply that will continue to drive them up.”
Professor Adam Guren of Boston University (left) has said that only an unlikely increase in production could dent prices, while Luc Schuster of the Boston Foundation (right) has warned that high prices will continue to hollow out local communities.
New home construction has recovered after a slump during the pandemic, but rising construction costs have meant new supply has done little to reduce prices.
Boston home sales fell every month for nearly two years as the market contracted.
And April’s record price came despite a sudden 30 percent increase in new listings.
The picture isn’t much better in rural areas, where the statewide median price rose 10 percent to $610,000 in the past year.
Housing prices have doubled in Detroit in just five years, Point2 housing market data revealed last month.
Home prices in Miami and Tampa, Florida, have doubled since 2018, as have in Baltimore, Maryland, and Spokane, Washington.
And buyers in Irvine, California, the most expensive housing market in the study, have seen median home prices double from an already lofty $750,000 to $1.5 million in just seven years.
The increase in demand has raised the total value of US housing stock by $2 trillion in the last year alone.
“We’re stuck in a strange situation where prices are going up,” said economist Adam Guren of Boston University.
‘I really don’t see the end until a lot more inventory hits the market. And I don’t see new inventory arriving anytime soon due to construction costs.”
A report last month from Realtor.com pointed to signs that the doldrums in the housing market were finally loosening with a 12 percent increase in homes for sale in April 2023, with southern states accounting for more than half .
Properties for sale rose 18.4 percent in the Midwest and 7.5 percent in the West, but only 2.9 percent in the Northeast, where fears are growing of a population exodus and a hollowing out of local communities as young people seek affordable housing elsewhere.
Even this single-story home in Boston’s leafy Brook Farm suburb will set you back nearly $800,000 after being valued at less than $600,000 last year.
More than 22,000 people ages 25 to 44 moved from Massachusetts in the 15 years through 2022.
“It’s certainly a sobering statistic,” Schuster said.
“I don’t think the importance of solving this problem, and doing it quickly and efficiently, can be overstated,” he added.
“These are trends that will take a long time to reverse, and the health of our region and the people who live in it is at stake.”