Volatility in the Greater Boston Real Estate Market

By Doug Hanna, Principal, S+H Construction, Inc.  

The current crazy ride in the local real estate market may seem unprecedented, but it's happened before. In 1981, as new parents, my wife and I bought a triple-decker in Somerville. The day we moved in the neighbor from across the street strolled over and greeted me as follows: "Ya paid too much for it!"  Three years later, when we sold the house for more than twice the amount we paid, I paid a visit to my neighbor, who had become a friend, and gave him the news. He just shook his head.

Volatility in the Greater Boston Real Estate Market

Our good fortune had nothing to do with our savvy as real estate speculators. We just had the dumb, good luck to buy as the market was in a steep ascent, similar to the past couple of years. However, that didn't stop us from thinking that we knew what we were doing and, thinking you know what you're doing when you really don't can get you burned. It made me think I knew something about real estate development. I mean, I knew how to build things, and the value of real estate was going up by huge amounts every year, so how hard could this be, right? Well, a few years later my partner and I tried our hand at some small development projects and the timing was just as bad as my previous experience had been good. The real estate market is usually in lock step with financial markets, and similar to cicadas and asteroids, operates in cycles. You can't always predict when the cycle will turn, but you can pretty reliably predict that at some point it will.

The real estate stories now have a familiar ring but are also unique. Houses coming on the market in Cambridge and Somerville and other towns close to Boston are being snapped up within days. Dozens of offers pour in, many with no inspection or mortgage contingencies, and many houses are paid for with cash. In fact, if you need to finance your prospective home you may be out of luck, as sellers are attracted to the security of a cash buyer. Bidding wars can drive the actual sale price of homes significantly higher than the asking price. Buyers are composing life histories of themselves, their children and their ancestors in the hopes that they will be considered worthy:

"Trevor plays the oboe and was an all-star forward in mini-soccer camp! Brittany has started a recycling program at her pre-school and is in the funding phase of her cupcake start-up! Choose us, oh wise and beneficent homeowner! "

Insane, unbelievable, and out of control are some of the printable words I have heard used by friends and colleagues to describe this market. It does appear that investing in real estate in the Greater Boston area, and Boston proper, is a sure thing that may never have a downside. Boston has the universities, hospitals and health care facilities as well as the bio, high tech and financial companies that draw talented and well-heeled people to the area.

Many wealthy foreigners are buying up property so they have a base of operations when their children are inevitably accepted at Harvard or M.I.T, or simply as a safe refuge and good investment in an uncertain world. Many empty - nesters are trading in the quiet suburban life for the action of the big city. It's "good times" right now for sellers, and those lucky buyers who get a seat at the table. Still, let's not lose sight of the inevitability of cycles. 

I've witnessed three major downturns in my life. The first was the "Oil Crisis" of 1973. The second "event" was the stock market crash of 1987. The third and by far the most devastating was, of course, the "Great Recession" of 2008. In spite of that Wall Street inspired production, real estate values in this area generally went flat for a few years, and then shot up again. Maybe we won't experience any other significant downturns in our lifetime. However, there are global forces that can dampen the most robust markets, even in our prosperous corner of the world. 

For now, it's a frenzy of real estate acquisition out there. And that dilapidated worker's cottage next to the train tracks with no parking, that's going for a million dollars, is most likely a smart investment, unless things change. 

If you are considering selling and would like some advice about the condition of your property, please give us a call.