First District Boston
Residential Real Estate
Homebuyer confidence is up across the First District, according to contacts. Accordingly, completed sales of single-family homes increased over-the-year to May 2015 in every state except Massachusetts, which posted a decline in completed sales for the same period. The decline in Massachusetts' completed sales is attributed in part to the state's long and harsh winter, which deterred foot traffic even into April. Record-low inventory levels in Massachusetts are reportedly causing changes in the contracting environment, such as an increased willingness of sellers to let buyers out of pending sales contracts and a trend of sellers' making a sale contingent on their finding a new home to purchase. Over-the-year to May 2015, supply of single-family homes decreased in every state in the First District while pending sales increased. Median Sales Price (MSP) of single-family homes increased over-the-year in four of six New England states, while in Connecticut MSP is flat and in Massachusetts MSP decreased. The latest decline in MSP is only the second for Massachusetts in 31 months and contacts insist that buyer demand remains strong. The condominium market saw mixed results. Completed condominium sales are down in Massachusetts, Connecticut, and Vermont and up in Rhode Island, New Hampshire and Maine. MSP for condos increased in all states except Vermont and Maine. Massachusetts currently has only 1.8 months' supply of condominiums available, compared with 6 to 7 months' supply in a balanced market. Condominium inventory is down and pending condo sales are up in all six states. Contacts are generally optimistic about regional demand for residential real estate moving forward, despite voicing some uncertainty about the impact of eventual increases in interest rates.
Commercial Real Estate
Contacts report that office rent growth is accelerating in greater Boston, especially in urban submarkets. One contact describes Boston's office leasing market as the strongest in 50 years. Prices for investment properties in greater Boston continue to rise and, despite accelerating rent growth, contacts remain concerned that recent sales prices embed overly optimistic rent growth assumptions. In Portland, commercial leasing activity is steady at a solid pace and a modest amount of build-to-suit construction activity is reported. In Providence, deal volume is steady in both the office and industrial leasing markets and office vacancy rates are expected to decline moving forward amid lack of construction activity. Also in Rhode Island, business sentiment is described as optimistic in the face of modest improvements in current economic conditions and passage of a state budget that is seen as favoring job creation. Hartford's office leasing volume slowed in recent weeks, prompting one contact to downgrade his outlook for that market; however, Connecticut's investment sales market remains quite strong. Bank lenders in greater Boston are reportedly offering very low interest rates and generous terms for commercial real estate mortgages and construction loans. A common concern among contacts in the First District is the potential impact on investment demand for commercial properties once short-term interest rates start to rise.