Boston - First District
Federal Reserve Bank of Boston
Residential Real Estate
Continuing recent trends, residential real estate markets in the First District showed robust increases in sales and prices relative to last year. Closed sales for single-family homes and condos increased in all six First District states as well as in the Boston metro area (five of the six First District states and Boston reported changes from November 2015 to November 2016; Maine reported on October 2015 to October 2016). Massachusetts recorded the most closed sales on record for the month of November. As usual, many contacts cited falling inventories as an issue: inventories decreased year-over-year in every reporting region. A contact in Massachusetts reported that "with such little inventory, buyers needed to be quick with their best offers from the start."
Home prices also rose year-over-year. For single-family homes, the median sales price increased in every reporting region. The same was true for condos, except in Vermont where prices decreased slightly.
Overall, contacts were optimistic about the outlook for the end of the year and into 2017. Many said rising interest rates would stimulate buyers to make offers at the end of 2016, but they did not expect further moderate increases in interest rates to restrain the region's consistently strong buyer demand.
Commercial Real Estate
Conditions in commercial real estate markets across the First District were stable in recent weeks. Office leasing activity was steady or modestly slower in the region's major metro areas. Investment sales activity and sales prices for prime commercial properties in Boston were also stable, as foreign investors were undeterred by higher interest rates and a stronger dollar. One contact estimated that office rents in greater Boston increased 10 percent on average in 2016. Apartment construction activity slowed in recent months in both Boston and Portland, while office construction was stable at a slow pace in Boston and minimal in the rest of the region.
The outlook among contacts was cautiously optimistic, with significant uncertainty related to domestic politics. Contacts across the District expected capitalization rates to increase in 2017 to keep pace with rising interest rates, noting that such increases imply that rents will have to increase and/or valuations will have to decrease. On balance, contacts anticipated that property values will remain flat in 2017. Apartment construction activity was expected to slow further in coming months as borrowing costs continue to rise and lending terms continue to tighten, but prospects for new office construction appeared brighter for 2017 in light of rising office rents and low office vacancy rates around the region.
Summary of Economic Activity
Business activity continued to expand in the First District at the close of 2016. Both retailers and manufacturers cited modest to moderate increases in revenues in recent weeks compared with a year earlier. Software and information services firms reported strong order increases in the fourth quarter. Commercial real estate markets were mostly steady in the region; in the Boston area office rents increased and sales prices for commercial properties were stable. Residential real estate markets across the region continued to experience increases in both sales and prices. Although none sought substantial additions to headcount, a number of firms reported difficulty finding workers to fill openings. Prices were largely stable. Most responding firms cited a positive outlook, expecting end-of-year growth rates to continue in 2017.