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Beige Book Report for Boston April 2017

Federal Reserve Bank of Boston

Residential Real Estate
Residential real estate markets in the First District continued to struggle with a shortage of inventory. All six First District states as well as the Greater Boston area reported large declines in inventory for both single-family homes and condos from February 2016 to February 2017. Closed sales also declined in every state and Boston for single-family homes. Results for condos were mixed, with closed sales increasing in New Hampshire and Vermont but decreasing elsewhere. Respondents ubiquitously reported strong buyer demand. A contact in Boston said: "Sales could have been much stronger had the inventory been up. Unfortunately, we've noticed that potential sellers have become more reluctant to list their homes because they are apprehensive that they may not be able to find another home themselves."

Given the robust demand and low inventory, contacts were not surprised that prices generally rose year-over-year. For single family homes, median sales price rose in each state except Connecticut. For condos, prices rose in all reporting regions. A New Hampshire contact said the low inventory situation and rising prices were "particularly hard on first-time buyers struggling to get into the market." In general, contacts saw no remedy for ongoing declines in inventories. Most were confident, though, that buyer demand would stay strong, even in the face of increasing interest rates.

Commercial Real Estate
Reports on commercial real estate activity in the First District were mixed. Contacts in Boston and Hartford reported a modest softening of commercial leasing activity in recent weeks, while activity was reportedly stable in Portland and somewhat stronger in Providence. In Connecticut the weaker activity extended to both the industrial and office sectors. In Boston reports of slower demand pertained to the urban office sector, which still enjoyed a single-digit vacancy rate. Investor demand for prime Boston properties remained strong but price appreciation slowed further.

Office construction activity continued to be restrained across the District. Apartment construction activity remained significant but the pace of new deliveries slowed and the pipeline of planned projects contracted somewhat amid evidence of slowing rent growth. Respondents noted that borrowing rates for commercial property loans were flat despite recent increases in short-term rates. Most contacts expect further improvements in their respective commercial real estate markets moving forward, but likely at a slower pace. A Hartford contact was somewhat less optimistic, citing drags on growth related to severe fiscal strain in his state, while a Providence contact was more upbeat, based on signs that business confidence in Rhode Island had improved recently.

Summary of Economic Activity
Business activity continued to expand in the First District in recent months, with the year-over-year pace of increase said to be modest to moderate. Most responding retailers and all contacted manufacturers and software and information technology services firms reported increases in revenue from a year earlier when contacted in early April. Commercial real estate markets were somewhat mixed in the region. Residential real estate markets across the region saw price increases and sales declines in February compared with a year earlier, which contacts attributed to low inventories. Across sectors, hiring was reportedly modest as were wage increases, while many respondents cited difficulty filling a range of positions. Retailers and manufacturers said some selling prices were up modestly. Most responding firms cited a positive outlook amid some ongoing policy uncertainty.

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