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Beige Book Report January 2018

Federal Reserve Bank of Boston


First District - BOSTON

Residential Real Estate 

Heading into the end of the year, residential real estate markets in the First District showed slight to moderate increases in sales and ongoing struggles with inventory. (Data for all six states refer to changes from November 2016 to November 2017, while Boston data were for October-to-October changes.) For single family homes, closed sales increased in all reporting areas except Connecticut. For condos, closed sales increased in all areas. As usual, shortage of inventory prevailed and contacts expressed concern that short supplies will hurt the market in the long run. Median sales prices increased across the region, with the exceptions of Connecticut for single family homes and Vermont for condos. Despite high prices, contacts expressed confidence about the residential outlook. However, many contacts indicated that new legislation passed by Congress could discourage home ownership, as shrinking the cap on the mortgage interest deduction for primary homes and the loss of most deductions for interest on home equity loans will increase costs for most property owners.

Commercial Real Estate 

Contacts reported that commercial real estate markets ended the year on a relatively high note. Leasing activity held roughly steady in recent weeks, with deals proceeding mostly as expected. In the Portland area, office and industrial rents increased 10 percent on a year-over-year basis, while retail and apartment rents were roughly unchanged over the same period. Also in Portland, however, transactions volume for both leasing and sales was  down in 2017 as a result of low vacancy rates and low sales inventories. In Boston, office rents edged up further in recent weeks and significant absorption of office space was seen in the Seaport and Back Bay neighborhoods. In Providence, office rents started to increase in recent weeks amid an increasingly tight vacancy environment. Contacts in all three of these metro areas expressed uncertainty concerning the impetus for new office and industrial construction in 2018, but nonetheless expect some. On the one hand, vacancy rates in both of these sectors are low by historical standards and rents are on the rise, but on the other hand construction costs are described as very high, a fact attributed in part to a tight market for construction labor. A Boston-area contact noted that some apartment construction projects are taking longer to complete than anticipated because of worker shortages. Contacts were generally cautiously optimistic about 2018.

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