COGnitions

9
January 2018
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2018 Boston Luxury Real Estate Market Forecast | By Jeff Hamilton

We spend a chunk of our time each month parsing the data that the market gives us; we analyze trends in pricing dynamics and residential inventory across our four core neighborhoods. It is under this guise that we present our 2018 market missive bolstered by an extended look back at the last 8 to 10 years in Boston luxury.***

It is not making news to state that Boston’s luxury real estate market has become a formidable force over the last decade.

But, it may catch your attention to learn that, for the first time in 8 years, the average price per square foot in the Boston luxury real estate market has DROPPED ($1,276 to $1,236).


More granularly, the sales figures for the first half of 2017 were 1.7 percent higher than those for the second half of the year. This was, again, the first time we had seen a drop within a year in more than 5 years. Now, before Curbed pushes another clickbait headline all over Boston, you must know that these numbers do not tell the full story.

For context, let’s turn back the clock to 2016 and the unprecedented delivery of Millennium Tower. Its 442 luxurious units (346 > $1M) did a number on the numbers. Total sales (>$1M) in 2016 reached 996, a 53 percent jump over 2015 (651). While 2017 could not match the 2016 sales volume, its 752 sales were still 16 percent greater than 2015. Due to Millennium Tower’s lofty price points, the impact of so many sales in one building in one year (2016) drove that YEAR’S average price per foot dramatically higher. With no such new deliveries in 2017, our average price per foot fell by 3 percent even while all the neighborhoods, individually, showed pricing increases over 2016.


If we consider, for a moment, the Back Bay, Beacon Hill and South End markets without Downtown Crossing’s sales, we see a 4.4 percent increase in the sales figures from 2016 to 2017. Downtown Crossing itself was up less than 1 percent in 2017 versus the previous year. Year over year sales in DTX were cut by nearly 75 percent (437 to 124).


The close of 2018 will mark ten years since the previous pricing highs were reached in 2008. The whispers of an impending pull back are getting louder even while the fundamental signs for such movement are harder to decipher. As eye-popping as the pricing has become, the number of transactions that the market is seeing at or above the $1M mark is equally impressive. In 2009, there were 277 total sales over $1M in our market. While we may not hit 1,000 transactions in 2018 we are more than likely to hit that number in 2019 or 2020.

NEW CONSTRUCTION

Considering the supply side in the city, luxury deliveries are expected to be lighter in 2018 than in the years to follow. Currently approved and under construction projects in 1Q18:


Buyers who are primed to act in 2018 will be able to lock up pre-sales at some of these buildings but if they want to move in 2018 they will likely have to choose from the existing market supply.

SELLING

What does this mean for luxury sellers in the coming years? Well, supply constraints should be greater in 2018 than the years ahead. If you are anxious to secure the optimal return, this is likely the time to sell.

In that context, it’s worthwhile to note that the high water mark in 2008 ($944/SF) fell by approximately 10 percent when the books were closed on 2009 ($848/SF). Since that time, the markets have marched straight through the $1,000/SF level up to our current peak of $1,236/SF at the end of 2017. This is a 46 percent gain in 8 years!

BUYING

Not all is lost, buyers. We would encourage you not to delay dipping your toes in the water. Trying to time a dip of 3 to 8 percent in market value is not worth the the sideline envy, especially if you’re paying rent! Our market is much deeper and much stronger in 2018 than it was in 2008. The city of Boston has gained over 75,000 residents in those ten years and the growth trajectory calls for us to hit 700,000+ in the coming years. This number is just a fraction of the greater metro area which is home to over 4.5 million people, a growing number of whom want a piece of the city.

CLOSING

Finally, make no mistake, 2017 was a quality year in Boston luxury real estate. While the pricing gains tempered in the second half of the year, the market remains strong while new trends in construction, luxury amenities and even geographic preference promise exciting years ahead.

Eventually, a pull back will happen. While sellers may absorb additional days on market at time of sale, if their hold period exceeds 24 months, trust that the investment is likely to be a good one. Still, the ultimate “winners” will be those that purchased between 2009 and 2015. Your investment in Boston luxury real estate is destined to be very good!

 

***There are lots of ways to slice and dice the markets. We choose to offer a focused view of the “luxury” market in Boston proper. All our general facts and figures are based on sales over $1 million in the Back Bay, South End, Beacon Hill and Downtown Crossing neighborhoods. From there, we look at each neighborhood individually as well.