The biggest question for the real estate market across the country is how will the historic jump in interest rates affect home sales for 2023?
Several veteran local real estate agents answered that question, and provided their outlook of the JP market.
Before diving into numbers, one thing remains true.
“Jamaica Plain remains a desirable Boston neighborhood,” said Constance Cervone of Cervone + Deegan and Associates at Coldwell Banker. But the market is shifting due to the economic outlook, interest rates, and COVID remains an issue, said Cervone.
The big thing to look at, is indeed the effect of the interest rate. Interest rates doubled in 2022, going from the low 3% range in January for a 30-year fixed rate mortgage, and peaking in October to the low 7% range.
“The average sale price of a JP condo was approximately $735,000 last year. Depending on the down payment amount, the difference between 3% and 6% interest rate on a 30-year fixed rate mortgage is $1,200-$1,400 in monthly principal and interest payments. That is a significant shift for most consumers,” said Trevor Wissink-Adams, lead of TWA Group at Compass.
Just How Historic Are We Talking?
Yes, interest rates jumped last year. But just how much? BJ Ray of The Boston Home Team at Unlimited Sotheby's International Realty researched (via Freddie Mac) the top 20 largest 6-month increases in 30-year fixed rate mortgages since 1971. Guess what? 2022 set the record – several times.
“The largest % increase over any 6-month span happened between January and June of 2022. And the second, third, fourth, fifth, and sixth largest jumps also happened in 2022,” said Ray. You’d have to go back to 1980 to find the seventh largest jump, added Ray.
So we’re talking about historic interest rates.
Are Prices Going to Drop?
Consider this, prices continued to rise in 2022 compared to 2021. There was an 8.5% increase of the average sales price of residential units (single family and condos) in JP between 2021 ($765,000) and 2022 ($830,000), said Cervone.
And the historical rise for interest rates doesn’t mean that prices are going to drop.
“There continues to be a consistent lack of inventory in Jamaica Plain. Therefore, the demand continues to be high in proportion to the supply which will keep prices relatively strong,” said Cervone.
For many years, inventory has remained low in Jamaica Plain, and that’s driven up the cost, and forced bidding wars, leading to buyers waiving contingencies. But that hike in the interest rate is going to help buyers.
Wissink-Adams said while it is still a seller’s market like in recent years, things are slightly different.
“I think this spring 2023 will present good opportunities for buyers entering the market where they will be able to include mortgage and inspection contingencies to protect them in their purchase,” said Wissink-Adams, adding that he thinks inventory will remain low.
“It is still a good time to sell, but sellers need to be realistic that they may not see 15 offers and $100,000+ over asking that their neighbor received in the spring of 2021,” Wissink-Adams added.
Cervone said that first-time buyers and buyers with limited buying power are more greatly affected by the rates. But the JP buyer pool includes a broad range of buyers, from first timers, to people looking to buy their second or third home, and luxury home buyers are also less affected.
Properties Sitting on the Market Longer?
There isn’t a distinct difference as to whether properties sat on the market longer in 2022. For single family homes and condos in 2021, those properties averaged 21 days to offer, and it was 20 days to offer in 2022, said Cervone.
The average days to offer for JP condos in Q4 for 2022 was 22 to 25 days, said Ray, which was down from 12 days for Q3. But things typically slow down at the end of the year. Q4 in 2021 was 24 days to offer in 2021. So there wasn’t a drop.
Properties did sit longer on the market in fall 2022 than they did in the spring, but colder weather often slows down inventory and sales.
As the weather warms up, the spring market for 2023 will be more evident, said Wissink-Adams, who feels that the spring market will be more predictable in the next 30 to 60 days.
Ray pointed out that lenders are getting creative and offering things like 2-1 buy downs to help buyers "get in" at a lower rate with hope that rates will taper down a little bit.
Ray said he thinks JP prices won’t climb too high this year. He said that the market was poised to soften in 2019 and into 2020 before the pandemic altered the course.
“It's my hope that the market finds an equilibrium for buyers and sellers,” said Ray. “The past 10 years has seen buyers wrung out as they made every concession under the sun and sellers doing very little in return. I'm hoping we'll see a more balanced market moving forward.”