Boston’s rich history and cultural diversity are just some of the reasons people are attracted to the city. It’s also a great place for those who appreciate the outdoors as it provides excellent walkability, a chance to experience all four seasons and comes with plenty of green spaces, including America’s very first public park — Boston Common. An important transportation hub, Boston is home to one of the country’s largest airports, as well as a fantastic network of subway, bus and train routes, and highways.
Potential renters or homebuyers looking to live in a unique coastal city that offers a strong economy, excellent employment opportunities and world-class educational and healthcare facilities will definitely want to learn more about Boston’s housing market:
Population Recovery After Pandemic-Driven Decline
Boston is the capital of and the largest city in Massachusetts, as well as the 24th-largest city in the U.S. Having been founded in 1630, it’s also one of the oldest urban centers in the country and was the site of many important events surrounding the American Revolution and the country’s beginnings.
Boston experienced steady population growth up until the COVID-19 pandemic, when it saw a decline of 2.45% in 2020 and 3.16% in 2021, as reported by populationu.com. However, population decreases during that period were not unique to Boston, with other areas witnessing even larger declines, including New York City (a 6.9% drop) and San Francisco (6.7%). The short-lived population drops were primarily due to low birth rates and people’s desire to look outside urban centers during the pandemic to find what they perceived to be a better work/life balance, more space, and increased access to nature.
Yet, despite the two-year population decline, Boston’s residents appear to be growing in numbers again, with an estimated 0.43% increase expected in 2023. Some of the aspects that are likely to attract new residents to the area include:
- Plenty of well-paying career opportunities: The average annual household income in Boston is $120,939, with the median figure sitting at $81,744. White-collar workers account for 90.09% of the workforce in the city, while entrepreneurs represent 6.15%. Most Boston employees work in private companies (63.1%), while 10.82% work for governmental institutions and 19.94% for non-profit organizations.
- Top-rated healthcare: Boston is home to some of the leading healthcare centers in the country, including Boston Children’s Hospital, Massachusetts General Hospital, Beth Israel Deaconess Medical Center, and Dana Farber Cancer Institute.
- Top-rated colleges and universities: Several prestigious post-secondary institutions are located in Bostom, including Massachusetts Institute of Technology (MIT), Harvard University, Boston University, Tufts University, and Northeastern University. In fact, more than half of the adult population in Boston has a post-secondary degree (51.11%).
Buyers & Sellers Cautious Amidst Rising Interest Rates
There are currently 300,437 housing units in Boston, 34.78% of which are owner-occupied. Of these, 72.42% were purchased with mortgages.
Image: Sean Pavone / Shutterstock.com
The housing market in Boston is currently stagnating, with sellers reluctant to list their homes and buyers shy about making a purchase. As noted by Boston.com, this is likely due to the rapid rise in interest rates. The national average rate on a 30-year, fixed-rate mortgage is now 6.65%, higher than the rates paid on nearly all current 30-year mortgages. Moreover, interest rates have been increasing since the end of 2021.
Not only do mortgage rates affect the buying power of first-time homebuyers, but they also cause some sellers to rethink putting their homes up for sale as they consider whether it’s worth taking on a higher mortgage rate or risking not being able to find another house quickly enough.
According to data from the Greater Boston Association of Realtors, March 2023 saw 9.2% fewer single family home transactions than a year ago, while condoWhat is a condo? Many people think of luxurious living when they think of “condos.”... More sales decreased even more, by 25.6%. Along the same lines, both property types stood longer on the market (an average of 20 days, six extra days than last year for detached homes, and two days more for condominiums).
Even though inventory levels increased overall (by 17.6% for single family homes and 24% for condos), Boston’s current housing supply remains close to an all-time low. And without additional homes for sale hitting the market, real estate prices in the city are expected to be level for the foreseeable future. Even so, the city is already known for its pricey real estate.
The median price for a single family home in Boston stood at $765,000 in March 2023 after recording a 4.4% drop compared to March 2022. Boston condos, on the other hand, got a bit more expensive, reaching a figure of $729,000 (+2.2% year-over-year).
Property Type Median Home Price (March 2023)
Single Family Homes $765,000
Condos $729,000
Investors have also been reluctant to purchase properties in the city. Last year, investment sales accounted for only 2.2% of the market, representing a 46% decline from 2021. That has resulted in less competition from investors and fewer investors with winning bids, opening up more inventory availability to families and individual buyers.
Hot Rental Market Reflected in Rent Costs
Using the price-to-rent ratio efficiently determines whether it’s better to rent or buy a home in a particular area (it compares the local median home price to the median annual rent). Buying is the better alternative if the ratio is below 15, while anything between 16 and 20 hints at renting. A figure of 21 or above means you’re better off financially in a rental. According to SoFi, the price-to-rent ratio in Boston is 21, in line with the fact that 65.22% of the housing units in the city are already renter-occupied.
Image: Sean Pavone / Shutterstock.com
According to RentCafe, the average rental size in Boston is 812 square feet. Two-bed apartments and one-bed units are the most preferred rental types in the city, holding 35% and 30% of the market share, respectively. The least occupied alternatives are three-bedroom options, which account for 19% of Boston rentals, studios making up 10% of units, and apartments with four or more bedrooms, at only 6%.
Regarding prices, Boston is in the nation’s big league, ranking third on the list of most expensive rental markets in the U.S., right after the usual suspects New York City and San Francisco. The average price for a single-family rental in the city stood at $3,453 per month in February 2023, while an apartment for rent in Boston was $3,758 monthly. To top it all off, apartments have actually recorded a 3.1% increase compared to a year ago. Even with these high rents, the rental vacancy rate in Boston stood at 3.4, close to record lows.
Zooming in, nearly all apartments in Boston (97.4%) are priced at more than $2,000 per month, except 2.46%, which are in the $1,500-$2,000 range, and a mere 0.14% which are between $1,000 and $1,500.
Some of the most “affordable” neighborhoods in Boston, showcasing monthly rents of less than $3,000, include:
- East Boston
- Roxbury
- West Roxbury
- Mattapan
- Hyde Park
Meanwhile, the most expensive neighborhoods in Boston, with monthly rents of more than $4,000, are:
- North End Boston
- Bay Village
- Chinatown – Leather District
- Back Bay
- Downtown – Financial District
New Residential Construction Slows
Image: Sean Pavone / Shutterstock.com
Nearly half of the homes in Boston were built before 1939, while the remaining residential buildings in the area popped up evenly throughout the decades from 1940 to 2019.
Units built since 2010 account for about 7% of the housing stock. However, according to the Boston Globe, construction has been slowing recently, with 2022 witnessing the fewest housing approvals since 2015. For instance, the Boston Planning & Development Agency board approved 2,647 residential units last year, 60% less than in 2021 and 74% less than in 2020.
Furthermore, according to the U.S. News & World Report, single family building permits have been declining since late last year — from December 2022 to February 2023, 829 units were approved, representing a 24% year-over-year drop.
Granted, several factors are likely contributing to this stall in new residential construction in Boston. High interest rates, economic uncertainty, difficulty obtaining construction loans, and rising construction costs all contribute to fewer projects being submitted for and receiving approval. In fact, data from consulting firm Rider Levett Bucknall showed that construction costs were at all-time highs in Boston, increasing by almost 9% between late 2021 and 2022, more than twice the typical annual increase of 4%.
Sources:
The city-level demographic stats used in this article (population; education, employment and income data; and housing units info, year built included) were sourced from Point2’s Boston demographics page. At the same time, rent-related data (rent ranges, vacancy rate and average monthly rents) was extracted from the Boston rental market trends page. All additional sources were referenced directly within the text.
