The top story for that premier issue back on Sept. 27, 1997 was about how optimistic brokers were about the state of the luxury market.
Twenty years ago this week, Boston Homes appeared for the first time, covering the city’s luxury real estate market.
The top story for that premier issue back on Sept. 27, 1997 was about how optimistic brokers were about the state of the luxury market. Brokers talked about how they saw the market as one of increased sales and prices.
In 1997, it was the Back Bay with the largest inventory of homes in Boston. The paper originally only covered five neighborhoods – Back Bay, Charlestown, the North End – Waterfront, Beacon Hill and the South End. Today, we still cover those five plus six additional areas – Dorchester, Downtown/Fort Point/Leather District/Seaport, East Boston, Fenway, Jamaica Plain and South Boston.
In August 1997, the hottest neighborhood in the city was the Back Bay with 216 homes on the market. The South End was the second hottest market with 151. The North End – Waterfront offered 85 units, Charlestown had 78 and Beacon Hill saw 60 homes on the market, as reported in our premier edition.
When Boston Homes began, the biggest jumps in the market that month were seen in the North End/Waterfront with the number of sales climbing by 125 percent. Prices also soared, going up 49.8 percent to an average of $352,404 and the average per square foot saw a 27.6 percent increase to $263.
Charlestown was also hot with sales up 81.3 percent and prices rising 2.5 percent.
Prices have continued to rise throughout the years in Boston. In 2000, the average condo sales price was $438,69. Today, the average selling price in the city is a lot higher - $1,050,318.
In the top story of the first edition of Boston Homes, Kevin Ahearn, president and owner of Otis & Ahearn Real Estate, said, “The year-to-date numbers are very much in tune with what happened in 1996, which was a record year. “[Interest] rates are staying down. The wild card is the [capital-gains] tax law change, which is going to have an affect.”
At the time of that publication, the act, passed by Congress and signed by Pres. Bill Clinton as part of the Tax Relief Act of 1997, had not gone fully into action. Under that act, the top marginal long-term capital gains rate was cut from 28 to 20 percent and the 15 percent bracket was cut to 10 percent.
This act permanently exempted from taxes the capital gains on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for single taxpayers. The catch was the taxpayers had to have lived in the home for two of five years.
The $600,000 estate tax exemption was also increased gradually to $1 million by 2006.
Ahearn, who is considered by many as one of the top real estate market experts, said that is was Trinity Place on Huntington Avenue in Copley Square that started the faster cycle into full service condominiums in 1998. Certificates of occupancy were first issued in 2000, according to Ahearn. This opened the door to the spree that has fueled the luxury housing boom in Boston since then.
This ended what Ahearn said was a long period of no major luxury housing new developments being built in the city. Before 1988, there were three primary full service luxury places to call home – the Ritz Carlton, the Four Seasons and Rowes Wharf. Then nothing new came for a decade.
“Boston was still a small market,” said Ahearn this week.
That’s not the case anymore.
“We’re recognized as a gateway global city,” he said. Ahearn pointed out that metro Boston, including downtown, is one of the top high net worth (HNWI) cities in the world. He says the big draw to Boston is education, hospitals/medical, finance, technology and demographics.
And what is happening in Boston is not showing signs of ending anytime soon. Ahearn says, “We’re well into the first or second leg of this. This is just a beginning.”
Among the full service projects that have been the spark in the boom over the past 20 years are the Ritz Millennium, the Ritz Carlton House, Belvedere, Rowes Wharf, One Charles, Trinity Place, Four Seasons, Grandview, Atelier 505, Burroughs Wharf, The Heritage, The Residence at the InterContinental, the Mandarin, Battery Wharf, the Bryant, W Boston, The Clarendon, 45 Province, Millennium Place, 22 Liberty Wharf and of course, Millennium Tower.
Ahearn said that the market during the past 20 years has been steady without much volatility.
“This has been different than anywhere else,” he pointed out.
Boston did not suffer as much as many other places during the Great Recession that began in 2008.
One of the signs Ahearn watched for to see if there was going to be volatility was South Boston, a place that has been a magnet for young professionals coming out of school. The mountain of student debt younger people carry in college education loans should have tanked the market. Ahearn said that didn’t happen. There was no downturn and today South Boston remains as one of the hot markets in Boston.
The Back Bay, another very popular place to live, went right through the recession without slowing down really at all. Price appreciation was flat in the early 2000s then a couple of dips in 2006 and 2009, everything after that has been strong annual single or double digit appreciation.
It is not only young professionals who are driving this market today – its also empty nesters, couples who see their children grow up and leave the suburban homes. With no children to raise, many individuals and couples are looking for a different type of lifestyle away from the suburbs. They want to experience the city and all that it has to offer. Selling off the large suburban homes gives them equity appreciation of various levels to use for luxury full service condos.
Today, Ahearn says the fundamentals are strong. There is strong demand, but there are not enough homes in the market to meet it.
“ US single-family inventory and downtown Boston condominium inventory are at 30-year lows,” said Ahearn.
Condos in Boston generally don’t stay on the market for long. He said that inventory usually has a supply to cover five to six months or more, for it to be a buyers’ market. Today, there is only a month’s worth of inventory, which makes this very much a sellers’ market. One of the reasons – not many people are leaving their Boston condos.
“In the resale market, there’s not enough turnover to compensate for the lack of new development,” said Ahearn.
Last year, the new Millennium Tower, located where Filene’s used to be downtown, was the hot place to buy. With 60 floors of luxury condos available, they sold very fast.
There is nothing that size coming on the market this year and closing to handle the demand.
“There needs to be five to six times the inventory than there is now,” Ahearn said.
With a shortage of places to sell and no shortage of people looking to buy that means prices are up.
Back in 2000, million dollar sales of homes account for only 5.9 percent of the market in downtown Boston. Last year, it was 33.39 percent of the sales. And Ahearn says that the largest percentage jump in sales was for units costing more than $3 million. Those sales are up more than 219 percent (39/178, 2007-2017).
On the other end of the pricing sale, in 2000, 78.8 percent of condo sales were in the $0 to $499,000 range. In 2016, only 17 percent were in that bracket. In 2000, the $500,000 to $999,000 category was only 14.9 percent of all condo sales. Last year it accounted for 49 percent. And this year, that area is where 54 percent of all condo sales are done.
The price per square foot has also soared with 32 percent of the condos now selling for more than $1,000 a square foot.
Ahearn notes that Mayor Marty Walsh has made it a bit easier for larger condo developments by being more flexible on density and height restrictions.
Ahearn sees the current expansion of the real estate market going another four to six years at least, if not more…it will be the longest expansion cycle, ever. He said that usually markets climb for a decade after a recession ends.
One sign of the wealth coming to the city – an average of 30 to 40 percent of all condo sales are paid for in cash (YE 2004 thru YE 2016 plus YTD 2017).
“There’s so much liquidity out there,” he said. “The fundamentals are so strong.”
GDP growth has been subdued, but it has been steady. GDP growth that rises too fast means the economy could be overheating, which usually at some point leads to a market correction and an economy that hits a downturn.
Also, the labor market is in much better shape. Some companies are even having trouble finding enough talent to fill positions. At long last, this may mean the employment market may become a worker’s market where companies need to compete for employees.
There have also been signs that wages are finally heading up for people below the top executive level.
The world economy is in relatively good shape, which helps this city.
But of course, there is always the risk that comes when unexpected events and factors kick in, even in Boston. The current political climate in Washington is something to watch, especially in how it affects the country’s standing in the global economy.
But there is no sign of that danger yet.
For now, Boston’s condo market is in a very good place and the city is still a very desirable place to live.
Back in 2000, the hottest neighborhoods for sales of units in the city were the South End (22 percent share of condo sales), the Back Bay (20 percent) and South Boston (9 percent). Beacon Hill, the Fenway and Charlestown/Navy Yard each accounted for 8 percent of sales.
So far this year, South Boston is the leader with 24 percent of the condo sales in the city, followed by the South End (19 percent), Charlestown/Navy Yard (10 percent), the Fenway (8 percent) and Midtown (7 percent). Beacon Hill and the Waterfront are also desirable places to live.
Perhaps 20 years for now when Boston Homes celebrates its 40th birthday and looks back on what happens between today and 2037, the paper will still be reporting on a lot of growth in a city that continues to change and grow in so many positive ways.