Living For The City: The 2014 Boston Condo Craze

The Boston real estate market is like seeing two-way traffic on a hill, with condo sales driving up and home sales precipitously going southbound.  The purpose of this article is to detail whether 2014 will have the condo bubble will burst, or will it only continue to float and rise for developers and condo owners. Home sales in the real estate market continue to lag in the Hub. With the rise of commercial real estate in the Seaport area, now being marketed as the Innovative District, developers and residents alike are looking to buy in.  But this is not an indicator of the demand for wanting to live in the city. 

This End Up, or Down?

Boston will always be one of the top apartment markets in the US. We can cite The Hub's unmatched college student population, the continuous influx of transient young professionals moving in and out of the city, and city dwellers who cannot afford to buy expensively priced homes within and outside the city limits. As prices continue to rise in the local real estate markets, first-time home-buyers are inevitably being bottlenecked into the condo market that developers are now attempting to make affordable to them.

Plus, as reviewed in our March 2014 PPS article discussing the quality of a condo versus home lifestyle, there are many conveniences offered to residents of condos that are not afforded to those who live in apartments or single family homes.

Moving into the Lap of Luxury 

Graph courtesy of www.housingviews.com

We have not yet even accounted for the booming luxury apartment market that is complimenting the local commercial real estate market, or the wealthy home-buyers who are willing to pay for living in prime locations like the Seaport. Veteran Boston architect Merrill Diamond of Diamond Sinacori LLC wrote on his company's website in 2011 predicting: "Yes, there will be a glut of apartments in Boston." 

Turns out, he was right, but his forecast was referring to condominium apartments; not rental apartments. He also mentioned "I never thought there would be enough wealthy people to fill up all these apartments on the waterfront." Diamond mentioned that 2014 would be the "tipping point" in which developers are going to switch their long-term hold strategies to condos from apartments. This is to bolster their short-term profits from the resurgence of condo demand, being that consumers now realize they can own a condo with the same price that they could be paying to rent an apartment in Boston. According to this Standard & Poors graph,  Boston condo prices have rivaled and outsold those in New York City since the mid-1990s, and continue to rise into this current decade.

Three hot spots for development are the South End, South Boston, and Charlestown, where prices continue to spike. In a recent article in the Boston Herald titled Boston Needs Condos In A Hurry construction has begun for two luxurious high-end condos in Fan Pier at 22 Liberty Drive, which will hold 118 condos, and 450 condos that will be in the Millennium Tower downtown to be completed in 2016. And it surely won't stop there. The former armory on  Bunker Hill Street in Charlestown is being converted, St. Augustine's Church in South Boston will have 29 new condos developed, Meridian Street in East Boston is slated to have 66 new condos, and even Parcel U next to the Forest Hills MBTA station on Hyde Park Avenue was recently approved to have a $14-million project for 50-60 market-rate townhouses. There are too many developments to list here, and local real estate agencies may find themselves with a surplus of listings as a result. 

Final Thoughts

We might ask ourselves "how long will this strategy work?" It is easier said than done for developers to meet middle class home-buyers halfway in covering their cost of the investment while lowering their price point per-square feet, as it is for these same home-buyers to step up outside their means with cash offerings that could be hard to follow up on with financing. If more development takes place, there will eventually be a "tipping point" for demand amongst those who can and cannot afford to buy a condo. 

Will developers and condo building owners find their backs against the wall and resort to sub-prime credit holders in earnest to fill these spaces as they continue to buy  and convert abandoned buildings (i.e. old schools, jails, office buildings)? Or will this continue to be a success for developers in their business initiatives? Tell us your thoughts...