Every eight weeks the Federal Reserve Book publishes its “Beige Book”, while title is rather boring, the information inside is interesting. To get the content, researchers from the 12 Federal Reserve Bank Districts interview contacts in various industries. Here is the link to the September 2012 Beige Book.
Below are the reports on residential and commercial real estate markets in the Boston District.
Residential Real Estate
Year-over-year sales growth continued in August in both single-family home and condominium markets throughout the First District. According to contacts, low interest rates and affordable prices contributed to improving sales figures, along with increases in residential rents. Several contacts report improving conditions for borrowers, but many contacts say that qualifying for a mortgage remains difficult. As for prices, contacts in the region report mixed movements in median sale prices, with some areas experiencing modest price appreciation and others moderate depreciation.
In the Greater Boston area, contacts say a slight decline in the median sale price was unexpected in light of significant demand and dwindling inventory levels; they attribute the decline to significant increases in the sales of low to mid-tier properties. Throughout the region, inventory continues to decline. Contacts say they fear declining inventory will discourage buyers searching for homes as well as potential sellers who may not be able to find another well-kept property. Increasingly, properties in “move-in condition” receive multiple bids, sometimes above original asking prices.
Contacts expect sales to continue to grow on a year-over-year basis in the next several months. Nonetheless, many note that the recovery remains fragile and could be derailed by deterioration in economic conditions. Declining inventory levels also remains a concern, but several contacts expect an influx of sellers in the spring market. Median sale prices are expected to remain flat or improve modestly in the coming months.
Here is the commercial real estate report:
Commercial Real Estate:
Contacts across the First District report that commercial real estate fundamentals have been basically flat in recent weeks. Leasing activity is said to be down in Boston as firms say political uncertainty makes them reluctant to make leasing commitments in advance of the national election. At the same time, the credit environment remains favorable, as interest rates on commercial real estate loans remain very low by historical standards. One contact notes that the supply of high-quality commercial properties for sale has declined recently, and hypothesizes that owners have nowhere better to park their money right now. Construction activity is proceeding as expected on large commercial projects in Boston. While the multifamily sector remains strong across the region, with numerous apartment buildings under construction in Boston in particular, one contact surmises that additional apartment projects under discussion may be delayed or shelved pending rent discovery once current projects come on line.
Contacts express a mix of cautious optimism and generalized uncertainty concerning the outlook; the fiscal cliff and Europe are noted as key risks to growth. Some contacts mention a longer-run concern regarding the consequences of an inevitable eventual increase in interest rates; the risk is that net operating incomes will not increase enough to offset increased financing costs when loans currently being underwritten at very low rates require refinancing.