No matter what challenges the coronavirus is confronting us with here in Boston, everyone needs a place to call home — food, shelter, and health are the three bare necessities of life. Eventually, the Boston real estate market will recover. But I’m getting ahead of myself.
There are 3 tiers of Boston condo buyers: Here’s how the coronavirus outbreak will impact each group
First let’s identify the three groups of Boston real estate residential buyers;
- First-time Boston condo buyers ($300k – $700k)
- Moving up buyers ($700k – $1M)
- Luxury condo buyers ($1m and above)
Coronavirus has already shaken up the downtown Boston economy and changed how we conduct our daily lives. As the COVID-19 intensifies here in Boston, it will undoubtedly impact the Boston real estate market – especially for those who had been preparing to buy or sell a Boston condo this spring. While much will depend on the length of time it takes to contain the spread of the virus, I believe that the impact will be different across three different price points in the Boston condominium market.
First-time homebuyers
The first rung of the Boston real estate market consists of people buying homes in the $300,000 to $700,000 price range. These are often first-time homeowners who earn a modest salary (by Boston’s standards) or an hourly wage and have little in the way of emergency savings and may have to tap into their down payment to provide a cushion for downturns in earnings.
This group also includes small business owners, including mom-and-pop businesses with a single location.
They are the people likely to be hardest hit by COVID-19 outbreak, there employer may furlough them with pay, but some may have short-term layoffs without pay.
Accordingly, this segment of the housing market will likely take the greatest hit in the coming weeks and months. With first-time buyers unable to move because of the coronavirus’ economic impacts.
This group also faces another problem. I think what will happen small time investors with secure jobs will be gobble up by low end downtown Boston condos to rent out. The impact: fewer affordable Boston condos for sale for first-time homebuyers
Move-up buyers
The second rung of the local market encompasses buyers seeking homes in the $700,000 to $900,000 market, even going as high as $1 million. It’s the rung likely to experience the least disruption due to coronavirus.
I call people on this rung move-up buyers. They are people trading up to a bigger or more expensive home and often first-time buyers with professional occupations. These are the people most likely to have stable salaried jobs that can work from home during this crisis. Many of these workers have flexibility in their jobs, and their income is unlikely to be impacted by the disruptions in the workplace.
These are also individuals who are likely to have sufficient savings for a down payment and closing costs, and who have long-term views on life decisions, just as they made by spending or borrowing for college, and professional graduate education. These home searches are often to accommodate changes in households, or to be in a desired school district, factors that will still exist when the crisis passes. Spending more time at home this month may reinforce the need or desire to make a move that better meets their family situation.
Some proportion of this group will be concerned enough about overall economic impacts to delay a decision about moving. However, a month ago, Boston condo sales in Beacon Hill, Midtown and Seaport were selling at or over asking prices, with homes selling in weeks, if not days. So, given the previous under supply of homes for these buyers, most sellers in this price range will still be able to find buyers.
Luxury buyers
The third tier is the pool of people buying properties priced above $1 million. These buyers think in terms of wealth, not income when deciding how much they can afford to spend on a property. It is not uncommon for homes on the market for over $1 million to be purchased with cash or large down payments.
This is the portion of the market that is hardest to predict. These households are secure in meeting their monthly expenses, but they are also the most likely to have significant stock portfolios that have taken wild gyrations on a daily basis. Some of these folks may see stability in purchasing real estate now while some may not want to withdraw assets in this market. Others will try to leverage uncertainty to drive even harder deals to buy a home if they think a seller will be more willing to reduce the price for the certainty of a sale.
A place to call home
Housing markets work on longer-term outlooks than job markets. Housing data is usually reported in quarterly or annual statistics, unlike employment that has closely watched monthly and even weekly data, especially around job creation and unemployment numbers. So, a disruption that lasts three to six weeks at its peak is basically the time it takes one home buyer to go from an offer on a house through mortgage approval to closing. If the coronavirus disruption lasts that duration, the spring market buying is already showing signs of delay, with different impacts across these three submarkets.
Boston Real Estate and the Bottom Line
The bottom line is this, a disruption lasting into or through the summer would likely have deeper impacts than what I outlined above, and will need to be revisited if the situation on the ground remains unchanged through Memorial Day. Let’s hope not.
But no matter what challenge we are confronting here in Boston, everyone needs a place to call home — food, shelter, and health are the three basics needed to sustain life. Eventually, the market will recover.
Always remember this; Forget about your worries and your strife … The bare necessities of life will come to you,“ promises ftom Disney’s “The Jungle Book.”
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