The JP Real Estate Market: Hot or Not?

The word on the street is 'hot, hot, hot' when folks discuss the Jamaica Plain real estate market. The market is doing better than it's done in many years; the buzz, however, is mostly fluff when it comes to average value.

In fact, as compared to last year's anemic spring market, values are just about even. Overall, there have been some improvements, but prices aren't skyrocketing. One the other hand, I've been busier this spring than I have ever been in 8 years. What's the real story?

I pulled two different data sets from MLS: sales records from March through June in 2011 and 2012. I focused on Jamaica Plain specifically, but for purposes of comparison, I also looked at Somerville and Roslindale.

Perhaps the biggest story from the spring real estate market is the number of properties that sold over asking price. Last year, from March - June, 13 of a total of 150 properties* sold over asking price. This year the difference is substantial: a whopping 67 out of 205 total properties sold over asking price. However, the overall gain in value in Jamaica Plain was about 5%, compared to 2.3% in Roslindale and less than 2% in Somerville.   

Although 53 of those that sold over asking price this spring were condominiums, it did little to affect the average condo value: the average sale price for condos over the same four month period in 2011 and 2012 actually dropped by just under 2% (from $370K in 2011 to $363K this year). 

So how is it that all these bidding wars and multiple offer scenarios didn't bring the value up from last year, when the local market was largely at rest?

Well for one, the average list price (i.e. asking price) actually dropped from last year by just over 3%--essentially exhibiting lower market expectations. Two other things happened this year: the rents across the board took a jump upward and rates dropped early in the spring to under 4%. Money was cheaper to borrow and incentive to stop paying rent heightened as the rental market tightened. First time buyers jumped off the fence and hit the ground running. With seemingly lower prices (read: more well-priced) than last year, lower rates, and less property available, buyers were clamoring to get theirs.

The JP real estate market did show improvements in other areas: average days on market dropped over 30% (it went from 121 days to 32 if you're just counting condos), the average cost per square foot for condos went up from $288 to $305 (about 6%), and average sale price went UP overall in Jamaica Plain from $410K to $431K or about 5%. The average sale price of single family homes perked up by about 4.5%. But sizzling these numbers are not. So why all the buzz? Where is it coming from?

If you guessed multi-families, you were mostly right. Last year, when the rents began to rise, word spread pretty quickly that the rental market was booming. Investors heard that call like a clarion and went dashing to the banks.

The first major sign in JP was the sale of 64 Moraine Street, a two family for which there were more than 15 offers and the final sale price was $160K over asking (about 23% more than list). The takeaway? Investors have vetted JP. With rent on the rise and stabilizing residential sales, they are coming with suitcases full of cash.

The average sales price in Jamaica Plain went up from $541K to $736K for two families (averaged over only 8 sales so far AND yes, 64 Moraine definitely weighed into that average). For three families it was much less pronounced but still an improvement: sales increased from 5 in 2011 to 13 this year and the average price rose by over 3%. But multi-families aren't the whole story.

Most people, when they talk about market health, refer to value. People who own homes want to know if the average price is up or down. Were value the sole indicator, we could say that the market is fair to middling and the condo market is trending downward. Few consider the many other indicators of a market's health: rate of sales, volume, and market time. With those in mind, the Jamaica Plain market IS hot.

The absorption rates are indeed through the roof. I don't have the data for June yet, but the rate of absorption for closed sales jumped from 20% in April to OVER 60% in May! By any standard, that's an amazing jump. The rate of pending sales also jumped from 42% to 71% over the same span. The rates for May of 2011 were 19.5% and 26.5% respectively. Wow.

Correlating to the rate of absorption is the 'months of inventory' statistic. That also shows a tremendous improvement dropping by a third from 5 months of inventory in April 2012 to 1.7 months in May.  

It's as if the market went on a diet. In 2005, flush with confidence, it started hitting up the Store-24 on the way home for a little snack and by 2007 it was standing in line at Dunkie's three times daily for coolatta's and chocolate frosteds. In 2009 the sagging economy blamed the gluttony of the housing market for its woes and soon after, the housing market (at least around Greater Boston) stepped on the scale and hit the gym. Last year's anemic spring market was just what the doctor ordered and this past fall the inventory really didn't peak as it historically had before. By November, the market was depleted, prices and rates were low; the situation was nearly perfect for buyers. By spring 2012, the local housing market showed up with a new bathing suit, a new look and everybody wanted a piece.

So yes, with absorption rates at high levels not seen since 2004-05, days on market averages dropping in half, and inventory nearing historic lows, things are looking up. With these figures as indicators, the market is booming right now. Factor in that prices haven't sky-rocketed (after the year over year double digit increases in value from 2002 through 2005 I would be leery of unabated price increases) and you have what many market analysts would consider a healthy market.  

Will the prices jump next year? Maybe, but most likely they will show similar gains from this year compared to last year (2-4%). The big X factor here will be the interest rates. We can be relatively sure that the rental market will stay strong and we have seen Jamaica Plain's resistance to wider-scale market dips. In any case, it's a safe bet to conclude that the real estate market in Greater Boston and especially Jamaica Plain, is doing quite well.

* The information in this blog comes from MLS only and doesn't include off-market sales. Also, I am using sales data for single families, condominiums and 2-3 family houses only.