How is the Fall 2012 Market in Cambridge & Somerville, MA?
The Cambridge and Somerville residential real estate market is currently a seller's market, based on the following data:
Months of Inventory: 2
Inventory: 167 units on the market vs. 259 in 2011 (down 35.5%)
Median Price: $475,000 for 2012 vs. $465,000 for 2011 (up 2%)
Months of Inventory: 2
Inventory: 113 units on the market vs. 219 in 2011 (down 48.4%)
Median Price: $424,750 for 2012 vs. $410,000 for 2011 (up 3.5%)
Factors Creating the Seller's Market in Cambridge and Somerville
- Historically low mortgage interest rates: On September 25 the national average for a 30-year fixed rate mortgage stood at an all-time low of 3.49%, according to mortgage servicer Freddie Mac. A 15-year mortgage can be had at 2.77%, also an all-time low. Source: foxbusiness.com
- Higher rents and a low vacancy rate: See rental market data in the Renters section below.
- Employment growth: Cambridge is experiencing strong growth in the office and lab sectors, especially in Greater Kendall Square. According to a 2012 report from KendallSq.com there are projects representing over 5 million square feet of development in Greater Kendall Square that has been recently completed, permitted, or in construction. Companies such as Pfizer, Novartis, Google, Microsoft, and Biogen Idec are either moving to Cambridge or expanding.
- Pent up demand: After years of deferring the first time purchase or a move up purchase, buyers are feeling confident enough to buy a home. As national and local reports have shown that home values are rising buyers are not waiting for the bottom anymore.
* Data is from September 26, 2012. Source: MLSPIN
Buyers are at a disadvantage to sellers in Cambridge and Somerville for the following reasons:
As addressed in the previous section, inventory is significantly lower in 2012. There are fewer choices, and competition is high for desirable properties.
Competition with Cash Buyers
Buyers that need a mortgage are at a disadvantage relative to cash buyers. According to Banker and Tradesman 53.5% of sales in Cambridge in the first half of 2011 were all cash.
Low inventory and strong demand are leading to many multiple offer situations. Some properties are experiencing 10+ offers. Buyers are offering over asking price and waiving contingencies to get their offer accepted.
2012 has been a landlord's market in Cambridge and Somerville. Rents are higher, vacancies are low, and tenants are often paying a full fee to rental brokers.
Higher rents, a low vacancy rate, and prices that are still reasonable relative to rents are boosting returns for income investors. Since returns for many fixed rate investments are low many investors are choosing to put their cash into real estate.
Low interest rates for investor mortgages are also attracting investors.
For developers that are listing their properties for sale, the current market is highly favorable. We are seeing developments selling above projected values.
Developers that wish to acquire development opportunities are facing a lot of competition because of the lack of inventory. Most development opportunities are receiving multiple offers and often sell significantly above asking price. Higher acquisition costs threaten to shrink profit margins unless resale values continue to increase.