Commercial real estate on the South Shore was largely insulated from the effects of the pandemic, but the economic rebound, a crazy real estate market and a wave of extremely low interest rates have pushed big investors into smaller markets around Boston.
The South Shore Chamber of Commerce hosted the South of Boston Summit on Wednesday to discuss how rising interest rates and big money from financial institutions are creating chaos in the local real estate market.
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On the South Shore, vacancy rates before the pandemic were low, and they’re still low, Lane said.
More people headed to Boston for high-paying lab jobs could mean even more pressure on the already heated real estate market. But rapidly increasing interest rates are coming as the Federal Reserve pushes up rates and stops buying mortgage-backed securities, which drove down mortgage rates in the first place.
Michael Ruh, of Quincy developer FoxRock Properties, said interest rates for commercial and residential loans are rapidly increasing, which is eating into the company’s cash flow.
“Theoretically, in Econ 101, in an increasing interest rate environment you see price decreases, but this is a weird time. With interest increased so much, we’re still seeing high prices at high interest rates,” said Ruh, the director of acquisitions and finance. “Sellers and brokers still think their properties are worth the high prices they were when interest rates were low. Buyers and banks are trying to make sense of the rates.”
According to data from mortgage lender Freddie Mac, the 30-year fixed mortgage rate hit a low of 2.77% in August 2021 and has since climbed to nearly 5%. The number is rapidly approaching the highest it’s been in the last 10 years, when it was just under 5% in 2018.
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Ruh said restrictions on the number of properties on the market, a lack of buildable space and increased demand from big investors are preventing real estate prices from coming down.
“The most capital ever in the commercial market was raised in 2021,” Ruh said. “There’s a ton of capital to deploy, and since it’s a bad look to give it back to investors, institutions are competing with local investors like us.”
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David Ellis, who runs the commercial real estate company Ellis Realty Advisors, said competition for small spaces is growing as people quit big jobs and start small, niche businesses. That has kept down the vacancy rate at the retail level.
More sales, less supply
Real estate purchases, both residential and commercial, are up across the South Shore, Denver Gibbs, of Local Leads 365, said.
While Quincy may be the South Shore’s most populous municipality, Weymouth had slightly more single-family home sales in 2019, 2020 and 2021. Plymouth had the most activity, with 983 sales in 2020 and 871 in 2021.
Real estate brokers have told The Patriot Ledger that fewer homes are on the market in every community while demand has increased, creating price spikes.
Across the South Shore, median house prices increased 27% between 2019 and 2021, from $492,000 to $628,000.
Statewide, since 2019, prices of single-family houses have increased 25% to a median of $500,000, up from $399,000 in 2019. Condo prices are up too –15% since 2019 – hitting a median of $438,000 in December 2021, according to The Warren Group.
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Reach reporter Wheeler Cowperthwaite at firstname.lastname@example.org.