Is Boston's Real Estate Market Headed for a Crash?

This week I published an article on the new Massachusetts ADU Law - a recent development that creates housing and investment opportunities for homeowners and real estate investors alike. In the article, I discuss the before and after of ADU permissibility, as well as the benefits to homeowners and investors.

I have two other articles that will be coming out soon:

1. Mistakes first time homebuyers make when finding a lender

2. A look into the new home inspection law that preserves buyers’ rights to a home inspection

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Market Update - Headed for a Crash?

 

As noted repeatedly in my market update newsletters, the most important drivers on housing economics are interest rates and inventory - interest rates being the most heavily weighted driver on demand, and inventory being the most heavily weighted driver on supply. Thus, we return to my two favorite charts. 

Interest rates: The 30-year mortgage interest rate continues to be leveled in the high 6s. Whereas in previous newsletters I expressed some optimism that we’d shortly see rates decreasing, I lose a bit of that optimism each day.  

There are several reasons why the mortgage interest rate remains in the high 6s, and ultimately they come down to economic uncertainty. 

The mortgage interest rate most closely follows the 10-year treasury yield - the interest rate an investor would expect to receive on a 10-year loan issued to the US government. As you can imagine, if you feel the US government was less credit-worthy, you’d expect a higher interest rate, because there was more risk in this investment. 

It’s the same as if you were going to apply for any loan. If you are a highly credit-worthy borrower, your rate is lower than someone who is a less credit-worthy borrower.

That’s the essence of what is happening now. There are three reasons why the 10-year treasury remains high:

• Inflation risks

• Geopolitical uncertainty

• US government fiscal picture and continued deficit spending

Unless there is some major movement across one or more of those buckets, expect interest rates to stay where they are. If there is negative movement, then unfortunately we can expect rates to tick even higher. 

Source: FRED 30-Year Fixed Mortgage Average

Some might see the rising levels of inventory and start to panic.  

Every homeowner fears a housing market crash. Particularly my generation that grew up during the GFC. We can’t help but imagine the possibility that there’s another GFC-style housing crash that will wipe out our net worth and result in us losing our homes. 

I think some perspective here is really important.  

First, the decline in home prices in the greater Boston area was 20.2% from 2005 to 2009. While this sounds like, and objectively is a lot, from 1987-2005, home prices in the greater Boston area increased by 127%. From 2009-2020, they increased by 126%. From 2020-2025, they increased 30.3%.  

These far more astonishing figures speak to the Boston area’s desirability as a location, and suggest that so long as your time horizon was long enough (ie you were not in it for a fix and flip), then you actually came out far on top.  

If we put some real numbers behind this, in 2005 the median single family home price in the greater Boston area was $420k. In 2009, that declined to $335k. In 2025, the median single family home price is $990k.  

The historical data points back to my long-standing central thesis of Boston real estate:

• As long as your time horizon is long enough, you are highly unlikely to be affected by a substantial housing market correction. 

• If you are purchasing a property where you can readily improve the property’s value (e.g. new kitchen countertops, paint, re-sand floors, etc.), then you are that much more likely to be okay.

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