The demand for all types of real estate in New England reflects region-wide economic factors. While the national economy influences geographical real estate values, some 2019 trends unique to New England are especially important to buyers and investors. These trends include labor characteristics, financial considerations, and population behavior.
Unemployment in New England is currently 3.7%, a significant drop since the post-recession level of 8.7%. New England’s job gain rate over the last year was 1.5%, compared to a national rate of 1.7%. Massachusetts and New Hampshire experienced the highest job growth in 2018, while Rhode Island’s and Maine’s employment numbers were virtually unchanged, and Vermont’s jobs shrank slightly.
Average wages throughout New England increased in the last year at an average rate of 2.6%. This increment was marginally lower than the national average of 4.7% but still positive for each of the region’s seven states. Wage growth in both Massachusetts and New Hampshire surpasses the national average.
New England, particularly the Cambridge area of Massachusetts, is seen as an excellent source of skilled labor. The technology industry has traditionally benefitted most from a wealth of well-educated workers. In recent years, major growth witnessed in the life sciences industries (including pharma and biotech) has made these sectors the strongest segments of New England’s economy.
Cost of Living
A downside to this regional employment growth is an elevation in living costs. Specifically in the Boston area, the cost of living increased by 2.5% in 2018. Housing represented the greatest portion of that increase: shelter costs rose by 4.7%. Market prices for natural gas and dairy products also grew sharply.
Recent interest rate increases have also hiked the cost of living in the New England area. The Federal Reserve increased its short-term lending rate by a quarter-point, to 2.5%, in December 2018. At its January 2019 meeting, the Federal Reserve suggested that rates would stay level for the coming year.
The current rate for a fixed 30-year mortgage in New England ranges from 4.40% to 4.50%, according to bankrate.com. This is slightly below the U.S. average of 4.54%. However, uncertainty about the near future of the American economy leads experts to conclude that residential mortgage rates will increase in 2019. Also, the recent federal government shut-down hampered consumers’ confidence. Economists expect the U.S. economy to slow in the coming months in response to tariffs’ damaging effects on some trade markets. Great Britain’s imminent exit from the European Union (the infamous Brexit) has also reduced investors’ expectations for 2019.
Consumption, Work, and Commuting
Lifestyle changes are affecting real estate demand. U.S. online retail shopping increased by nearly 13% between 2017 and 2018. Online purchases represented 9.8% of all retail sales at the end of 2018; this is more than 200% of what was attributed to online shopping in 2010.
Furthermore, labor models are rapidly changing. While unemployment continues to be low, the rate of new hires is also low. Statistics for the number of independent contractors and gig workers in the U.S. economy are scattered and inconsistent. But by many measures, non-employees are increasingly becoming a crucial part of the workforce. The most recent Bureau of Labor Statistics (BLS) analyses suggest that some 7.5% of the U.S. labor force are independent contractors, and another 6.4% are on-call, temporary, or gig workers.
Unfortunately, the BLS has not standardized its collection methods for this segment of the labor force; the Federal Reserve estimates that as many as 75,000,000 Americans, or 46% of the workforce, work in ‘non-traditional’ arrangements. Independent contractors and gig workers often escape the burden of commuting. In New England, that burden is noteworthy: Boston ranked first in 2018 for hours lost and cost per driver, due to traffic congestion.
Trends’ Effects on Real Estate Markets
All the economic trends mentioned influence demand for New England real estate. Increases in mortgage rates and relatively high prices will likely slow single-family home sales. These same forces are further intensifying demand for residential rental property.
Congestion, high office rental rates, and constantly improving telecommunications are driving large employers out of city centers, increasing demand for suburban office spaces. The ongoing growth in technology and life science industries is escalating businesses’ need for campus office properties that include laboratories and storage spaces. The proliferation of independent contractors and remote workers is also heightening demand for co-working offices near residential and retail developments.
The growth of online retail commerce is causing substantial changes in the commercial real estate market. Demand for traditional bricks-and-mortar stores of all kinds is declining. Consumers expect ever faster delivery of retail goods and services; this trend has increased demand for dispersed distribution hubs to speed up last-mile delivery. Thus, opportunities abound for investors who are looking for the ‘next new thing.’