As Condominium Conversion Ordinance Sets in, Somerville Property Owners See Falling Prices, Reduced Demand For Multi-Family Properties
Key Takeaways:
Somerville’s passing of Condo Conversion Ordinance negatively impacts would-be sellers, and has ripple effect on neighboring towns
Large decline in Gross Sales Volume
Three-Family Market remained tight with only 1.64% turnover rate
Somerville has the lowest turnover rate in the most-dense three-family market in the nine markets on this report
Somerville is the most noteworthy submarket in Greater Boston in 2019
Buying opportunity for investors to enter the market and buy on their terms
Market Insight: The recently passed ‘Somerville Condominium Conversion Ordinance’ took effect July 31st, 2019. This ordinance created a massive amount of red tape and headaches for investors and condo developers seeking to convert multi-family property into condos. The result was buyers existing the market, and falling prices. Items in the ordinance include the need to compensate tenants to move, delays in the condo conversion process and first right of refusal provided to tenants.
As a number of developer-buyers exited the market, this ordinance resulted in a number of falling metrics, including price per-square-foot, total sales volume and number of sales. Gross sales volume for two and three-family, MLS listed homes was down 24.37% - from $198mm in 2018 to $150mm in 2019. Average price per-square-foot also fell, as did the top price per-square-foot investors were willing to pay. Contrary to many submarkets I looked at (which had the top-end of the market perform strong), the top end of the Somerville multi-family market fell, as the number of three-family properties to sell for over $1.5mm was cut in half (10 in 2019 to 20 in 2018).
The good news? Falling prices represent a buying opportunity for investors seeking income property in highly desirable areas such as Davis, Inman, and Porter Square. In addition, first-time investors have a greater chance to have offers accepted – which was far less likely in 2018. If you are interested in buying property, please take a look at my ‘Wealth Builder’ program for multi-family owners.
With the number of three-families sold (38 against a total inventory of 2,257), three-family property owners were sitting tight with their properties. The measly 1.68% turnover rate of three-family homes equates to the lowest turnover margin on the list in 2019, in the most-dense market.
Outlook for 2020: While there will be more opportunities for multi-family buyers, overall I expect the market to remain tight, with buyer’s willing to be more patient. Owners on the fence of selling will need to face the reality that this is not the bull market of 2018. Multi-family owners assets that are good contenders for a condo-conversion will need to be flexible with their selling terms. Buyers can be more selective, particularly those who are committed to buying in Somerville.
In Somerville in 2019, investor-sellers paid an estimated $22,542,235 in capital gains taxes to the Federal Government. For creative strategies to defer taxes and build generational wealth, please see my ‘Free Cash Flow’ Program for sellers.
Please make sure to check out my market reports in Brookline, Chelsea, Everett, Malden, Watertown and Quincy. If are interested in selling, please check out my ‘Demand Driver’ or ‘Value Maximizer’ Programs for multi-family sellers or call/text me at 617 272 5440.
