Boston, MA: -3.5% Return on Investment (2011)
Market values in Boston increased significantly from 2000 to 2006, with a steady decline into 2008 and another downward correction following the 2008 financial crisis. Values appeared to stabilize in the second half of 2009, but have been volatile since then with increases and decreases quickly following one another. Currently, approximately 4% of listings in Boston are from foreclosures[1].
Boston represents a unique case among cyclical markets, as its decline in values has not been as sharp as some other major areas, and signs of recovery appeared to emerge relatively soon after the financial crisis. The concentration of foreclosures in Boston is extremely low, which may be partially explained by high per-capita levels of income relative to the national average. This allowed many homeowners in the Boston area to continue paying their mortgage throughout the financial disruptions. Since the market was not flooded with foreclosure inventory for an extended period, values in Boston did not collapse in the same manner as many other market areas.
Investors in the Boston area may still experience challenges, since profits are dependent on appreciation to compensate for negative cash flow. With market rents below the estimated operating costs and mortgage payment, investors will need to personally finance monthly cash shortfalls and hope to recoup those accumulated losses when the property is sold. It is tempting to think that the relative stability of Boston makes it an attractive place to purchase property, but that is where we must draw the line between an income property investment and a residence. The places we invest and the places we live are not necessarily the same. A market like Boston is more favorable than some of the other cyclical markets, but is still considerably less attractive for income property investors than many of the other options that are available.