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Analysis and Predictions

The 2023 and 2024 Lexington housing market was dominated by high mortgage interest rates.

Both the 2023 and 2024 predictions for a declining mortgage interest rate were wide of the mark with the rate at the end of 2024 at over 7% compared to the prediction, 12-months earlier, of below 6%. As we write this in January 2025 the current interest rate is 7.04% with the prediction for the end of 2024 only 1% lower at 6.1%.

Given this fact it seems very likely that more sellers, less hesitant buyers and the stable market condition seen prior to the COVID years of 2020 and 2021, will have to wait until at least 2026.

The continued high mortgage interest rates have put the brakes on the housing market for both buyers (unable to afford the monthly payments) but also for sellers (reluctant to take on a new mortgage 3-4% higher than their current one). The overall effect is a decrease in the number of homes both listed and sold to levels not seen since the housing crash in the mid-2000’s. The low inventory meant that buyers able and willing to enter the housing market still had to compete for homes though, with the average sale price to list price ratio at 102% for both single-family homes and condominiums.

While we saw a rise in the price of new construction homes in 2024, the average sale price to list price ratio was 94% (a similar value to 2023) as developers were forced to sell homes quickly (days on the market declined to 39 days) but at a discount to the list price to minimize carrying costs.

One major issue facing existing condominium owners is the large number of new construction condominiums being planned within the Village and Multi-Family zoning districts. The exact number and completion dates of these new condominiums is still unknown as many projects are proposed but pending approval and the towns response to the MBTA legislation is subject to a citizen’s petition. But it is very likely that Lexington will see hundreds of additional condominiums being built within the next 5 years.

For landlords and condominium owners the large number of “condominium style” rental units either approved (512 units on 331 Concord Ave and 17 Hartwell Ave) or proposed (430 units on 3,4,5 Militia Drive and 7 Hartwell Ave) is a major concern. It is very likely we will see over 1,000 additional rental units (the existing Avalon communities comprise 585 units) being built within the next 5 years. This will put downward pressure on both condominium prices and rental returns in the medium/long term.

Turning our focus to 2025 and beyond we predict the following:

• The normal cycle of downsizing, move-up, and relocating sellers will have to wait until at least 2026 and so we will see a similar number of homes sales in 2025 compared to 2024. Based on prior years this is highly dependent on the direction mortgage interest rates take as the year unfolds. Should rates decline in the first half of 2025 (in January 2025 this seems very unlikely) we can anticipate more homes being listed and sold. Conversely, if economic uncertainty continues and interest rates remain elevated, we can anticipate less homes being listed, and therefore sold, in 2025.
• Early indications are that some home buyers that were unsuccessful in 2024 are already active in the market. There is some hesitancy with buyers with mortgage rates still over 7% and uncertainty over the medium-term market condition and price appreciation. This hesitancy will subside if mortgage interest rates decline as the year unfolds. As such, we anticipate 2025 sales at the same level as in 2024 and slightly positive price appreciation for single family homes in 2025 due to the limited inventory.
• The luxury market (homes sale prices over $2.5 million) performed well in 2024 with more home sales than in 2023. But there could be an over-supply given the number of luxury homes that remained unsold at the end of 2024. It’s likely therefore that early 2025 will be dominated by this unsold inventory. But if the low number of listings affects luxury homes, as it has the market in general, the 2025 full year picture could remain positive. An early indicator of strength in this market sector is that 3 over $4 million homes went Under Agreement in January 2025 when only 4 over $4 million homes sold in the whole of 2024.
• The new construction market will continue to suffer with high costs (both build costs and ongoing carrying costs) as overall interest rates remain elevated. The net effect of this is that developers will continue to discount from the list price to sell quickly. Given this it seems unlikely that new construction will be able to break the $4.5 million barrier in 2025.
• The condominium market will see dampened demand with the double hit of high condominium association fees, when compared to surrounding towns, and the potential of many new condominiums being built in the coming years. We predict existing condominium sales to remain at 40-50 sales per year and price appreciation to remain static or slightly negative.