Residential Real Estate
Sales of single-family homes and condominiums increased in New England in January, with most reports indicating low to moderate growth in sales compared to a year ago. Contacts say recent sales growth reflects market activity more accurately than in previous reports, when year-over-year increases were distorted by the expiration of the tax credit in mid-2010. Meanwhile, the median sale price of homes in First District markets declined compared to a year ago, which contacts attribute to distressed property sales. Concerns surrounding the impact of labor market conditions on housing demand have abated slightly. Respondents note foreclosures and delinquencies continue to affect the housing market significantly, but say these factors play less of a role in New England than in other parts of the country. Contacts expect low mortgage rates and improving employment outlooks to help fuel buyer activity. In the Greater Boston area, rent pressures coupled with low interest rates may push more buyers into the home and condo market.

Contacts expect to see continued year-over-year growth in home sales in the region, but do not anticipate significant improvements in the near term, with prices remaining flat at best. Contacts also note that exceptionally mild winter weather may prompt spring sales activity to begin earlier than usual.

Commercial Real Estate
Commercial real estate contacts around New England describe leasing fundamentals as largely unchanged since the last report, although some note modest positive developments. One Boston contact reports that some tenants are increasingly willing to pay top dollar for prime office space in Boston's Back Bay, but cautions that such instances do not necessarily reflect a broad-based increase in office demand in greater Boston. Another Boston contact describes the city's office leasing market as mostly flat, but grants that rents may have increased marginally in recent months. A Providence contact is more upbeat, noting a healthy increase in deal volume and significant office absorption since the last report. By contrast, office leasing volume slowed somewhat in both Portland and Hartford relative to December. For retail space, Hartford's vacancy rate held up better than expected despite weak holiday sales at some large chains, while in Portland some long-vacant retail properties have seen a rise in inquiries by potential tenants. Greater Hartford's industrial market also saw a modest uptick in tenant inquiries in recent weeks, including signs of life in the area's moribund warehousing and distribution sector.

Boston continues to experience a surge of multifamily construction activity, with several large projects under way and more in the planning stages. Financing for such projects is available on attractive terms, with interest rates dipping below 4 percent in some cases. While investors and lenders are bullish on the multifamily sector and apartment rents have risen significantly in Boston in the past year, some contacts see a risk of overbuilding. Boston's science and technology sector is generating significant build-to-suit construction of laboratory/office space. At the same time, speculative office construction remains non-existent across the area, and one contact estimates that office vacancy rates would have to fall below 4 percent in Boston to warrant the creation of new office structures. While office construction is limited, the investment sales market for prime Boston office properties remains robust amid a highly liquid financing environment. Echoing similar comments in recent reports, however, some contacts perceive that sales prices for prime Boston office properties are too high in relation to expected fundamentals.

The outlook among contacts is tilted toward optimism. One Boston contact continues to expect only very slow improvement in leasing fundamentals in 2012, while another sees greater upside potential. Another contact expects Boston's multifamily construction boom to last another two to three years, but beyond that sees few prospects for any new construction activity. Our Providence contact expects solid improvement in fundamentals in 2012, barring risks to growth from local fiscal troubles and a possible spike in oil prices. The outlook in Hartford is moderately optimistic, but based more on sentiment than recent data. Portland's commercial market is expected to improve slowly in 2012, although prime office properties may see more robust gains.