| Business conditions in the First District were reported as balanced or improving, according to the Federal Reserve’s latest Beige Book report. The First District includes all of New England except for Connecticut’s Fairfield County.
The commercial real estate market in Boston is experiencing accelerating rent growth, with one contact stating that Boston’s office leasing market is “the strongest in 50 years.” Prices for investment properties continued to rise in greater Boston, though contacts remained concerned that the prices may reflect overly optimistic rent growth expectations, despite the increasing rent. Hartford’s office leasing volume slowed in recent weeks, according to contacts, but Connecticut’s investment sales market remained fairly strong. Greater Boston’s bank lenders are reportedly offering markedly low interest rates and generous terms for commercial real estate mortgages and construction loans, though there is concern in the First District about the potential impact on investment demand for commercial properties when short-term interest rates begin to increase.
Homebuyer confidence increased across all six New England states, according to the Fed’s contacts. Over the year to May 2015, completed sales of single-family homes increased in every state except Massachusetts, which attributed the decline partially to the long and harsh winter. Additionally, according to the report, “Record-low inventory levels in Massachusetts are reportedly causing changes in the contracting environment, such as an increased willingness of sellers to let buyers out of pending sales contracts and a trend of sellers’ making a sale contingent on their finding a new home to purchase.”
Supply of single-family homes decreased in every state in the First District while pending sales increased in the same period. The median sales price of single-family homes was flat in Connecticut and dropped in Massachusetts. Condominium sales were down in Massachusetts and Connecticut, with median sales prices increasing in both states. The First District experienced decreased condominium inventory and increased pending condo sales, with Massachusetts having only 1.8 months’ supply of condominiums available, compared with six to seven months’ supply in a balanced market. Overall, the Fed’s contacts were optimistic about future demand for residential real estate, despite uncertainty about the impact of eventual increases in interest rates.
In selected business services, some of the Fed’s contacts perceived the Greek debt situation to be a potential risk and others perceived an uptick in uncertainty as the U.S. enters a presidential election cycle.
Profit margins at pharmaceuticals firms are getting tighter, according to state contacts at two health care consulting firms, while the demand is strong for home improvement goods and increased for big-ticket furniture items.
Overall, retail contacts in the First District expect to see continued growth in consumer confidence and the economy.
