Springfield, Massachusetts
Looking for Stabilization, Growth in 2021 and Forward
by Carole VanSickle Ellis
Like most of the country right now, the Springfield, Massachusetts, housing market is hot. Median sales prices rose more than 17% in the Springfield area between January 2020 and January 2021, and Realtor.com reported in May that homes were selling, on average, for 2.63%
above listing price. However, there are some signs that the Springfield market could “stabilize”
as early as this fall, said local investor and residential real estate expert Alex Anthony.
“I think we will still feel the pinch until the end of the summer, but I think the urban flight will subside provided the pandemic numbers continue to decline,” Anthony explained. “That will alleviate some of the pressure we have felt in this area.” In addition to working with retail buyers, Anthony, who is a realtor with William Raveis, works with real estate investors to acquire investment properties in the region. She reported she already is seeing signs that the pinch in inventory could be loosening in Springfield as multifamily property listings begin to hit the market along with desirable residential properties. “The entry-level homebuyer is starting to get more opportunities,” Anthony said, noting that high-end homes with outdoor entertaining areas are still in high demand.
However, not everyone agrees with Anthony; WalletHub.com recently ranked Springfield among the “worst cities in the country for first-time homebuyers,” citing “expensive housing and high real estate taxes.” According to other data analysts, the city’s high quality-of-life rankings often cause would-be homebuyers to overlook these potential downsides to ownership in the Springfield area.
Perhaps the most telling indicator for real estate investors interested in acquiring property in Springfield is a report from CoreLogic. The “Markets to Watch: Top Markets at Risk of Home Price Decline,” report uses CoreLogic’s Market Risk Indicator (MRI) to predict the overall health of housing markets. CoreLogic placed Springfield at the top of the “at-risk” list in July, assigning a probability between 25 and 50 percent that the market would see a price decline by July 2022. With continued demand in the area high, real estate investors hoping to buy and hold rentals or fix-and-flip to retail buyers are likely to see continued demand for properties—if they can acquire them.
A History of Innovation and Resilience
Springfield, which often bills itself as “The City of Firsts” and “The City of Progress,” was founded in 1636 and designated as the site of the Springfield Armory due to its central location (at the time) in the 13 colonies. The armory produced Springfield rifles for the Union army during the Civil War, and the local national park features the largest collection of historic American firearms in the world. Springfield also boasts firsts including the first American dictionary, the first American gas-powered car, the first successful American motorcycle company (Indian Motorcycles), and the first American musket.
These innovations made the city an early center for precision manufacturing, but Springfield fell into an economic decline beginning in the 1970s following the closing of the Springfield Armory. However, by 2015, revitalization projects like the Hartford Line, a joint-venture project between Connecticut and Massachusetts that provides commuter rail service between New Haven, Connecticut, and Springfield, Massachusetts, were beginning to attract new residents and business to the area. The Hartford Line and Springfield’s relative proximity to both Boston and New York City made the area an attractive refuge for workers leaving these higher-cost areas during the COVID-19 pandemic in 2020. Local experts believe many of these residents may be induced to stay permanently, and local policymakers were creating incentive programs for telecommuters moving to Western Massachusetts as early as 2019.
One proposal provided up to $10,000 to cover relocation costs, office equipment, and acquisition of co-working space. “If done correctly…it can be a tremendous opportunity to expand job creation and opportunity, especially to regions that have been left out of the last 20-plus years of tech and biotech growth,” observed state senator Eric Lesser. He noted that the western area of his state, which includes Springfield, has “excellent schools, cultural resources, open space, and quality of life.” He hopes to add an east-west rail link connecting Boston to Springfield in the near future as well as improving internet connectivity in communities with lower-quality connectivity. Many of these communities will be areas that will interest investors because they contain lower-priced homes or are “gateway cities,” as Massachusetts defines midsize urban centers that have suffered due to the disappearance of manufacturing jobs.
“Gateway cities face stubborn social and economic challenges, [and] as a result, they retain many assets with unrealized potential. These include existing infrastructure and strong connections to transportation networks, museums, hospitals, universities, and other major institutions, [and] disproportionately young and underutilized workers,” according to the 501c3 Massachusetts Institute for a New Commonwealth (MassINC). Springfield is classified as one of the 26 gateway cities in Massachusetts. MassINC analysts believe emerging small-business communities in Springfield and other gateway cities position them to “once again serve as engines driving growth in regional economies.”
Milken Institute analysts Misael Galdamez, Charlotte Kesteven, and Aaron Melaas agree that Springfield could emerge as a driver of economic growth in the western Massachusetts region in the coming months. The trio of researchers authored the Milken Institute’s 2021 “Best-Performing Cities Index” report, which placed Springfield in the top 10 for Tier 4 cities in the study. Although Tier 4 cities may suffer from low-quality broadband and lower long-term growth rates, they were still considered noteworthy in the final results of the study. Study data showed Springfield’s job growth and wage growth remained on a positive trajectory although other data from the University of Massachusetts Donahue Institute indicates that more than half of renters in the area are considered “cost burdened,” meaning they spend 30% or more of their income on housing. The demand for housing is unlikely to decline in the near future; housing demand exceeded available units in 2020 by more than 11,000 units.
“Much of this…can be explained by the slow pace of development,” Donahue researchers noted. However, they continued in their report, “The Greater Springfield Regional Housing Analysis,” inventory constraints could loosen in the latter half of 2021 “if eviction and foreclosure protections are removed.” Massachusetts permitted statewide legislative bans on evictions and foreclosures to expire in October 2020 but recently opened a program for some landlords and residents to apply for aid and protection in light of the looming expiration of the national U.S. Centers for Disease Control and Prevention (CDC) moratorium and the federal eviction moratorium.
Springfield Flipping Holds Strong in a Tough National Market
For flippers in the Springfield market, the “City of Firsts” is one of the only few cities holding strong in a tough national market for this strategy. While gross profits on flips fell by more than $7,000 nationally between Q4 2020 and Q1 2021 and flipping volumes fell to 2.7% according to ATTOM Data’s 2021 U.S. Home Flipping Report, Springfield flippers continued to generate leads and transact deals. In fact, flipping rates in the area increased by 114%, and local interest in the process resulted in Springfield Technical Community College opening a state-specific course on starting a “successful house-flipping business in Massachusetts.”
This continued flipping activity in Springfield could be sustained by the relative affordability of owning a home in the city compared to renting. According to another ATTOM Data report, the 2021 Rental Affordability Report, Hampden County, where Springfield is located, is one of the
largest of the 510 counties in the report where owning is more affordable than renting.
“Home prices are rising faster than rents and wages in a majority of the country,” said Todd Teta, chief product officer at ATTOM Data. He added, “Right now, owning a home still appears to be a financially sound choice for those who can afford it.”
Rebuilding and Incentivizing New Growth
As the Springfield market moves into the latter half of 2021, the city remains focused on development, expansion, and job growth. The local office of Planning and Economic Development has partnered with the Springfield Chamber of Commerce to create a community masterplan called FutureCity intended to “streamline the investment process and provide creative incentives and business start-up, retention, expansion, and attraction while increasing opportunities for Springfield residents to successfully participate in the economy.”
Springfield’s Planning and Economic Development Office also offers tax breaks to investors and developers who participate in city redevelopment projects, and the New Market Tax Credit (NMTC) program offers credits against federal income taxes to individuals who make certain types of equity investments in community development entities and projects. The state as a whole offers tax credits to filmmakers, and Springfield has positioned itself as a more cost-
effective alternative to Boston. Rodman, a documentary about NBA Hall-of-Famer Dennis Rodman, was filmed in the area in 2020, and several other films, shorts, and television series produced in Springfield are currently in production or awaiting release.
Combined with the area’s renowned “Knowledge Corridor,” which extends from Hartford, Connecticut, to Springfield and hosts 32 universities and liberal arts colleges and the presence of top employers in the Springfield area like Baystate and Mercy Medical Centers, insurance behemoth MassMutual, historic firearms producer Smith & Wesson, and defense company General Dynamics, local economic incentive programs are helping shore up the groundwork for Springfield to grow and thrive in 2021. Real estate investors interested in the area may find success by investigating creative ways to leverage buyers’ desire to live in an area with the potential for post-pandemic growth and strong family attractions like good school systems and outdoor recreational areas.
“Springfield represents an attractive opportunity for homebuyers and investors to find affordable homes with great school systems,” said Anthony, who represents a large group of investor-clients and helps them acquire single-family, multifamily, and even REO properties in the Springfield area. “I believe [these opportunities] will persist through 2022.”
Sidebar 1:
How Springfield is Dealing with the Affordable Housing Crisis
With a shortage of housing units exceeding 11,000 at the start of Q2 2021, Springfield is working hard to make up ground and offer more housing options to renters in the area. Using a
combination of tax credits, financial incentives, and community redevelopment funding, the city is working in partnership with developers and investors to “create opportunities for the residents and also create more investment in the community,” as developer Thomas Kegelman of Home City Development described it. Kegelman and his company are currently building 33 new townhomes in the South End area of Springfield. Those 33 residences will increase homeownership in that neighborhood by more than 150 percent.
Elsewhere in the city, a public school damaged by a tornado in 2011 is being converted into 42 new apartments as part of a municipal goal of creating at least 1,000 new workforce housing units for middle-income households this year. The city has received funding to support more projects of this nature as well, including $9.3 million in equity financing from the Massachusetts Department of Housing and Community Development (DHDC), $1 million from the Affordable Housing Trust Fund, and more than $700,000 from the Massachusetts Department of Mental Health.
“We are humbled by the enormous contributions by our funders and the support we have received from almost every part of the Springfield community,” Kegelman said of the school-conversion project. Home City Development is also participating in this venture. “It truly feels like a community event,” Kegelman said.
Sidebar 2:
Top Employers in Springfield, Massachusetts
- Baystate Health
- Big Y Foods
- Massachusetts Mutual Life Insurance (MassMutual)
- Bank of America
- Mercy Medical Center & Sisters of Providence Health System
- Springfield College
- Smith & Wesson
- American Outdoor Brands
- Behavioral Health Network
- Peter Pan Bus Lines
- Titeflex (design & development of performance-grade rigid and flexible engineered solutions for transfer of fluids and gases)
- Solutia Inc. (chemical merchant)
3-Bedroom Single-Family Rental Prices
Springfield is the seat of Hampden County with a population of 153,606 (2019 Census)and the third largest city in Massachusetts. The Springfield MSA has an estimated 2019 population of 697,382. Springfield has a total area of 33.1 square miles. The 2021 3-bedroom SFR rental prices averaged $1,725 for the MSA, up from $1,642 in 2020. Top end rent areas in Springfield are in zip code 01128 with an average rent of $1,773 (up 9.99%). The least expensive zip codes are 01107 at $1,554 and zip code 01104 at $1,565.
5-Year Rental Price Appreciation
In the last five years, 3-bedroom SFR average rental prices over the Springfield MSA have increased by 25.0% from $1,379 in 2016 to $1,725 in 2021.
In Springfield, 5-year rental price increases have increased the most in zip code 01108 by 41.86% and in zip code 01109 by 31.25%. The zip codes with the smallest increases were 01119, by 13.67%, and 01129 by 15.22%.
Rent-To-Income
As of the most recent census data available, Springfield has a median household income
of $44,596 and the Unites States overall at $68,703.
Spending 30 percent of monthly income on rent is a good benchmark, and there are not any zip codes in Springfield that fall into that category. All ten zip codes are above 30% with 01105 at 98.4%, 01103 at 77.23%, and 01107 at 71.02%. The lowest R/I ratio in Springfield was in 01118 at 31.73 with the next lowest ratio at 34.51%. The MSA R/I ratio is 33.2%.
Yields
The median home price in Springfield is approximately $224,765, up 22% since last year.
Gross Rental Yields (GRY) across the top 200 U.S. markets average 8.6%. The current average GRY in the Springfield MSA has a current yield of 8.59%. The two highest yield zip codes in Springfield are 01105 and 01107 at yields of 17.89% and 13.15%, respectively. Dark purple sections represent yields at 11%, light purple areas have yields of 9%-10%. Finally, white shaded areas have yields around 7.0%.
