Just when homebuyers thought it was finally safe to get off the sidelines, along come the blowhards in Congress to mess things up all over again.
The Bay State’s recovering real estate market and the state’s economy is being held hostage right now to the crazed budget brinksmanship going on in Washington, D.C.
As much as we would like to think we are special here, the commonwealth’s innovation economy has benefited from billions of federal dollars flowing into research and defense.
And should Congress let the federal budget tumble over the so-called “fiscal cliff” come Jan. 1, Greater Boston – our region’s undisputed economic engine – faces a potential meltdown that could rival the dark days of the fall of 2008. And amazingly, this is the third time in about as many years that reckless lawmakers in Washington have threatened to make an even bigger mess of the already battered real estate market.
“In the short run, Massachusetts is especially vulnerable,” said Michael Goodman, co-editor of local economic journal MassBenchmarks and chairman of the public policy department at the University of Massachusetts – Dartmouth. “If you think about the innovation economy, you can make a real case that federal funds are a source for it. As we come to an end of 2012, we really need our political institutions to step up to the plate.”
Maybe it hasn’t quite been another “Massachusetts Miracle,” but the Bay State has managed to add jobs and keep home prices from falling through the floor over the past few years – no small feat. Many other states, from Florida to Nevada, have been far less fortunate.
Leading the charge has been our Boston/Cambridge/Route 128/Interstate 495-based knowledge economy, with its mix of booming life sciences firms, powerhouse hospitals, tech giants and defense-related firms. As a result, while the national unemployment rate is stuck above 8 percent, it’s hovering just around 5 percent in the western suburbs, where many of these jobs are clustered and where home prices have been the strongest. We keep importing the best, brightest and the highly paid from around the country, who in turn help bid up housing prices.
But the looming fiscal cliff could knock out two big supports that have been holding up the local economy –defense and health care spending.
Dark Clouds
The fiscal cliff cuts include $500 billion out of the defense budget over the next decade and $120 billion from Medicare payments to hospitals and other health care providers. That could wipe out more than 11,000 jobs across Massachusetts in the first year alone, according to a recent study by a trio of health care organizations.
But even the threat of impending draconian government cuts could send some homebuyers scampering toward the sidelines, all at a time when home sales – and now prices – are rebounding across the commonwealth after years spent stuck in neutral.
Market tracker Clear Capital sounded the alarm in a report last week, noting that predictions of doom that will flood the media in the weeks running up to the Jan. 1 deadline could send consumer confidence plummeting and take the wind out of the real estate recovery.
“If the cliff is avoided, we still run the risk of damaging confidence with a resolution pushed against year-end deadlines,” Clear Capital Director of Research and Analytics Alex Villacorta said in a statement. “Confidence is key to turning the recovery’s near-term sprint into a marathon. The sooner businesses and consumers are reassured, the more likely they are to build, purchase or loan on a house.”
Of course, it’s not just the fiscal cliff that is threatening to derail the budding real estate recovery here in Massachusetts. The debt crisis, and now recession, in Europe is also poised to hit hard locally. About 40 percent of the goods exported by Massachusetts companies go across the Atlantic to our suddenly troubled trading partner, according to UMass Dartmouth’s Goodman.
But while we don’t have a lot of control over what goes on right now in Europe, the fiscal cliff is a purely homegrown economic catastrophe waiting to happen, a crisis driven and concocted by a group of small-minded ideologues in Congress.
If it feels like we’ve been here before, well, we have.
Remember the acrimonious debate back in the spring and summer of 2011 over whether the federal government should be allowed to slide into bankruptcy?
That sent both consumer confidence and home prices on a downward tear, with a 6.8 percent drop in home prices that May as the federal default debate began to heat up, Clear Capital noted.
And let’s not forget the homebuyer tax credit fiasco back in 2010, another Congressional brainchild. The credits – $8,000 for first-time buyers and up to $6,500 for move-up buyers – was pushed hard by a bipartisan group of federal lawmakers as a solution to the slumping real estate market. Instead, it wound up blowing tens of billions on an effort that actually prolonged the downturn.
That’s right, all it did was push forward demand. When the tax credits expired in April, 2010, sales plunged, sending prices spiraling downward once again in what became known as the double dip.
And believe it or not, we are back in the same jam again, with the fate of the economy and the real estate market depending upon federal lawmakers being able to demonstrate some common sense.
Unfortunately, given their track record, that may be too much to hope for.
“Our fate is largely in the hands of policy makers and politicians in the U.S. and across the Atlantic,” Goodman recently told local business owners and executives at the Corridor Nine Area Chamber of Commerce in Westborough. “Given the track record of the past few years, that is not a particularly comforting place to be.”
Scott Van Voorhis can be reached at sbvanvoorhis@hotmail.com.
