Massachusetts’ economic growth is the second highest in the country – but lingering problems in the housing market will continue to be a drag on home prices for the foreseeable future, according to ninth annual Greater Boston Housing Report Card.
Prior report cards had always discussed how the wider economy affects the housing market. But something is different this year.
"[I]n this Great Recession, there is a giant ‘feedback loop’ between housing and the economy, with the depressed housing market actually driving the economy," wrote Barry Bluestone, an economics professor at Northeastern University and the report’s principal author. "Until the housing market recovers, there is little hope for an end to slow economic growth and high unemployment."
New home construction is at historic lows, having fallen 80 percent since 2005, and the number of permits issued in 2011 is likely to be the fewest in 20 years. Multi-family starts are especially weak, dropping 86 percent for 2-4 unit buildings and 74 percent for 5-plus unit structures since 2006.
Home prices have been falling this year after showing signs of stabilization on 2010.
That means that unlike the Boston-area housing crash of the late 80s and early 90s, when prices took about five years to fully recover, current housing prices are unlikely to return to pre-recession levels "until very late in this decade," the report said, depressing sales and keeping potential first-time buyers on the sidelines.
Combine that with a continued stream of former homeowners turning to renters because of foreclosure, and rents in the Greater Boston area are hitting all-time highs.
"Just as we saw in last year’s report card, Massachusetts is still faring better than much of the nation in both its housing market and its overall economy," Boston Foundation President Paul Grogan, sponsor of the report, said in a statement. "But the reality is that Massachusetts is inextricably linked to the national economy, and a true recovery of the local housing market remains difficult until the national headwinds abate."
The report does offer some potential policy solutions to help the housing market recover. Among them, the authors point to: Stabilizing home prices in the short term; providing for construction of affordable housing units; increasing availability of rental housing to bring down rents; and increasing production of homeownership units to moderate future prices
"If some of these approaches were implemented quickly," the report concludes, "we could begin to see a faster exit from the Great Recession and at the same time put in place housing programs that will stabilize home values for those who have seen the values of their homes depreciate, reduce the number of families facing foreclosure, take pressure off the overheated rental market and provide additional affordable housing for low- and moderate-income households.
"There is much work to be done."
