MICHAEL GOODMAN
“It’s going to be increasingly difficult for young families to move in[to Massachusetts].”
The Bay State economy is expected to recover in the next few years with the addition of thousands of jobs, but overall the New England region’s economic and employment growth will lag the national recovery rate, according to a recently released economic forecast.
Meanwhile, house price appreciation in Massachusetts and the Greater Boston region – which has outpaced other states in the region and country – will continue, but at a slower pace as interest rates rise. Housing prices have risen in every region of the state despite the recent recession, and economists worry that is hurting local businesses and industries that are having trouble recruiting and retaining workers.
Massachusetts has suffered greater by entering the recession several months earlier than the nation, and beginning its recovery “significantly later,” according to Michael Goodman, an economic forecaster who presented his findings at the New England Economic Project conference held in Westborough last Thursday. The conference focused on housing and its impact on the New England economy.
Statewide, the average sales price of a single-family home rose 6.6 percent from $351,845 during last year’s second quarter to $375,196 in the second quarter of 2003, according to statistics from the Massachusetts Association of Realtors. In that same period, Greater Boston’s sales price rose about 11 percent.
Constraints on the housing supply have fueled rising home prices, according to Goodman. The production of new housing units has not kept pace with population and household growth, and the state needed an additional 70,000 units in the 1990s to keep up with population growth, said Goodman, who is director of economic and public policy research at the University of Massachusetts’ Donahue Institute in Amherst.
The high housing costs will be a continuing concern for local industries and businesses as younger workers seek more affordable housing options in other states.
“It’s going to be increasingly difficult for young families to move in,” said Goodman.
‘A Reasonable Risk’
In her keynote address at the conference, Cathy E. Minehan, president and chief executive officer of the Federal Reserve Bank of Boston, echoed Goodman’s remarks, pointing to local regulatory barriers and community resistance as factors that have pushed up housing prices in New England, and particularly in Massachusetts.
“During the ’80s, regional housing prices grew much faster than the nation as a whole. This growth moderated and the typical home price even declined for some types of housing in the early ’90s,” said Minehan. “Over the past five years, however, the average price of a house in New England grew at a pace roughly twice that of the nation as a whole.”
In Massachusetts, and across the country, home sales prices have outstripped the median family income. The median sales price nationwide for an existing home in 2000 was three times the median family income, said Minehan. The comparable ratio was higher in every state in New England, except Rhode Island and Connecticut, she said, and in the Bay State the housing burden was 73 percent above the national ratio.
Several participants at the conference wanted to know if the region would be experiencing a housing downturn featuring precipitous price drops. But economists who spoke at the conference were cautious about specifically saying whether the local housing market was a bubble ready to burst.
Mark Zandi, chief economist of Economy.com, predicted that prices will flatten for an “extended period of time” in Massachusetts. But he also said that a lot hinges on the growing national budget deficit, rising mortgage interest rates, and job growth.
“I do think there’s a reasonable risk that [prices] will fall,” said Zandi.
When asked for his advice to homebuyers, Zandi said that buyers who are purchasing a home to live in for the next five to 10 years will find that the home purchase is a “good investment,” while he warned those to who want to move within one to three years to “be cautious.”
Economist and real estate expert Christopher Mayer said that he wasn’t concerned as much about a downturn in the housing market in place where the housing supply is constrained, like New England and the Boston area, as he was with states in the Midwest and South where a lot of new housing has been built and the demand isn’t as strong.
“New England hasn’t built” homes to meet the demand, said Mayer, who is an associate professor of real estate at the Wharton School of the University of Pennsylvania.
Above all, economists at last week’s presentation emphasized the importance of job growth to the region’s and nation’s economic recovery. While the Bay State will see employment growth in the next two to three years, employment will not return to its peak level in the first quarter of 2001, when there were about 3.37 million jobs.
Some 150,000 jobs were lost from January 2001 to May 2003 in Massachusetts. The NEEP forecast for Massachusetts predicts that just about 98,000 jobs will be created in Massachusetts in 2004 and 2005, representing about two-thirds of the jobs lost in the state. About one in three of the new jobs expected to be created in the next two years will be in the professional and business services sector, and more than one in four will be in education and health service.
“Our forecast depends on businesses being willing to hire more people,” said Goodman.
NEEP economists predict the region’s employment growth to remain below 1 percent until the second quarter of 2004, peak at 1.9 percent in the first quarter of 2005 and then slowly decline and level off at around 1 percent per year.
Aglaia Pikounis may be reached at apikounis@thewarrengroup.com.
