Can Greater Boston ever break free from the death grip of housing bubble economics?

A careful reading of a just released Federal Reserve Bank of Boston report suggests more trouble may be on the way, even as we dig out from the wreckage caused by the last housing bubble.

Yes, the downturn did put a modest dent in the area’s sky-high housing prices, but it has still left them at a relatively unaffordable level as we start to move from recession to recovery.

That could set the stage for another Boston-area housing bubble – one that could succeed in making the loony home prices seen during the last-run up look reasonable.

“[Massachusetts home prices] never fell far enough to be affordable,” said Barry Bluestone, a Northeastern University economist and housing expert. “Already there are signs they are going to rise again, making them even less affordable.”

Housing bubbles are nothing new around here, despite the seeming novelty of the wild escalation in prices that took place between 2002 and 2006.

With a local economy turbocharged by a surge in defense spending and the emerging computer industry, home prices shot out of sight for a few years in the 1980s. Then came the traumatic collapse of the market at the end of the decade.

That was followed by a slow but steady recovery throughout the 1990s that exploded into another housing bubble, with median single-family home prices in the area within Route 128 peaking at $428,113 in 2005, according to data from The Warren Group, publisher of Banker & Tradesman.

Here We Go Again

Now, as we clean up from the wreckage caused by the last bubble, the stage may already be set for a third major home price bubble.

Warning signs abound in the Boston Fed’s recently released report on the local real estate market, “The Housing Bust and Housing Affordability in New England.”

The Fed notes that home prices have finally settled back to 2000/2001 levels, which may sound like good news, but the early 2000s were hardly a golden age of affordability for Bay State home buyers.

At that time, business, religious and civic leaders first began pressing aggressively to boost home construction, especially of affordable units, mostly because home prices were already beyond the reach of many average buyers by 2000, having edged up steadily since their nadir in 1991.

It’s not completely fair to say the most recent housing downturn has done nothing to boost affordability. For a family earning the area median income of approximately $90,000, the downturn has made housing 10 percent to 20 percent more affordable, the Fed found.

But the bad news is that home prices are still out of whack – they would have to drop almost 20 percent more to bring them in line with what the average buyer around here can comfortably afford.

For first-time buyers, the challenge is even more daunting. With a significantly lower median income of about $48,000 in Massachusetts, first-time buyers are faced with home prices that are still 20 percent to 40 percent beyond what they can really afford, the Fed study finds.

What does this all mean?

For starters, as we head from recession to recovery, home prices have yet to come fully back to earth, both in Greater Boston and across much of New England as well.

That does not mean we might not see some additional backsliding in prices in the coming months. But prices would have to fall a further 18 percent to reach the point where they are considered affordable to the average buyer in Boston and across the Bay State, and that is just not in the cards.

“I don’t think that is going to happen,” Bluestone told me. “We would need to have a massive, double dip recession for prices to fall that much.”

NIMBYs vs. Need

So here we are, headed into the next up cycle with already relatively high home prices as the launching pad – much higher, in fact, than much of the rest of the country. While prices here fell modestly, they plunged by huge percentages in markets like Miami and Las Vegas – markets that saw a flood of new condos and homes built during the bubble years.

But after a brief surge in the 1980s, home building fell dramatically in the Boston area, and has never fully recovered.

In fact, it is this dearth of new home construction that has trapped us in this terrible cycle of home price bubbles followed by busts. There’s never enough new homes being built, leading quickly to bidding wars for the few decent properties that come on the market.

At this point, only a burst in home construction can help prevent another housing bubble from taking shape here in the land of perpetually overpriced homes.

But in the world capital of NIMBYism, where shooting down new development proposals is a favorite pastime, this seems unlikely at best.