Housing: Moving from Crisis to Crisis in Massachusetts Regional Housing Summit: The State of Housing in the Merrimack Valley Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Director, Center for Urban and Regional Policy Northeastern University June 2, 2008

Two Years Ago …. Our greatest housing concern in Massachusetts was that soaring home prices and rents were discouraging young families from settling in the state and discouraging businesses from setting up operations here

Two Years Later …. We have entered an era where we have the worst of two worlds Housing prices have softened, but prices are still out of reach for many working families and well above prices in competing regions The softening of housing prices has led to a serious foreclosure problem which is adversely affecting the entire national economy and surely our own

Housing Costs Remain High in Greater Boston 161 Municipalities Median Selling Price Median Price of Single Family Homes and Condominiums -7% 2005-2007: -6% 2000-2005: +61% 1995-2005: +156%

Median Selling Price Source: Massachusetts Association of Realtors (1st Quarter)

Massachusetts - 15% Source: Massachusetts Association of Realtors

Number of Affordable Communities in Greater Boston (161 Municipalities) Year Communities Affordable to Median Income Homebuyer Purchasing Median Priced House (20% down payment) Percent Affordable Communities Communities Affordable to First Time Homebuyer Earning 80% of Median Purchasing House Priced at 80% of Median (10% down payment) First Time Homebuyer   1998 148 92% 116 72% 2000 101 63% 87 54% 2001 86 53% 42 26% 2002 77 48% 17 11% 2003 59 37% 5 3% 2004 27 17% 1 <1% 2005 19 12% 0% 2006 30 19% 2007* 46 29% 6 4%

SALES Source: Massachusetts Association of Realtors – 1st Quarter

Source: Massachusetts Association of Realtors March 2008 Source: Massachusetts Association of Realtors

Expected House Prices – Greater Boston (161 Municipalities) By 4th Q 2007, the median house price in Boston metro area had fallen by 7 percent from 2005 peak Moody’s Economy.com predicts house prices will fall another 8 percent before starting to recover in mid-2009

The Housing Dilemma Housing Prices have not fallen far enough to make home prices competitive with other regions But the decline in housing prices has contributed to a serious foreclosure problem that now threatens the national economy and the viability of low and moderate income neighborhoods

Economic Activity Index: Massachusetts vs. U.S. (1993-2007) January 1993 – October 2001 Leading the Nation October 2001 – June 2007 Lagging the Nation

Change in Total Non-Farm Employment (Seasonally Adjusted) (January 2001 - December 2007)

Population Trends Between 2000 and 2007, the population of Massachusetts increased by less than 87,000 (1.4%) – the second slowest increase in New England (after Rhode Island) … and 1/5 the rate in the U.S. Since 2000, Massachusetts has suffered a net domestic out-migration of over 305,000 residents. This outflow of people has been softened only somewhat by the arrival of about 206,000 foreign immigrants.

U.S. Bureau of the Census

Population Trends in New England

Immigration & Net Domestic Migration Massachusetts Domestic Net-Migration and Foreign Immigration

Who’s Leaving Massachusetts? Percent Change in Population by Age Cohort, Massachusetts v. U.S., 2000-2006

The Future Demographics of Massachusetts Projected Percent Change in Households by Age Cohort, 2006-2017 Of a net increase of 193,500 households, 244,600 are projected to be age 55 + Source: U.S. Census Demographic Projections

But now we have another problem

Rising Foreclosures Nationwide The Mortgage Bankers Association reports (March 2008) that loans past due or in foreclosure jumped to 7.9% of total loans, up from 7.3% in September, and 6.1% in December 2006. Before the 3Q of 2007, this rate had never exceeded 7% since such records have been kept beginning back in 1979. This amounts to 3.6 million mortgage loans nationwide.

Foreclosure Initiations by Type: 3rd Q 2007 – U.S. U.S Mass Subprime Adjustable 4.8% 6.2% Subprime Fixed 1.5% 2.0% Prime Adjustable 1.0% 1.0% Prime Fixed 0.2% 0.2% Source: Mortgage Bankers Association

Foreclosure rates for United States, New England, and Massachusetts, through Q3-07 Percent of loans with foreclosure initiation in quarter Massachusetts New England United States Q3-07 Source: Mortgage Bankers Association/Haver Analytics

Foreclosure rates for United States and Massachusetts, Major conventional loan categories, through Q3-07 United States Massachusetts Percent of loans with foreclosure initiation in quarter Percent of loans with foreclosure initiation in quarter Sub-Prime Adjustable Sub-Prime Fixed Prime Adjustable Prime Fixed Source: Mortgage Bankers Association/Haver Analytics 25

Quarterly Foreclosure Rates, by Census Division Percent 0.8% 0.2% Source: National Delinquency Survey

Active Subprime Loans as Percentage Share in All Housing Units Haverhill Winchendon Fitchburg Lawrence Athol Gardner Lowell Pittsfield Framingham Lynn Boston Brockton Worcester Middleboro Westfield Chicopee Springfield Franklin Plymouth Attleboro New Bedford Falmouth Source: Federal Reserve Board estimated based on data from First American Loan Performance, 2007-10; Map: Federal Reserve Bank of Boston.

Impact of Foreclosures In 2007:4Q American households’ combined net worth fell by $532.9 billion or 3.6 percent Falling real estate values accounted for a third of the total decline Current recession has been set off by the simultaneous bursting of property and credit bubbles (Stephen S. Roach) With wages stagnant since 2000, households extracted equity from homes with appreciating values to pay for everything else. Now with housing prices falling, loan to value ratios are rising above 1.0. With recession looming and adjustable rate mortgages set to rise, foreclosures could skyrocket

Policy Responses FHA is expanding its insurance program to let more people switch from expensive subprime mortgages to federally insured loans (i.e. raise FHA mortgage limit from $417,000 to $729,750) Raising the limit on the volume of mortgages Fannie Mae and Freddie Mac can hold in their portfolios – buying up mortgages other investors have been too frightened to touch Source: Edmund L. Andrews and Vika Bajaj, New York Times, March 5, 2008

Possible Policy Responses New Mortgage instrument with price guarantee and shared equity for mortgage bank or insurer – to get homebuyers back into the market Municipal governments buy up foreclosed abandoned properties and re-sell them to avoid neighborhood deterioration

Chapter 40R/40S 22 communities now enrolled And we still need to be prepared to build new housing for young families when the economy begins to turn around Chapter 40R/40S 22 communities now enrolled 8,300 housing units ready to permit 30 more communities considering 40R And over the next decade, aging baby-boomers will help by downsizing and leaving larger homes for generation behind them.

A Time for Concern and Bold Action “Fixing” the housing problem is now not just critical to the well-being of Massachusetts, but the economic well-being of the nation It is time for bold action before the bursting housing/credit bubble creates a long and disastrous recession