1. 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

2. 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

3. 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

4. 1995-2005: +156% 2005-2007: -6% Housing Costs Remain High in Greater Boston 161 Municipalities Median Price of Single Family Homes and Condominiums 2000-2005: +61% -7% Median Selling Price

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

6. Source: Massachusetts Association of Realtors Massachusetts - 15%

7. 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 Percent Affordable Communities 199814892%11672% 200010163%8754% 20018653%4226% 20027748%1711% 20035937%53% 2004 2717%1<1% 2005 1912%00% 2006 3019%1<1% 2007* 4629%64% Number of Affordable Communities in Greater Boston (161 Municipalities)

8. SALES Source: Massachusetts Association of Realtors – 1 st Quarter

9. Source: Massachusetts Association of Realtors March 2008

10. Expected House Prices – Greater Boston (161 Municipalities)  By 4 th 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

11. 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

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

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

15. 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. Population Trends

16. U.S. Bureau of the Census

17. Population Trends in New England

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

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

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

21. But now we have another problem

22. 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.

23. Foreclosure Initiations by Type: 3 rd 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

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

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

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

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

28. 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

29. 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

30. 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

31. 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.

32. 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