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

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

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

7. 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%

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

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

10. 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

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 December 2007)

15. 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.

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

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

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: 3rd Q 2007 – U.S.
U.S Mass
Subprime Adjustable % %
Subprime Fixed % %
Prime Adjustable % %
Prime Fixed % %
Source: Mortgage Bankers Association

24. 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

25. 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

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

27. 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, ; Map: Federal Reserve Bank of Boston.

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. 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.

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