Boston –The Boston Foundation released its sixth annual survey of the regional housing market today, delivering sobering news to both homebuyers and homeowners. In addition, economic trends reported in the publication show a population continuing to age and a growing economic misfit between cost of living and income.
According to lead author Barry Bluestone, local housing prices have remained high enough to drive away young residents and would-be homebuyers, while at the same time, paradoxically, prices are falling too fast. That decline is undermining equity built up by many area residents over the past decade. Even worse, in some neighborhoods where subprime mortgages were concentrated, the trend threatens destabilization that could undo many years of progress in combating urban blight.
More recently, the impact of a widespread housing crisis has had significant impact on economic trends in Greater Boston. Among the findings of the new research reported in the Housing Report Card for 2008:
Bluestone is a nationally recognized economist and the Director of the Center for Urban and Regional Policy at Northeastern University, which produced the current report for the Boston Foundation. Bluestone is also Dean of Northeastern University’s School of Social Science, Urban Affairs, and Public Policy. He was the author of the landmark study, A New Paradigm for Housing In Greater Boston, released in 2000, which first warned of the long-term danger posed by a housing market already soaring out of reach for many area residents. Following that report, Bluestone has been a lead author of six subsequent Housing Report Card reports published by the Boston Foundation. (The Housing Report Cards are available at the Commonwealth Housing Task Force website.)
The report was released at a forum held at the Boston Foundation that including the presentation of the findings of the report and a panel discussion. Members of the panel included Karl Case, Professor of Economics at Wellesley College; Elyse Cherry, CEO of Boston Community Capital; Alicia Sasser, Senior Economist, New England Public Policy Center, the Federal Reserve Bank of Boston; and Timothy Warren, CEO of The Warren Group and Publisher of Banker & Tradesman.
“At a time when turmoil in the economic markets breeds confusion and apprehension, Barry Bluestone has produced a report that brings great clarity to this complex and important field,” said Paul S. Grogan, President and CEO of the Boston Foundation. “Housing remains a critical part of the formula for long-term economic prosperity for the region, and this report helps us understand how we arrived at this point, and what we can do to address housing needs into the future.”
Key findings of the report
The recent decline in home prices has made the region more affordable—but only marginally. Between 2005 and 2007, home prices dropped 5.5 percent, while median household income grew be about 9.3 percent. As a result, the ratio of home price to income stands at 5.77 for 2007, down from a high of 6.68 in 2005. But that ratio still stands far above the nation comparing income to housing costs in earlier years. In 2000, the ration was 4.53, up from 4.02 in 1990. Meanwhile renewed demand for rental units as homes in many communities rose beyond the reach of local residents has meant that rents have increased, increasing pressure on young and low income residents.
How much more will housing prices fall in the near future? The report suggests we may be near the end of the housing meltdown nationwide. According to research by Karl Case, Professor of Economics at Wellesley College and a nationally recognized expert on the housing economy, prices began to rise in July. His findings suggest housing prices will begin to firm up.
In addition to new information about housing costs, the report highlights the economic stagnation in the region that was to some extent masked by a soaring increase in housing prices. While median housing prices climbed almost 80 percent, in the statistic given above, family incomes for the region grew far more slowly—for renter households incomes actually declined. One result of this mismatch: the proportion of area residents paying more than 30 percent of their income for housing rose to almost 40 percent by 2005. Renters who paid more than 30 percent of their income for housing rose past the 50 percent mark in the same time.
A new paradigm
Bluestone’s 2000 report, A New Paradigm for Housing In Greater Boston, drew attention to the critical role housing price—and housing supply—would play in coming years to the region’s ability to draw and retain the young, skilled workers it needs to flourish.
Following the release of that report, in a single telling statistic, the median selling price for a single-family house in Greater Boston rose from $235,000 in 2000 to $420,000 in 2005. That helped to make Boston the nation’s most expensive metropolitan region for a family of four by 2005, and made the region less attractive to young families and recent college graduates. That historic increase in housing prices ended in 2005. Since then, a combination of slow population growth, increased supply of housing and the more recent “mortgage meltdown” has contributed to a fall in median housing prices of approximately 11 percent. Recent economic turmoil has intensified this downward trend, with a vicious circle of price cuts and foreclosures.
Despite the decline in values, the increase in median price in earlier years was so steep that a decline of 11 percent did little to make housing more affordable.
The original housing report published in 2000 called for an increase in supply of affordable housing to moderate the increases in housing costs. The 2008 Housing Report Card repeats that injunction, noting that the region continues to need to produce more housing units per year than it currently produces. To this is added a call for strategies to ease the foreclosure crisis, with state, federal and local policies aligned to make it possible for mortgage lenders to restructure loans for distressed homeowners.
The report also calls for a continuing use of Chapter 40B to support the production of low-income housing and Chapter 40R to maintain an adequate supply of surplus land that is zoned appropriately. These two strategies can stabilize prices by reducing foreclosures and simultaneously create new housing at prices that young families and new workers can afford.
The potential for continued downward movement
According to the authors of the 2008 Greater Boston Housing Report Card, the housing market appears poised to become even more uncertain than it has been at anytime since 2000. Without effective responses to the current crisis, the region may face sharp reductions in home process over the next year of two, which has the potential to threaten families with foreclosure and could undermine recent successes in urban revival, threatening entire neighborhoods with abandonment and vandalism, eroding the Greater Boston’s ability to compete with other regions of the country.
The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of over $964 million. In 2007, the Foundation and its donors made more than $92 million in grants to nonprofit organizations and received gifts of more than $90 million. The Foundation is made up of some 850 separate charitable funds established by donors either for the general benefit of the community or for special purposes. The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges. For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700.