| Mass Housing a bubble to burst? |
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| ÒÑ·¢²¼ by anon on 2002-10-15 00:32:51 EST |
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While stocks have gone to hell in a handbasket, we have our housing prices for solace — comfort for the 60 percent of households in the state that own a home. Are these steadily rising prices a bubble, too? History tells us that if the Massachusetts housing market is not at the bubble stage, it's fair to say that houses are priced "perfectly," the phrase the stock sages used to use about growth companies selling at very high multiples.
Yet prices keep rising. It's worth asking how Massachusetts has so far resisted the pull of economic gravity. Unemployment has more than doubled in the past two years; the state has lost 85,000 jobs since the beginning of 2002. Moreover, while housing prices rise, incomes have remained relatively static. Since 1998, incomes have risen by 22 percent while home prices have spiked by 89 percent.
Prices are not only being buoyed by historically low lending rates — very loose credit and low down-payment requirements also contribute. When interest rates rise, as they likely will, and lenders tighten credit in response to growing default rates, the state will likely see a little steam taken out of the demand side of the equation.
Our resilient housing prices, however, ultimately speak volumes about the dearth of supply in the commonwealth. The state's capacity to generate new housing starts is so weak that well after other high-priced markets like San Francisco have faltered, the pressure on slim inventory here has pushed prices higher. Our housing production historically has not kept up with new household creation here, and the state ranks among the worst in the nation in new housing starts per capita.
Chances are that some kind of economic reality check will visit the housing market here, most likely in stagnant prices, not air-out-of-the-balloon deflation like we saw in the early '90s. Meanwhile, the resilient prices should serve as clear evidence that Massachusetts needs a concerted, statewide strategy to generate more housing. Otherwise, more and more businesses and residents will be compelled to leave the state.
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