Thursday, November 10, 2005

Modest Housing Downturn

Boston Globe:

WESTBOROUGH -- The Massachusetts housing market will slump over the next
two years, with prices falling slightly, then flattening before resuming modest
appreciation, according to an economic forecast released yesterday.

If the forecast proves correct, it would mark the first home price declines
since early 1995, when the state was still shaking off the effects of the 1980s
real estate bust, and the average price slid 1.4 percent from the previous

The new forecast, by the New England Economic Partnership, a nonprofit
research group, projects the average price of a single-family home in
Massachusetts will decline less than 3 percent in the second half of 2006,
before beginning to recover in early 2007. Even then, the prices will rise only
slowly, with year-over-year appreciation holding below 3 percent through

Analysts don't expect an '80s-style collapse, largely because the economy is
expanding, unlike in the late 1980s, when it slipped into recession. In
addition, mortgage rates are still much lower, just above 6 percent, compared to
about 10 percent in 1989.

While I think affordable housing will still be a key concern among younger voters seeking to buy their first home, this may have the effect of reducing housing cost as a key issue in next year's governor race. If the downturn become dramatic instead of modest it could become an issue hanging around Mittwit Romney's presidential race. I think a dramatic downturn would have a significant effect on the rest of the Massachusetts economy.


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