Economists: Nuclear Families Keeping Options Open
The real economic threat to Massachusetts and New England is a looming shortage of young home-buying families, according to several prominent economists who spoke at a Federal Home Loan Bank of Boston conference in Springfield Thursday.
During the "Through the Lens of Housing: New England Economic Recovery" program, the economists, who included Karl E. Case of Wellesley College and Barry Bluestone of Northeastern University, noted that New England is on pace to recover from the recession more quickly than the rest of the country.
Massachusetts and New Hampshire are leading the charge, but Bluestone noted that 20 times as many Massachusetts homeowners lost their homes to foreclosure in the first six months of 2010 as did in the same period in 2005.
Foreclosures and general economic uncertainly have put a massive inventory of homes on the market, and the economists are worried that economic conditions may not improve sufficiently to encourage people to buy them.
As home prices in Massachusetts exploded during the housing bubble, young, educated prospective homebuyers left the state in droves, Bluestone said.
As home prices have come down, some homebuyers have returned, but not enough to inspire great confidence.
"Income is there to pick house prices back up, and the raw data on house prices says prices are actually up," said Case, co-creator of the S&P/Case-Shiller Home Price Index. "House prices are behaving like it's the bottom. You would think that with no production (of new homes) and normal household growth, the market would be getting tighter."
But it's not.
That means "the number of households is smaller than we think, or falling," Case said. He said he is eager to see new Census data on the subject.
Case said joblessness, people of typical home-buying age living with parents or a decline in immigration may be leading to the decline in the number of households in the region.
"A lot of people don't want people to come to this country, and that's a nasty attitude," Case said. "Those are probably permanently lost households."
A shortage of homebuyers means more vacancy and could make it difficult for employers to find a suitable workforce. Case noted that there are currently 14.5 million homes in the United States that are vacant year-round.
Douglas G. Duncan, vice president and chief economist at Fannie Mae, said that even if homeowners do stay in Massachusetts, they are wary of limiting their options while the economy, and especially the job market, remains uncertain.
"One of the side effects of programs to keep people in their houses is it takes away from labor mobility," he said.
With the employment picture as shaky as it is, an increasing number of employees are choosing to rent rather than buy in order to maintain that mobility.
Bluestone and Duncan agreed that home prices will probably return a normal, healthy level in 2014. Duncan also marked 2014 as the year the home construction industry comes back into alignment with home prices.
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