The Boston area economy continues to shift with the housing slowdown dragging down consumer-related industries. On the other hand more affordable housing is helping the recovery of the city's leading industries. According to statistics from the Bureau of Labor, unemployment was 0.7% better in October 2006 than in October 2005. An increase in the labor force over the past 24 months, following a sharp contraction, has helped area employers. Although greater Boston continues to be an expensive place to live, economy.com reports a 5.5% gain in the average household income year-over-year in the third quarter. Meanwhile, the Massachusetts Association of Realtors reports the state's high-priced homes are getting cheaper. Since last summer, the median selling price for a detached single-family home has fallen 9% from a peak of $375,000 in August 2005 to $341,000 this past September. The end result is that it is more affordable to live in Massachusetts, while jobs and wages are increasing.
This time last year the big question was whether the real estate market was going to slow down. Today it's "How bad will it get?" There are some experts who believe that the housing market correction may be reversing or at least slowing. New forecasts suggest that the market correction in greater Boston could be coming to an end and that home prices could soon stabilize. The sentiment is that the current weakening in home prices is not due to any major job cuts that force people to sell their homes at any price, but as a result artificially high demand for home buying. Much of the demand was driven by buyers or real estate investors who were looking to flip properties, which has largely disappeared. Also, one factor that stimulated home buying: low interest rates, remain near historic lows. Demand may pick up as lower home prices and attractive mortgage rates draw buyers back into the market. Still, inventory levels remain high. Until inventories shrink, prices will likely remain flat.
The economists at Moody's also have become more upbeat about the Massachusetts housing market. In their study of housing markets, the forecast for the greater Boston area is that home prices are "close to the bottom". The report suggests that an increase in employment in the region is the main factor. Also, a decrease in investor activity and fewer new home starts (in part due to zoning restrictions) are important factors.
The outlook for the local economy and housing market is positive for 2007. Experts predict population growth in the Boston area will exceed the Northeast region average beginning next year, and employment will rise by about 20,000 to 22,000 (or around 1.0%) per year from 2007 to 2010. This growth is not fast, but it may be enough to generate a stronger real estate market in this affluent, densely-developed region.
Questions or comments about this article, contact the author - Mathew Roth