The housing market is swallowing a bitter pill after years of lax lending to people with poor credit. What started out as fallout in the small sub-prime sector has now spread to more common home loans.
If you want to buy a home now, it will be harder to get a mortgage. And if you want to sell, there will be fewer buyers out there.
WBUR's Business and Technology Reporter Curt Nickisch looks at how Massachusetts is faring in the national mortgage crunch.
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CURT NICKISCH: When Kirstina Hanes and her husband had two children, their modest house got a whole lot smaller. They plan to put their home on the market in the spring, but Kristina says they're not feeling great about it:
KRISTINA HANES: Yeah, the news lately has made us concerned. We live in Wakefield right now. It's a cute little town but it's relatively inexpensive, so it attracts a lot of first-time homebuyers. And I think those are the ones who are really going to be hit by the mortgage crunch — who would have qualified six months ago but now with the crisis are not.
NICKISCH: Hanes is right to worry. While the cascading mortgage lending crisis is a national problem, there are some things about the Commonwealth that cast a darker cloud over the market outlook here — at least for homeowners. Bill Wheaton is with the Center for Real Estate at MIT. He says unlike other parts of the country, the Boston-area has only recovered half the jobs it lost from the 2001 recession.
PROF. BILL WHEATON: And the other thing to keep in mind is that in those intervening five years, we built, oh, roughly 20,000 housing units. So you have a five, six percent increase in houses over the last five years, and a net loss of people and jobs of almost three percent. Well, that doesn't add up to very good math for the housing market.
NICKISCH: There's another thing he says could further widen this gulch between high supply and low demand. Massachusetts has a relatively high proportion of people who bought homes and condos as investment properties. Even in the downtown Boston condo market, where Wheaton says up to forty percent is not owner occupied.
WHEATON: Of course, speculative investors, people who are buying housing primarily as an investment, will begin to think twice about it. And if, and this is a big if, and if those people decide to put those houses back on the market, that could be another drag on the overall housing market.
NICKISCH: Wheaton thinks it will now take a few years for the Massachusetts housing market to recover, and it will be shaped like the letter 'U.' The market's still dropping right now and will level off for a while before it picks back up again.
The forecast for a longer recovery makes for a wider U — but at least the downturn here is not as deep as it is elsewhere.
PROF. CHIP CASE: Not that it's doing great. But relative to other parts of the country, New England's holding up I think quite well.
NICKISCH: That's Chip Case, economist at Wellesley College. He says first of all, Massachusetts is not being hit as hard by foreclosures as others parts of the country. He admits homeowners in Greater Boston are now twenty billion dollars poorer in home values than they were before the market started to drop in 2005. Even so, he says:
CASE: You gotta remember, that's after two huge booms with massive asset creation. Hundreds of billions of dollars of wealth was created, and some fraction of that is now gone. But it's not the end of the world.
NICKISCH: Case is very worried, though, that the jittery mortgage lending industry nationally could fall apart and lead to a recession. Which would make things much worse.
CASE: To be perfectly candid with you, I don't think it's going to be a disaster, but that's one man's opinion.
NICKISCH: For now, the uncertain mortgage lending industry points to a longer housing market downturn here in Massachusetts. MIT's Bill Wheaton advises first-time homebuyers to hold out for a while.
WHEATON: So if you find the one home you've always been looking for and it's discounted, sure, go ahead and buy it. But if you haven't found one, be very very picky and look over things very carefully. Track the market and figure the bottom is still a year or two off.
NICKISCH: That's not what home sellers such as Kristina Hanes in Wakefield want to hear. She and her husband cannot afford to buy a bigger home while they put their current one on the market. So, she says, if they can't find a buyer:
HANES: The worst case scenario is we stay here. With a house that's too small and a couple of kids and pets and everybody tripping over each other.
NICKISCH: A far cry from the days not so long ago when homebuyers tripped over each other just to make an offer.
For WBUR, I'm Curt Nickisch.
This program aired on August 8, 2007. The audio for this program is not available.