Greater Boston Housing Report Card 2009 Positioning Boston in a Post-Crisis World

1. Greater Boston Housing Report Card 2009Positioning Boston in a Post-Crisis World Barry BluestoneChase BillinghamJessica HerrmannOctober 28, 2009

2. Introduction • Last year, we revealed the “housing paradox” – home prices were still too high and falling too fast … • Homes still out of reach for many families • But declining home values were reducing family assets and leading to foreclosures • The global banking system had just collapsed with the failure of Lehman Brothers and concern about the world’s entire credit system • It was a time of high anxiety … with little idea of how the economy would fare or what the prospects for the Greater Boston housing market might be • Now, a year later, we have a better picture of what has happened in the housing market and we are on (somewhat!) firmer ground peering into the future

3. Key Issues • What’s happening to: • Home sales and prices? • Housing production? • Housing affordability? • How is the housing market affecting the Greater Boston economy? • What’s the Government doing? • Setting the stage for recovery

4. Taking A Closer Look at the Numbers Home Sales & Prices

5. Since peak, home sales down 45%; Condo Sales down 51% … with five straight years of declining sales

6. … but finally a steady increase in sales since January/February

7. Median Home Sales Prices have fallen since 2005 by 18%; Median Condo Sales Prices have fallen since 2007 by 10%

8. … but figures show a string of price increases in recent months

9. Case-Shiller shows same turnaround in home prices beginning early this year

10. Overall, since their peak, Greater Boston home prices have fallen much less than other metro areas

11. What can we expect from now? From Peak to Trough: 40-42 months

12. So there’s reasonable evidence that the greater boston homeownership market has finally hit bottom and may be poised to recover … in sales and prices

13. Taking A Closer Look at the Numbers Rents

14. While home prices fell steadily after September 2005, apartment rents continued to rise through the end of 2008

16. Effective rents – including discounts – declined from 2001 through 2004 … before rising sharply through 2008

18. Explaining the Home Price/Rent Reversal • Foreclosures created increased demand for rental units • Falling home prices kept potential homebuyers on the sidelines in their rental units • As a result, demand for rental units went up as home prices fell • Higher demand  Higher rents • To moderate rent increases, we need more supply and we need to ensure a healthy homeowner market

19. Housing production Housing Permits

20. With falling prices, production plummeted to lowest levels in decades

21. Production of multi-unit housing has plummeted the most

23. We are hardly alone ….

24. With home prices finally rising, we may begin to see an uptick in new production … but much of this will depend on what happens to unemployment and family income, investment financing, and mortgage rates

25. Foreclosures Petitions Deeds Auctions

26. Foreclosure petitions exploded after 2004 … with decline in 2008 due to “right to cure” legislation

27. Foreclosure deeds rise from 55 in 2003 to over 6,600 in 2008 … but hopefully declining in 2009 due to “right to cure” legislation and increase in refinancing

28. Foreclosure Petitions UP Foreclosure Deeds DOWN

29. Sharp rise in foreclosure auctions contributed to decline in home prices through 2008 … but number projected to decline by 30% in 2009

30. Housing affordability Absolute Affordability

31. GOOD NEWS: Accounting for household income, Greater Boston home prices are more affordable than anytime since 2002

32. But rents are LESS affordable than ever

33. Greater Boston now tied with San Diego for second highest rents among leading metro areas in the nation

34. Housing affordability Relative Affordability

35. Because of the explosion in home prices, Boston is less affordable in 2009 relative to Charlotte, North Carolina than in 2000 … even after Boston’s recent decline in home prices

36. For a brief time, Miami was more expensive than Boston … but no longer

37. New York became much more expensive than Boston during the mid-decade price spiral, but Boston has a smaller price advantage today than in 2006

38. Lower ratios mean Greater Boston relatively less affordable

39. The Impact of High Housing Prices Migration Employment

40. “High Flyer” metro regions have priced themselves well above everyone else Boston #6 +51% above 9th decile mean

41. The high-priced “High Flyer” metro regions are losing population due to out-migration

42. And the “High Flyers” have slower job growth

43. Outmigration peaked in 2004-2005 when home prices were at their highest … less outmigration today

44. Baby Boom Generation vs. Baby Bust

45. Public policy New Federal and State Housing Programs Chapter 40R

46. A Plethora of New Federal and State Housing Programs

47. New Federal and State Housing Programs, continued

48. Boosting Housing Supply in Greater Boston 40B 40R/40S

49. The 40B Program • In 2008, 33 Greater Boston communities had surpassed the 10 percent affordable housing threshold • Statewide, less than 19 percent of all 351 cities and towns have met or exceeded the 10 percent affordable housing threshold

50. 40R/40S Program • 28 Massachusetts communities have adopted Chapter 40R … with 20 in the Greater Boston metro region • Approved 40R districts account for 1,200 acres of land and over 9,500 zoned housing units … with over 8,000 of these units in Greater Boston • 12 additional cities and towns are actively considering Chapter 40R • 6 municipalities have filed for a letter of eligibility to become 40R districts