Economists on housing market: "no bubble bursting"
Two of the nation's top economists said today that despite a cooling in the housing market, a strong economy and job market are expected to bolster the US and New England markets and prevent house prices from declining in coming months.
At the New England Realtors Conference in downtown Boston, Cathy Minehan, president of the Federal Reserve Bank of Boston, and David Lereah, chief economist for the National Association of Realtors, said that strong job growth in the US and New England will continue to fuel demand for housing.
New England "will have negative sales like the rest of the country" in 2006, "but prices will still go up," Lereah said. "There's no bubble bursting," he said. "You can put air in the bubble, and it inflates and now the air is going out of the balloon -- it is not bursting."
Minehan agreed that New England's housing market would not plunge as it did in the early 1990s, when house prices declined sharply.
For New England home prices, "the pace of appreciation here has been greater" than the rest of the nation, Minehan said. But "unlike the '80s, residential construction has not boomed, and there has been little speculative building."
"My sense is that Massachusetts and New England will experience some sustained cooling in real estate and some flattening of prices, but the trend is not likely to affect the region overall negatively, and likely not more than the nation as a whole."
Despite the positive forecasts, both economists warned of some risks that exist in the housing market, including the potential for rising interest rates, due to high federal budget and international trade deficits, and a large percentage of interest-only and other trendy loan products that expose homeowners to more risk.
Lereah said US house prices, which surged 12 percent last year, will rise half as fast, or about 6 percent, this year. He did not provide a forecast for New England. (by Kimberly Blanton, Globe staff)
