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Greater Boston home prices at elevated risk of decline?

Posted by Scott Van Voorhis November 18, 2010 07:12 AM

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OK, I am just the messenger here. But that's the assessment of mortgage insurance giant PMI.

The Boston area has a greater than 63 percent chance of seeing home prices wind up lower two years from now, PMI's latest market forecast finds.

That puts us near the top nationally, below only a tier of hard-hit Sunbelt cities that have been ravaged by foreclosures after rampant overbuilding during the boom years.

Some of those cities - Las Vegas, Miami, Phoenix and Los Angeles - are rated as having a well over 90 percent chance of further declines.

By contrast New York and Washington have about a 50 percent chance of a further fall in home prices.

So how much more damage are we looking at here?

Boston is facing another 2 percent decline over the next year and a nearly 12 percent drop over the next five years.

PMI's forecast makes sense to the degree that home prices have not seen as dramatic a decline in the Boston area from their bubble years' peak compared to other major metro markets. That means prices are still a stretch for the average buyer.

Greater Boston is off roughly 17 percent compared to 25 percent nationally. Another 11 to 12 percent decline would actually simply bring us in line with the rest of the country.

Still, I also wonder whether an economy that is finally showing signs of life might just head off a more severe price correction here.

The Boston area, the economic powerhouse of New England, is starting to add jobs again, with Massachusetts leading the nation out of the downturn.

And Massachusetts was ranked as the state best equipped to compete in an increasingly innovation driven global economy, according to a report just out by the Kaufmann Foundation.

Of course, there is strong downward pressure on prices right now, with sales having fallen off a cliff after the home buyer tax credit expired in the spring.

But as we look ahead, jobs count too.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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