The Beginning of the End of the Bubble

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People have started viewing their houses as gigantic ATMs. Take out a home equity loan, which the banks are eager to offer you, …and all of a sudden you have an extra $70k to play with. You can put on an addition, you can go through the roof, you can take several trips to Hawaii, and still have large amounts of money left over.

Brad DeLong

When Fed Chairman Alan Greenspan testified before the Senate Banking Committee on July 21 he described the housing market in certain parts of the country as “frothy.” Funny word choice aside, it was the first time Greenspan acknowledged there might be anything unusual about America’s red-hot real estate market, the value of which has increased exponentially over the past several years.

But many observers saw the Fed chair’s testimony as something of an understatement. Frothy doesn’t cover it, they said. America is experiencing a full-fledged real estate bubble, like the stock bubble that preceded the Nasdaq crash, or the tech bubble that preceded the demise of Silicon Valley. Complete with the giddiness of easy money and get-in-the-market-while-you-still-can mindset, or the “irrational exuberance” described by Yale economist Robert Schiller in his book by the same name.

So how did the market get so inflated? And what might happen if (as some new numbers indicate) the bubble’s getting ready to pop? Greenspan assured Congress that even if housing prices were to fall over the next year the damage to the country’s economy “need not be substantial.” But others say that when (not if) the housing bubble bursts, it will take our whole economy down with it. Think people losing their life savings as the value of their house drops by fifty percent. Or the billion dollar construction industry going bust. A devastating recession the likes of which we have not seen for quite some time.

So if there is a bubble, and if it is about to crash, how bad could it possibly be? What would the crash of the real estate market mean for you? (or your family’s investment, or your construction business, or America’s economy as a whole?) We want to hear your fears and predictions of economic armageddon…or your notion that reports of real estate’s impending death have been greatly exaggerated.

Ben Jones

Economic Activist

Blogger, The Housing Bubble 2

from Robin’s pre-interview notes:

The Fed did what a lot of central banks did. Their response to one bust is to start another boom. They did it in ’87 with Black Monday, pumped a bunch of liquidity. They respond to each crash with more money creation. I think this particular movement in housing price started with opening the flood gates after the stock crash, then after Sept 11. We all remember when car loans went down to zero percent.

I do fault them [the Fed] [for this housing bubble]. We have the system we have. Its outside the question of whether we should have a central bank. But in the system we have, theyre in charge of interest rates in the short term. Recession is a natural way of an economy working out bad investments. You cant do it without them. Theyre regrettable, but that is how an economy handles it. So was it a good idea to create this bubble to fix the other one? What Im saying and others are saying, is no, we should have just taken our lumps. Cause now weve got housing, something thats an essential need, likely to fall just at the time we don’t want it to. I think it was a colossal mistake.

Brian Buetler

Author of Seller’s Market column featured weekly in the Washington City Paper

Blogger

from Robin’s pre-interview notes:

When I go out and see a house that’s been upgraded in value, which sold 2 years ago for $200,000, and is now selling for $800,000, I almost always find it’s a rip off. Occasionally I get a lead, like a house that sold for a million dollars that doesn’t have air conditioning. There was one near Georgetown [a posh historic neighborhood in Washington, DC] 1200 sq feet asking $1.1 million. Its price had doubled over the course of a year and a half. It was connected to a run down liquor store, and was maybe smallest house I’d ever seen. In Columbia Heights a guy who showed me the house was also the owner. I felt kind of bad because I was going to pan the house, but then I looked up the house and saw that he bought it 2003, and it was the 14th house in Columbia Heights he’d bought and resold.

Bill Wendel

Real estate consumer advocate

Blogger, Real Estate Cafe

from Robin’s pre-interview notes:

For the past year Bill has been doing oral history style interviews with home buyers and real estate agents, documenting the bubble and its effects on real people buying and selling real homes. He’ll be in the studio playing clips from his audio history project and talking about what he’s seen in the real estate market over the past few years.

Brad DeLong

Professor of Economics at UC Berkeley.

Blogger: Brad DeLong’s Semi-Daily Journal.

[by phone from Berkeley, CA]

From Robin’s pre-interview notes

There are 4 things going on. The first is that land on the coasts is finite. You’d expect prices in boston, la, san fran, seattle to go up over time as the country grows richer.

Second: people now moving back into cities from the suburbs. This makes urban housing more expensive b/c of space limitations.

Third: interest rates are extraordinarily low, so people are taking out huge mortgages

Fourth: bond market and mortgage payments…when interest rates drop, the amount you can borrow goes up. As long as interest rates stay low there’s no problem, but if rates go up a lot, there’s a huge problem for buyers.

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  • plaintext

    1) Greenspan has admitted that the economy has been propped up at least in part by extractions of household equity backed by liberal financing policies. His reaction to this is to raise interest rates but the binge continues in spite of the fact that the underlying basis, 30 yr bond, refuses to budge (and for good reason.) China, Japan, Korea, India not interested in US at high rates with huge deficits. Funny how we consistently avoid oversight of financing policies in deference to institutional policy raising/lowering rates.

    2) Consumers faced with huge financing burdens will be:

    a) Apt to consider bankruptcy – mortgage remains priority in new bankruptcy bill all others (except govt) now subject to Ch. 13, not 11. Thus fueling the urge to use equity credit for purchases – but also a whopping hole for the uninformed.

    b) opposed to taking risks on the income side – lessens ability to innovate.

    c) Pychologically, smashing of the “housing always goes up” mantra will inspire a huge loss of confidence. Hew & cry for government intervention will be deafening but really, what can they do? We’re financed by China. Of course they could make things worse – as in 1930’s.

    3) Investors already feeling the pinch of excess inventory. Overheated markets are investor vs. investor. They’re duking it out among themselves, postponing the inevitable. Real people with real housing needs are going unheard. Govt. attempts to bandaid with low income housing will be seen as a scam to save a few favored investors.

    4) Business will be affected. When inventory of repossed housing hits financial institutions, there will be no where to turn for money. Worse there’ll be no consumer to dig out a lackluster productivity/pofit cycle.

  • John

    try talking to someone at home depot–if only for background. you gotta believe they are tracking housing activity very, very carefully.

    also, see if the office of thrift supervision, created when the last massive housing bubble erased most of the S&L industry, has any insights regarding risks to lenders and consumers.

  • Yikes. I have to tell you this scares th @%$#! out of me, and I think about it more often than you might think. Sometimes I worry that in addition to a housing crash we’ll also have a radical decline in the value of the dollar — and when I think that, I can’t decide whether to buy gold or start making myself a tinfoil hat.

    I have to tell you, I read these articles and they scare me, but no one ever gives any practical advice for what the average person with a house and some savings should do. I would *really* like to hear it from them…what are they doing with their own money? Maybe it seems headslappingly obvious to them, but it isn’t to me.

    BTW, what about the amazingly prolific and acerbic Berkley economics professor and blogger Brad DeLong? I bet he has something interesting to say.

  • KenLac

    My anecdotal evidence suggests that something troubling is going on in people’s attitudes towards home-ownership: people are looking at houses as money, rather than housing. Whether it’s realtors or my friends, everyone seems to be thinking more about what their houses are worth than what kind of home they have for themselves. I think this bubble is going to have a damaging psychological effect on the country — a sense of “home” is replaced by a sense of “commodity”.

  • I am extremely nervous, I purchased my first house in Feb and it seems that the Philadelphia (suburbs) market is extremely over inflated. Since Feb I have made about 30 thousand dollars on my property. Well, some would say , “That’s great!”, but what goes up ….well can just as well go down. I have 30% of equity in the place so far but that could change.

  • Robin

    Hey Lisa- thanks for recommending Brad DeLong. You weren’t alone in your esteem of him. Collective wisdom said go with Brad and so we did.

  • JamesFlynn

    It’s not just in the US – in Dublin Ireland, house prices have doubled since the year 2000, and almost by a factor of five in the past decade.

    The impact? Property investors become fabulously wealthy. The generation in their 20s/30s purchase million-dollar mortgages and lock themselves into 40 years of onerous mortgage repayments. The generation in their 50s/60s sit on massive equity.

    One impact often missed is the fact that a property boom can fuel social integration – with high property prices, children of the rich and middle class are more likely to move into a less wealthy area, where the property prices are more affordable than the rich town they grew up in.

  • shpilk

    my neighborhood has lots of nice new two and three car garage mini-mansions, with beaters in the driveways, and ‘for sale’ signs starting to put up ..

  • Alex

    It is interesting to see some real estate agents attempt to oversell a property for the location within which it is located. For example, I live in a group house in an area with a large Salvadoran community. Most of the houses are run down, but the owner of the house next door to me has renovated his property (admittedly quite nicely) into three units, selling for $300,000, $500,000, and $585,000 respectively. Anyone who is willing to buy these units would be surprised that the area surrounding the property is not up to expectations for that price. This misunderstanding will only lead to tension between the local community and the new owners.

  • ajrupa

    It makes me angry that banks are letting people get these loans which are scams in legal form. just to fleece people of their money. The housing market will bust during the next recession that takes place the recent one just gave everyone a taste of what is going to happen. I think people should think of buying a house to live not to see in a few years and move away. thats what the Yuppies did in the 1980’s and by 1990 I saw more forsale signs than I thought I would never see. Its simple math when houses get too high in price and people can not buy them because they were downsized (aka Laid-off) people are going to lose their shirts and houses I don’t care where you live. If our jobs keep going to China and the pig headded CEO’s and their sleezball boards keep sending jobs away then no one wll beable to buy a house. Where companies are changing the USA from a industrial business to a service business then I can see lots of homeless. Its just going to take simple math of supply and demand.

  • delong

    Re: “Greenspan has admitted that the economy has been propped up at least in part by extractions of household equity backed by liberal financing policies.”

    If you could get Uncle Alan to talk clearly and frankly–a zero-probability event, I agree–he would say that there were a lot of jobs lost in high tech and related sectors in 2001-2002, and that goosing the economy with low interest rates allowed the creation of a lot of jobs in construction, real estate, and related sectors. Would it have been better–he would say–to have had 9% unemployment for the two years 2002 and 2003 in order to keep housing prices lower?

  • shpilk

    A caller made an inaccurate statement, that banks follow the 25-30% rule of income for mortgage payments. That may have been true years ago, but not any more they don’t.

    I did a quick informal poll and found that anyone who I know into a mortgage for the past 3 years is in at the roughly the 50% level. Some are in with adjustable balloon type mortgages, and interest only mortagages which are a default just begging to happen.

    It’s a shame we don’t have stats on the market as whole re:

    What percent are non-trad loans such as the adj interest only, ballon types?

    What are the real numbers for percent income vs mortgage, and especially against what types of loans?

    From what I can see, there are a lot of people at risk to default with just a little bump {things like higher gas prices / oil prices?} .. once started, this will be a domino effect, and I as I stated above, plenty of my non-scientific observations in the tonier nearby neighborhood shows it may have already started.

  • long time owner

    My husband and I bought our first home in 1982 when interest rates were in the range of 17–19% in the Boston area. We bought a multi-family because we couldn’t afford a single family. It was to be our ‘5-year plan,’ but became our ‘9-year plan’ because as interest rates came down, housing prices spiraled out of control. We had to choose between selling and putting all the profits into a down payment on our new home, or waiting longer to move. We opted to be patient and bought our desired single family when the market slumped in the early 90’s and buyers were more reasonable.

    We kept the multi-family for income, which has helped us put the kids through college and allowed my husband to take advantage of his company’s early retirement offer. What we’ve noticed over the years is that the pool of renters for our larger 3-bedroom apartments has diminished as home ownership has increased. Those who are left often are not good credit risks to a landlord because they need to commit too much of their monthly income to rent and utilities–and many are in over their heads in credit card debt as well. (And our rents are only about 75% of what I see advertised for similar units in our area.)

    We bought low when interest was costly and remortgaged at regular intervals, taking out equity to complete necessary repairs on the property. I can’t see how that would be possible today for young people buying an overpriced home at record-low interest rates. They will be the ones most negatively impacted when the bubble bursts, especially if their personal finances are challenged by the loss of a job.

    There may be more baby boomer offspring in the market for homes than there is housing stock for a brief period in the near future. However, if the debate on Social Security is instructive, they need only be patient and sock away some $$ to increase their down payment, because we didn’t have enough offspring to create a whole lot of competition for housing down the road a couple of decades. As with everything else in life, timing is everything!

    What goes up does in fact come down, and I think we’ve just about reached the capacity of the average salary to cover these crazy mortgages. I have no sympathy for my colleagues who bemoan the ‘paper loss’ in the value of their property–the gain was an inflated mirage, or bubble, if you will. If they want to make a maximum profit on that house they’ve owned for 20 years or more, they’d better hurry and sell it to some hapless youngster who hasn’t the benefit of hindsight nor the wisdom to tune in to forums like this!

  • realtyunits.com

    THE BUBBLE HAS POPPED…

    is exactly what a growing number of investors are waiting to hear. Although, based on the recent record home sales numbers, one must wonder how long they are going to have to wait. There are two sides to these opposing factions…many have already been covered in the above comments. But here are a few more along with some additional details:

    Arguing that a bubble DOES exists-

    1) Where is all this demand coming from or is supply really that limited? On the demand side, we have the standard fundamentals already discussed in the previous comments, although, there are additional forces at work here.

    – Psychology; no one wants to miss out on an opportunity to win big in the housing market, especially when this is combined with the idea that a house is the safest asset you can put your money into. The result, I will not only upgrade my house, but I can use all of that extra equity to buy into another property, but this time it will be an investment…the over-leveraging spells trouble, evenwith the slightest moves in the mortgage market.

    – Interest Rates; easy money will NOT last forever. In addition to concerns about China’s rising Yuan, the U.S. is not only the largest borrower in the world, but we are not savers either. In fact, we are the biggest spenders and have the lowest savings rate. How will these factors effect impact mortgage rates? At some point, the risk outweighs the benefit for foreign governments (namely China & Japan) who had previously been financing the over-the-top spending habits of both our gov’t & consumers…next, treasuries must be sold at a premium…the result, interest rates rise in concert.

    2) Will there be a soft landing or turbulent crash? (Extra supply + adjustable mortgage maturities) x rising interest rates = “POP”

    – Record transaction numbers; while some may percieve this as a sign that the market is as hot as ever, it seems like a safer bet might be that the market is as speculative as ever. Can you name any fundamentally sound underlying causes for this unprecedented increase in sales?

    – A great deal of the housing supply has been bought up by the small investor, usually either looking for a quick flip or hoping to rent out the place for positive cashflow. With these prices, the only way an investor can achieve positive cashflow is by paying all cash OR through some extremely high risk financing sceme. These inexperienced investors better look before they jump. Property does not run by itself. Aside from the administrative expenses, rising commodity & insurance prices can have a big impact on the bottom line. With non-renewable fuel prices at near all time highs and scandals, terrorism & accounting fraud plauging the insurance industry, expect these costs to put any borderline investments well into the red.

    Arguing that a bubble does NOT exist-

    1) Inflation; the FED is working to keeping inflation under control, with rates rising at a “measured pace,” how can there be a shock to the real estate market?

    – While demand may slow as a result, there is no indication that the bottom is going to fall out anytime soon. This economy is BOOMING thanks to wizardry of Greenspan the Great!!

    – Housing is a capital investment, that’s why it makes up so little of the inflation index. Plus, if the housing market becomes too unaffordable, then rents will be pushed up and we can hold onto our properties, just with the resulting increased rental income.

    2) The NEW global economy; because we have much easier access to overseas investors & capital, we don’t need to worry as much about what the American economy is doing anyway…

    – China & Japan must keep rates low in the U.S., for we are their biggest consumers. Without us, the economies will tank as well. No worries here about decreased demand for US debt.

    – Foreign investors love our real estate. I’ve never seen so many non-citizens buying up properties in desirable areas. Even if the US economy does falter, we can still rely on these foreign buyers. Their economies are not subject to any swings in ours.

    Hopefully these arguments will help you to make a more informed choice…

    FINAL NOTE:

    I’ve been bearish on the whole thing which actually caused me to recently sell a home I purchased in late ’03. Although, I should note that this home I recently sold resulted in a cash on cash profit of over 1000%…that’s not a typo. I guess the sale was due in part to my fear of the bottom falling out as well as not wanting to be too greedy. I suppose that these market shifts are cyclical, or like a pendulum. Usually, the higher & longer the upswing is, the longer and farther the downswing. In conclusion, which ever way you choose to proceed, I wish you the best of luck in all of your real estate ventures!

  • plaintext

    delong: “Would it have been better–he would say–to have had 9% unemployment for the two years 2002 and 2003 in order to keep housing prices lower?”

    Rather than throwing money at the housing market, the government might have had to pursue job training programs or increased vigilance of corporate offshoring. We speak of a “booming economy” but there are no corresponding increases in employment or purchasing power for typical consumers (outside of home equity financed spending). Rather than focusing on the income side of the balance sheet, the government helped us all cash out the equity side.

  • Chris (and friends) –

    I’ve thought a lot about this subject. Below (in quotes) is my letter on it, which ran in Barron’s (the Wall Street Journal’s weekly magazine) July 11th:

    “Hedging Housing

    To the Editor:

    Re: Jonathan R. Laing’s piece on economist Robert Shiller’s fears about the housing market (“The Bubble’s New Home,” June 20): I’ve been professionally observing people buy houses and condos for 42 years. If you’re worried about a “frothy” housing market, here’s my suggestion. You’ll do much better if you think of your primary home not as an investment, but simply as a necessary basic consumer item (like food).

    To protect yourself from a market downturn, follow these steps:

    1. Decide upon the community where you want (and can afford) to live.

    2. Find not just one, but two, homes there you like about equally: one for sale, one for rent. Comparing the basic monthly costs of each is quite useful.

    3. Think about how large a down payment you can comfortably afford to lose access to, or income from, for a long time. Also, determine how big a down payment is typical for your community. In some, mortgages that cover 95% of a home’s price might be the norm. In other, very highly desirable areas, where supply is scarce and all-cash purchases are common, 50% could be the median. Are you buying in a Wal-Mart or a Tiffany community?

    4. Find out the current interest rate for paying off both principal and interest on a fixed-rate 30-year mortgage, and the real-estate taxes on the place you’re thinking of buying.

    5. If you buy, rather than rent, real-estate taxes and mortgage interest are, of course, deductible from your federal income tax. Ask your tax preparer: “How much would owning rather than renting save me in taxes?” Because of the possible alternative minimum tax, the computation is complicated, particularly for people with high incomes; don’t guess this yourself. For example, your accountant might report that you’ll receive back, on April 15, 30% of what you’ve paid.

    6. Now, compare your after-tax costs of buying a home with renting a similar one. If the cost of buying is similar, buy. But if buying would cost you a lot more than renting, don’t.

    Forget all the cocktail-party talk about real estate as an investment. Just concentrate on finding a home you love. If you can afford it, and your true costs of buying are roughly comparable to what renting would cost, purchase with confidence. If you’ve bought your home right, you’re hedged. If you have to move in any future down market, you can always hold and rent, rather than sell.

    After all, even if you’re a noted economist who’s sure we’re in a real-estate bubble, you still have to live somewhere.

    Fred Meyer

    University Real Estate

    Cambridge, Mass.”

    Postscript just for here: In my experience, it really is very hard, if not impossible, to judge whether markets are going up or down. But if you follow this theme of sticking to a fixed rate, 30-year mortgage, and not having your monthly payment for mortgage and taxes (minus income tax deductions) exceed what you’d be paying in rent for a similar property, you have a safe hedge.

    To spell out the assumptions in this approach: the long-term loss of use of the downpayment and the responsibilities of ownership are balanced by the amenities of homeownership: (a) amortization of the mortgage – you own the place free and clear after 30 years; (b) the ability to make personal improvements to your own home which you could never do to one you rented; and (c) very long term, appreciation (But don’t be counting on short-term appreciation).

    If interest rates go up, that tends to drive home prices down (because mortgages are more expensive to carry). But fewer buyers in the market means more tenants, and upward pressure on rents. So if the rents are stronger than sale prices, and you have to move from what you’ve bought: you hold and rent. You have to be willing to do that, if necessary.

    Does this make sense to others?

    I’ll try to call in tonight, and am looking forward to hear what others think.

    Fred

  • Wow. Tremendous amount of wisdom and info here, as usual.

    I called into this show and spoke a bit about my experience getting priced out of Boston’s Roxbury and Jamaica Plain neighborhoods in the 1990s and early 2000s. There were two points I wanted to make, for which there wasn’t air time. Basically:

    -Yes, I think it’s a bubble.

    -It doesn’t have to be a bubble before a housing boom has an unhealthy effect on communities.

    First, about the bubble. Put aside all the stuff about “they aren’t making Bostons or San Franciscos anymore.” Of course that’s true. But it was true in the 1970s when housing prices were stagnant in Boston. It was true in the late ’80s and early 90s, when the bottom fell out. They may not be making Bostons anymore, but the population of the Hub has also dropped pretty precipitously over the last fifty years. My point is that this is not strictly an issue of increasing demand for limited supply, and you can’t figure out whether or not there’s a bubble by looking at the question this way. When you talk to realtors, they’ll tell you that demand is strong. But what is the NATURE of that demand?

    A bubble is a bubble when entities – concumers, lenders, developers, etc… – start making major financial decisions that are dependent on the market behaving in a very specific way (either up or down). The proliferation of sub-prime lending (from 1.6% to 12.6% in Massachusetts since 2000), interest-only and negative amortization loans harken back to all that rubbish about “the new economy” and the death of economic cycles during the stock market boom of the late 1990s. And not only are people taking on huge debt loads, they’re buying into places they only intend to live in for a couple of years. This is especially true of the red-hot condo market in MA (up nearly 20% in the last year), where people drop $300,000 on a small condo with maybe 5% down, figuring that they’ll be able to flip it for the downpayment on a single family in a couple of years when they settle down to have kids. The decision DEPENDS on the market continuing to be red hot.

    But, as I mentioned up top, runaway inflation in the housing market can do a lot of damage before there’s any sort of market-based fallout from the bursting bubble. The housing boom has really been going on in MA for almost a decade now. In that time, as I mentioned on air, cities and towns in the Commonwealth have become more and more dependent on increased property taxes generated by the boom. Moreover, by okaying luxury condos fit only for upwardly mobile professionals or empty nesters with no children, cities and towns are seeking to reap the benefit of greater tax revenues without having to find a seat for another student in the public schools.

    The result, though, is often a body of residents who aren’t particularly invested in schools and feel little civic responsibility as long as their streets are plowed in the winter. Moreover, longtime residents who ARE invested in the community, get pushed out of the towns they grew up in either because they can’t afford to buy a place or, in the case of elderly folks on a fixed income, they can’t afford property taxes that go up by 50% every few years.

  • Bubble or not, something bad is going on. Case in point:

    Report rates Boston most expensive city

    Housing drives up cost of living

    By Scott S. Greenberger, Globe Staff | September 8, 2005

    Propelled largely by high housing costs, Boston is now the most expensive metropolitan area in the country, outpacing Washington, D.C., San Francisco, and even New York City, according to a report that will be released today.

    The report found that last year, a family of four living in the Boston area needed $64,656 to cover its basic needs. This was $6,000 more than in New York City, and about $7,000 more than in San Francisco. Living expenses, which include healthcare, child care, and other basic needs, were $44,000 or less in Austin, Texas; Chicago; Miami; and Raleigh, N.C.

    The third annual ”Housing Report Card,” produced by the Boston Foundation and the Citizens’ Housing and Planning Association, concludes that even an uptick in housing production could not halt the relentless climb of Greater Boston’s housing prices, which are increasing far more rapidly than are wages.

    The result: In 2004, there were only 27 Boston-area communities in which a household whose members made the median income could afford the median-priced home in that city or town.

    By comparison, in 2003 there were 59, and in 1998 there were 148.

    In 2004, the median price of a single-family home in Greater Boston was $376,000, up 9.5 percent from 2003, the report says. The median price of a condo was $282,000, up 9.3 percent. Even though Massachusetts was the only state to lose population last year, prices continued to rise because demand is still higher than the supply of many types of housing.

    The price increases in the Boston region slowed in 2004 relative to other parts of the country; the national rate was 12.5 percent. But home prices in Massachusetts have increased more over the past 25 years than in any other state; they remain among the highest in the country.

    The high cost of living is prompting many residents, especially younger ones who can’t afford to buy into the housing market, to decamp for other states, the report said. It is the latest to warn that such an exodus could have dire consequences for Massachusetts, which was the only state to lose population last year.

    ”Continued out-migration may solve the housing problem by reducing demand,” the report concludes. ”But, the cost to the Commonwealth’s long-term prosperity of losing its workforce is practically incalculable. Much more housing, appropriate for young working families, must be produced if this is to be avoided.”

    Barry Bluestone, coauthor of the 64-page report, heads the Center for Urban and Regional Policy at Northeastern University. Bluestone described the study as a compilation of data from a variety of sources, including the US Census and real estate firms.

    The cost-of-living ranking comes from the Economic Policy Institute, a nonpartisan Washington think tank Bluestone helped start. In addition to housing, the institute weighed the cost of healthcare, child care, taxes, and other necessities.

    Bluestone said the report has ”strong warning signs” for Massachusetts. ”Dealing with housing costs is absolutely integral to the economic development strategy of the state,” he said. ”It may be, in the long run, the most important thing we can do.”

    If the state doesn’t do anything, it is at risk of losing thousands of people like Lynn Walder.

    Walder, a 27-year-old Watertown resident who owns an engraving business, grew up in Connecticut, but fell in love with Boston while attending Northeastern University. She and her husband, who owns a record store, would like to stay, but they’ve given up on trying to buy a house.

    Three years ago, she said, the couple had $60,000 for a down payment, but were outbid on three houses in Dedham and Canton that were probably too expensive for them, anyway. For the time being, they are renting in Watertown and have decided to delay having children.

    When they can’t delay any longer, they say, they may have to leave the state.

    ”To get anything affordable, we’re talking about being an hour to two hours away,” Walder said. ”At that point, I might as well move back to Connecticut and be near my family.”

    Jennifer Norris, a 34-year-old Medford resident, said the struggle to buy a house is a wrenching topic of conversation.

    Norris, who works for an environmental group, and her husband, employed at Harvard Law School, make a combined salary that exceeds $100,000. But that isn’t enough to buy a house near their jobs, they say, and for five years they have rented a two-bedroom apartment.

    ”At every gathering of people our age, this is the topic of conversation we inevitably end up on, and we all get depressed,” Norris added. ”It’s something we’re all angry about and obsessed over.”

    Boston-area renters are also under strain. The report notes that even though there were 34,000 fewer rental households in 2003 than in 2000, 19,000 more rental households were paying more than 50 percent of their incomes for rent in 2003 than in 2000.

    The federal government recommends that families spend no more than a third of their income on housing. ”There’s a close link between adequate affordable housing and economic competitiveness in the region,” said Aaron Gornstein, executive director of the Citizens’ Housing and Planning Association.

    ”We continue to lag behind,” Gornstein said, ”and although we have made some modest progress on increasing housing production, it’s still falling short for many moderate-income families who can’t afford a home and are, therefore leaving the state or considering leaving the state.”

    The report does note that in 2004, there were 13,556 building permits issued in Greater Boston, the highest figure since 1987.

    And for the first time since before 1998, both single-family and multifamily production were up. The authors also praise state lawmakers for approving a measure last year that rewards communities for relaxing their zoning to make way for mixed-income housing near transit stops and in town centers. Many people contend that overly restrictive zoning, rather than a scarcity of land, is the cause of the state’s high housing prices.

    But Finley Perry, president of the Home Builders Association of Massachusetts, said there are still barriers to producing single-family homes. ”There is no incentive for the home-building industry to do anything at the starter-home level,” Perry said. ”Land is so expensive, you can’t really afford to put an inexpensive house on it.”

    Scott Greenberger can be reached at greenberger@globe.com.

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  • nicolepwr624

    i got big poster that was in front of libby lue of the jonas bros that im selling for 50$ if thats to high ill make it 45$ eney body please take it and give me the money its brand new it has kevin nick and joe please!!!!!!!!!! anser me if you do post iton my wall or email it to nikkilovejenna@aim.com