Waiting for housing to rebound
by Joseph SantangeloFor the rest of 2008, the economy will grow only slowly, while unemployment remains relatively low.
There will be only moderate inflation (except for food and energy), yet public pessimism is slumping as low as it has been since the early 1980s.
Only when a huge unsold inventory of houses clears and home prices begin to stabilize, perhaps by spring 2009, will the economy and consumer confidence show signs of resurgence.
Rising energy costs also dampen consumer spending, which comprises 71 percent of the economy; and no one can predict how long and how high oil prices will rise.
Those were some of the conclusions of a panel of leading economists speaking at the recent SBA 2008 “Celebrate Success” Awards Luncheon, co-hosted by Cape Business Publishing Group at the Cape Codder Resort in Hyannis.
Despite troubled times, the economists said now is an ideal opportunity for small businesses to export goods and services overseas, taking advantage of a weak U.S. dollar and expanding foreign markets. Domestic growth opportunities continue to exist in the U.S. service sector.
Quick fiscal and monetary actions taken in Washington should help the economy weather the rest of 2008.
The good news includes interest rates – now near historic lows – with local banks in Southeastern Massachusetts ready to make loans.
The big economic drag, however, is housing, which has declined in Massachusetts since peaking in mid-2005.
“The decline in housing construction is really quite remarkable,” said Lynn Browne, executive vice president and economic adviser at the Federal Reserve Bank of Boston. “The number of housing permits authorized in Massachusetts in the first quarter of 2008 was less than half that of a year ago. Nationally, permits were down 40 percent. We’ve never matched these lows, the lowest levels both in Massachusetts and the nation that we have seen in the modern era.”
She added, “One thing that is different now than in the past is that we’ve got widespread declines in [housing] prices. What is very unusual is widespread declines taking place all across the country.”
John Bitner, chief economist at Eastern Bank in Boston, said, “When will the recession truly be over? It’s when real estate prices stabilize, and that won’t happen till we clear the inventory. There’s pent-up demand there. When first-time homebuyers perceive the inventory’s cleared – and the rates certainly are low enough – then they’ll come in and buy homes. That’ll be the end of the recession and the beginning of the next recovery. We think that will happen in the spring of ’09.”
For the long term, New England demographics will constrain economic expansion in the future. With zero population growth, the region is largely involved in an upgrade and replacement economy. Markets are generally saturated and annual economic growth probably will be limited to the three percent range.
Emerging markets of Asia, Africa and South America are virtually unlimited in terms of export potential from the United States.
Published in Cape Business July/August 2008
Joseph Santangelo Joseph Santangelo has been a statehouse bureau chief, a corporate executive and currently works for the Connecticut Legislature. 
