The economy grew at a 0.9 percent rate in the first quarter of the year and at 1.9 percent (respectable) pace this spring, despite the financial crisis, soaring fuel prices and stalled housing market. But as the impact of government stimulus payments fades and a boom in exports levels off, the economy is likely to face deepening challenges in the months ahead, economists said. Ironically, one of the few reasons for optimism in the GDP report is in the generally poor housing market. Residential investment was a drag on growth, falling at a 15.6 percent annual rate. But that is a slower pace of decline than in recent quarters. If that trend continues and investment in new homes bottoms out in the coming months, it would eliminate one continuing source of drag on the overall economy.

 Acting quickly as July came to an end, President Bush signed the Housing and Economic Recovery Act of 2008, which will help bring stability to the housing market and stem the rising rate of foreclosures. The legislation includes Federal Housing Administration (FHA) Modernization that will simplify and make FHA-backed mortgages more available while helping thousands of families refinance existing mortgages and keep their homes. The $7,500 tax credit for first-time home buyers will act as a stimulus for a weak housing market. This bill would extend the tax credit availability through June 2009, which would have a further positive effect on the housing market. For the city of Boston and nearby towns, FHA, Freddie Mac and Fannie Mae loan limits will be permanently increased to $481,000 Approx. beginning Jan 1, 2009. Until then, the temporary loan limit of approx. $523,000 will remain in effect (through Dec. 31, 2008)

The Bush administration cited the solid GDP number as a vindication of the stimulus package passed in February, and suggested that the economy is on more solid footing than many Democrats and independent economists argue."I want to remind you a few months ago there were predictions that the economy would shrink this quarter, not grow," President Bush said in remarks in White Sulphur Springs, W.Va. "As a matter of fact, it's more than double the rate we saw in the first quarter. That's positive."

Democrats said that the modest growth number shows the need for further government stimulus. "When a $100 plus billion stimulus program creates such paltry growth, it isn't a time for the White House or Congress to just sit back and relax," said Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee.

STATE OF REAL ESTATE VALUES (Source: Boston Globe, July 30,2008; Federal Reserve Bank of Boston; ): According to Eric S. Rosengren, President, Federal Reserve bank of Boston, "The extent of eventual housing problems is highly dependent on the outlook for the economy and the future path of housing prices. Fortunately, aggressive monetary and fiscal policy actions have been taken to help mitigate some of the downside risk. These policies will likely result in some pick up in economic activity in the second half of this year, which should help to stabilize the housing market."

Real estate values in Metro Boston have held up better than most other metropolitan areas in the nation.  According to S&P/Case-Shiller index, " Metro Boston ("Boston Area") was one of just five US metropolitan areas with rising house prices in May and June 2008. Other cities posting at least two months of rising prices were Charlotte, N.C., Dallas, Denver, and Portland, Ore. It is important to note that Boston area does not refer exclusively to the city of Boston or abutting cities but to a large geographic region comprising of the following counties in MA and NH: Essex MA, Middlesex MA, Norfolk MA, Plymouth MA, Suffolk MA, Rockingham NH, Strafford NH. "The S&P/Case-Shiller index is watched closely by economists, who consider it among the most accurate gauges of housing prices. The complex index is considered highly reliable because it tracks actual prices of repeat sales of the same house. Each house's sale price is compared with its sale prices in prior transactions."

Housing economists said yesterday the Boston area would have to post several more months of rising prices to show a turnaround in the housing market. Michael Lynch, an economist for Global Insight, a Waltham economic consulting firm, said he would not change his forecast based on Case-Shiller's results. He predicted Boston (area's) prices will not start to turn up until the middle of 2009.

David Blitzer, chairman of Standard & Poor's index committee, said Boston would recover from the housing slump sooner because home prices peaked and then began declining here much earlier than in other parts of the country. Boston may not be the first city to recover, but it's certainly going to be among the first cities to recover," Blitzer said. "If I'm hunting for good news, I have a better chance of finding it in Boston than in Miami." 

Other housing reports, such as the most recent monthly results released by Warren Group and the Massachusetts Association of Realtors on Monday, calculate the median price - or midpoint - of sales during the month. They then compare them with the median prices of a basket of homes sold in a prior period, even though the types of homes sold during that time could be very different. The graph below shows changes in median condo prices between 2007 and 2006 and between the first six months of 2008 annd 2007 using data from MLS.

 City of Boston condo prices have held up reasonably well, especially in the neighborhoods of South End, Back Bay, Fenway and Jamaica Plain. According to the Case Shiller Index "Boston area" prices are 13% lower today since the peak of the market in September 2005 (vs 22% or more for cities like San Diego, Phoenix, Las Vegas, Washington DC etc). However, it is important to note that "Boston Area", according to the index is a very broad geographic region that fails to capture specifically the trends of the City of Boston or Metro Boston (Newton, Brookline, Cambridge and Somerville). 

Using MLS data (median prices) for the same period and for the same geographic region used to calculate the above drop in prices per the Case Shiller Index, "Boston area" prices dropped 11% (Condo, Single Family and Multi-Family combined) between September 2005 and May 2008...close to the drop of 13% per the Case Shiller Index. During this same period, per MLS, single family prices dropped 11.0% and multi family units depreciated by 30%. Keep in mind that the preceding data is for geographic region comprising of the following counties in MA and NH: Essex MA, Middlesex MA, Norfolk MA, Plymouth MA, Suffolk MA, Rockingham NH, Strafford NH (Boston area) and not for the state of MA.

 The analysis below, using median prices, focuses specifically on Boston/Metro Boston (CORE).....the core has held up much better than "Boston Area" of the Case Shiller Index.  Additionally, condominiums have sustained their values better than single family homes statewide.  

	SINGLE FAMILY HOMES				SINGLE FAMILY HOMES
TOWN	2007	2006	% Change		Jan-June 2008	Jan-June 2007	% Change
Statewide	$345,000	$350,000	-1.43		$319,900	$346,900	-7.78
Boston	$380,000	$380,000	0.00		$355,000	$386,700	-8.20
Brookline	$1,100,000	$1,000,000	10.00		$1,075,000	$965,000	11.40
Somerville	$449,950	$430,000	4.64		$399,750	$435,000	-8.10
Newton	$777,000	$750,000	3.60		$741,000	$759,500	-2.44
Cambridge	$656,000	$808,825	-18.89		$880,000	$814,250	8.07

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