Published by the MIT News Office at the Massachusetts Institute of Technology, Cambridge, Mass.
Published by the MIT News Office at the Massachusetts Institute of
Technology, Cambridge, Mass.
NEW STUDY Depression in Real Estate Is Unlikely, Experts Say A "national depression" in residential real-estate prices is highly unlikely, say two housing experts at MIT and Harvard University. According to Professor William C. Wheaton of MIT and Professor Denise DiPasquale of Harvard, their recent study of future home prices found that while "there may be short-term downturns in local markets over the next decade, a systematic national depression in single -amily house prices is extremely improbable." Dr. Wheaton, associate professor of economics and urban studies, is associated with MIT's Center for Real Estate Development. Dr. DiPasquale, formerly at MIT, is now at Harvard's Joint Center for Housing Studies. In their study, "Housing Market Dynamics and the Future of Housing Prices," the researchers argue that anticipated changes in the country's demographic structure will have a less negative impact on housing demand than previously thought. They find that the older age distribution of the population will tend to generate higher home ownership levels--at least partially offsetting the negative impact on prices of lower household formation. Even then, they say, the net effect will be to reduce the demand for single-family housing. But their major finding, they add, is that the supply of new single- family units, or the rate of new construction, is extremely sensitive to changes in housing prices as well as other more general market conditions. Thus, if housing prices did start a significant decline, new construction would diminish, and this in turn would quickly arrest any further decline in prices. They conclude that "with price-elastic construction in the short run, and a rising long-run supply schedule for the stock of housing, it is almost impossible for prices to undergo any significant and sustained decline." Using their econometric model, the researchers estimate that housing prices should rise over the next decade at an average rate that is just slightly faster than the overall consumer price level. Over the next three years, however, housing prices will be softer, because of the current recession and the likely course of the nation's macroeconomy. While not pessimistic about future housing prices, the study does point out that the kind of very rapid growth that occurred in the late 1970s and early 1980s is unlikely to be repeated in the foreseeable future.