The Real Estate Cycle and the Economy: Consequences of the Massachusetts Boom of 1984-87

Abstract

The economy of Massachusetts is in a deep recession. What makes the downturn all the more painful is that it comes on the heels of a period of unprecedented prosperity. What happened? How could a state go from having the lowest unemployment rate in the US to having the second highest in the space of less than 4 years? Some claim that the current recession is a natural and inevitable downturn after a prolonged expansion and that the region will soon return to a reasonable growth path. Others claim that the state is likely to experience a prolonged period of decline. The thesis of this article is that the dramatic real estate cycle, which began with a housing price boom between 1984 and 1987, was an important element that not only contributed to but also very significantly amplified the economic fortunes and misfortunes of the Commonwealth and the region.