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Real Estate and the Macroeconomy


IN JULY 1987 MASSACHUSETTS governor Michael Dukakis began his run
for the presidency in the midst of what was being called the Massachusetts
Miracle, with employment growing rapidly and an unemployment rate of
2.4 percent. An economy that had experienced 12.8 percent unemployment
and an employment base in secular decline in the mid-1970s had become
the fastest-growing region in the country just over a decade later. That
summer, however, state revenue began to shrink and real estate sales
dropped sharply. By the time of the election in 1988, employment was
falling, and it continued to fall until the end of 1991. In all, over 360,000
jobs were lost from a peak of 3.2 million, representing more than 11.5 percent
of nonfarm payrolls. Employment declines in the other five New England
states were comparable. In a development symptomatic of widespread
troubles in the region’s banking sector, Bank of New England
Corporation, with $32 billion in assets, received a CAMEL 5 rating in
March 1990 and was closed by the Federal Deposit Insurance Corporation
in January 1991.1 Its closure imposed net losses on the agency of
$733 million



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