Real Estate and the Macroeconomy

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Abstract
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.2

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