Transcript Housing in New England: Status and Consequences

Vermont
Jeffrey B. Carr
Kerry G. Mayo
Economic & Policy Resources, Inc.
400 Cornerstone Drive, Suite 310
P.O. Box 1660
Williston, VT 05495
(802) 878-0346
www.epreconomics.com
Vermont Situation
 Against that U.S. economic background, the Vermont
upturn continues this Spring…but rather meekly…
–The housing market correction is now well underway with slowing
price appreciation (now at a single-digit pace yr-over-yr.--OFHEO)
and construction has slowed considerably (e.g. for 2nd homes)
–GSP growth has slowed to the +2.5% to +3.0% range,
–Resort based real estate and amenity development continues but at
a fraction of its prior pace,
–Jobs in the state’s Factory sector have gotten a positive push from
the weakening U.S dollar, and IBM seems to be doing well…
–BUT the still relatively “high” level of energy prices and the poor
first half Winter weather once again were “not helpful” to either
the 1st Q of 2007 or the state’s Winter tourism season.
Vermont Situation
 The positive push from lower energy prices has now
dissipated...and prices are rising once again…
Tracking Vermont Energy Prices,
January 2003-May 2007
$3.50
Price (in $)
$3.00
$2.50
$2.00
$1.50
$1.00
2007:1
Regular Gasoline
2006:6
#2 Heating Oil
2006:1
2005:06
2005:01
2004:06
2004:01
2003:06
2003:01
Year/Month
Vermont Situation
 The state’s labor market recovery-expansion
continues, but the Spring 2006 re-benchmark was
negative again…less than last year...but now 3 years
in a row!
Percent Change
Job Growth Comparison, 2006--Pre- and Post2007 Re-Benchmark Revisions
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
0.8%
0.8%
0.6%
Total Jobs
Total Jobs
0.6%
Private Sector Jobs
Private Sector Jobs
Vermont Situation
 This underscores the restrained pace of the labor
market expansion in the state…especially vs. last year
Vermont's Year-Over-Year Job Change Rank By Selected NAICS Sector
Highest
Ranked New
England State
March 2007 versus March 2006
Rank in New
England
Rank in U.S.
Total-Private and Public Sector Jobs
26th (CT)
6th
45th
Total-Private Industries
Construction
Manufacturing
Trade, Transportation and Utilities
Financial Activities
Professional & Business Services
Education and Health Care
Leisure & Hospitality
Government
22nd (RI)
7th (RI)
12th (CT)
21st (NH)
1st (RI)
11th (RI)
11th (NH)
19th (CT)
15th (MA)
6th
5th
3rd
3rd
5th
6th
4th
5th
4th
45th
36th
24th
41st
46th
43rd
41st
44nd
36th
Source: U.S. Department of Labor
Prepared By: Economic & Policy Resources, Inc.
Vermont Situation
 But the revisions did not alter the sector-by-sector
view of the current labor market recovery-expansion...
Measuring Vermont's Labor Market Recovery-Expansion by Selected NAICS Sector
Cyclical
High
Cyclical
Low
Through
(Apr-07)
# of Jobs
# Jobs Lost Recovered
% Recovered
Total-Private and Public Sector Jobs
303.7
296.6
308.2
7.1
11.6
163.4%
Total-Private Industries
Construction
Manufacturing
Trade, Transportation and Utilities
Retail Trade
Financial Activities
Professional & Business Services
Education and Health Care
Health Care & Social Assistance
Private Education Services
Leisure & Hospitality
Government
253.9
15.4
47.3
59.3
40.3
13.2
21.1
47.0
35.1
12.2
34.2
52.4
244.9
14.4
36.6
57.9
39.2
13.1
19.9
47.0
35.1
11.8
30.9
51.9
254.6
17.5
35.7
59.5
40.3
13.3
22.4
55.6
43.0
12.6
33.9
53.6
9.0
1.0
10.7
1.4
1.1
0.1
1.2
0.0
0.0
0.4
3.3
0.5
9.7
3.1
-0.9
1.6
1.1
0.2
2.5
8.6
7.9
0.8
3.0
1.7
107.8%
310.0%
-8.4%
114.3%
100.0%
200.0%
208.3%
NM
NM
200.0%
90.9%
340.0%
Vermont Situation
 The revisions also again appear to put job growth
out-of-sync with other data...such as PI Withholding...
% Change (Year Over Year)
Comparing PI Withholding Receipts With Payroll Job Growth, October 2001December 2006
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jan-04
12 MO MA PI Withholding
Oct-03
Jul-03
Apr-03
Jan-03
Oct-02
Jul-02
Apr-02
Jan-02
Oct-01
Payroll Job Change
Vermont Outlook
 The “consensus” forecast is that the state gets through the
housing market correction and the increasing economic
threats.
–If so, the Vermont economic and labor market recovery-expansion will
continue through calendar 2011…
– But at a noticeably restrained pace—slower than U.S., but on par with NE.
There will be plenty of opportunities for the economy to hit
bumps—including falling into a full-fledged downturn—along
the recovery-expansionary road. These include:
–High and volatile energy prices (where small things have been magnified by
how close to the edge we are),
–The still unfolding housing market correction—and the threat of it widening,
–The potential for rising interest rates (Will the Fed over-react to the threat of
inflation?), and
–Continued “sharp and ruthless” global competition—which a reflection of the
realities today’s “new more competitive world” for business.
Conference Theme--Subprime
 So far to this point, Vermont has been able to cope
with the combined impacts of the housing market
correction, rising affordability problems, and a higher
than average level of subprime lending.
– There is some discussion about varying data sources (Mortgage
Bankers Association vs. Moody’s Economy.com-Equifax),
– Coverage differences—Moody’s E.com-Equifax seems more
encompassing.
 The key is Vermont has been able to avoid the
potentially troubling combination of falling housing
prices and rising foreclosures.
– Housing prices are still rising, but at single digit rates.
– Vermont’s foreclosure rate is among the lowest in the 50 states.
Conference Theme-Subprime
Nonprime Mortgage Originations as a Percent of Total Originations
2005
Nonprime Mortgage Originations as a Percentage of Total Origination Dollars
2005
National Median = 13.2%
New England Median = 19.2%
National Median = 13.4%
New England Median = 19.6%
Percent
Percent
0
0.0% to 13.0%
13.0% to 17.4%
17.4% to 21.7%
21.7% to 25.9%
25.9% to 100.0%
40
80
120
Miles
0
0.0% to 14.0%
14.0% to 17.3%
17.3% to 21.4%
21.4% to 26.0%
26.0% to 100.0%
40
80
120
Miles
Conference Theme-Subprime
 But Vermont is expected to face a period where
housing price change goes negative on a year-overyear basis…
Conference Theme-Subprime
 Vermont’s—like other NE states’—largest source of
forecast risk through 2011 is how the subprime issuehousing market correction will play out…
– The critical time for VT will be the period when housing prices go
“negative”…
– May have a larger impact in VT because of the disproportionately
large positive impact the housing market boom had on the VT
economy (28.4% of total job growth 2003-06 v. 12.2% for NE and
16.5% for U.S. for the same 4 year period).
 Given the dynamics of the housing market correction,
it is difficult to envision a turnaround much before midcalendar 2008.
– Second homes impact in VT is a big “wild card.”
– Anecdotal reports from resorts indicate replay of the mid-1990s
dynamic is currently underway.