Download 2006_John_Whaley - Tidewater Builders Association

Presentation to the
Tidewater Builders
Association
By John W. Whaley
Deputy Executive Director, Economics
Hampton Roads Planning District Commission
February 2006
Topics
• Economic Indicators
• 2006 Forecast
• Defense Issues
• Impact of Housing Project
• Housing Economics
• Forecasting Permits
• Impact of Construction Industry
Economic Indicators
The U.S. Economy
The U.S. Economy Continued to
Grow in 2005
Annual Percent Change in Real Gross Domestic Product
8
6
Average = 3.5%
4
2
0
-2
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
-4
The Hampton Roads
Economy
Regional Employment Continued to Grow but
at a Slower Rate
Twelve-Month Percent Change in Hampton Roads Civilian Employment
3%
2%
1%
0%
-1%
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
-2%
1991
Twelve-Month Percent Change
4%
The U.S. Economy Has Been Slow to Create Jobs
U.S. and HR Payroll Employment
111
107
105
103
U.S.
HR
101
2005
2004
2003
2002
2001
2000
99
1999
Index = 100 in January 1999
109
The Taxable Sales Growth Rate Slowed
Hampton Roads Deseasonalized Taxable Sales
$1,700,000,000
$1,600,000,000
$1,400,000,000
$1,300,000,000
$1,200,000,000
2005
2004
2003
2002
2001
$1,100,000,000
2000
Taxable Sales
$1,500,000,000
Auto Sales Have Weakened
Seasonally Adjusted Auto Sales in Hampton Roads
11,000
10,000
8,000
7,000
6,000
5,000
4,000
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
3,000
1986
Number of Vehicles
9,000
The Number of Homes Sold in Hampton
Roads Has Begun to Decline
Number of Homes Sold in Hampton Roads
2,800
2,600
2,200
2,000
1,800
1,600
1,400
1,200
2005
2004
2003
2002
2001
2000
1999
1,000
1998
Monthly Home Sales
2,400
Residential Construction Has Slowed
Deseasonalized Value of HR Single Family Housing Permits
$130,000,000
$110,000,000
$70,000,000
$50,000,000
$30,000,000
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
$10,000,000
1988
Dollars
$90,000,000
Home Prices In Hampton Roads Have
Increased Faster than Inflation Since 2001
A Comparison: Home Prices in Hampton Roads and Inflation
CPI and Home Prices Indexed to 100 in 1998
250
230
210
190
170
CPI
Average Home Price
150
130
110
90
1998
1999
2000
2001
2002
2003
2004
2005
HR Home Prices Have Outpaced the U.S.
Increase for the Past Two Years
Four Quarter Percent Change in Home Prices
30
Average: U.S. = 5.0% HR = 5.2%
25
U.S.
HR
15
10
5
0
There have been 63 four-quarter changes in HR home prices since 1990 - only two exhibited a decline
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-5
1990
Percent Change
20
The Average Selling Price of Area
Housing Increased Because …..
• Demand Was Strong
• Low Mortgage Rates
• Military Pay Increases
• Innovative Financing
• Homes of Higher Value Were Constructed
• The Supply of Housing Was Slow to Respond to
the Increase in Demand
The Pace of New Home Construction Has Not
Responded to the Increase in Home Prices
The Number of Hampton Roads Residential Building Permits
25,000
15,000
10,000
5,000
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
1979
Number of Building Permits
20,000
The Increase in Housing Values Has Driven
Up the Regional Cost of Living
ACCRA Cost of Living Index: Composite and Housing
Cost of Living (100 = U.S. Metro Average)
105
1999
2004
100
95
90
85
80
Composite Index
Forecast
The Economy Will Slow Modestly
in 2006 Due to ……
• Higher Interest Rates
• Slower Growth in Home Equity
• High Energy Costs
• High Consumer Debt
• Less Residential Construction
• Less Stimulus from the Defense Department
2006 Forecast
History
Long-Term
2005
Average* (Year to Date)
2006
HRPDC
ODU
U.S.
Real GDP
3.2%
3.5%
3.1%
3.3%
NA
NA
3.2%
4.3%
4.4%
5.0%
NA
NA
Real GDP
3.1%
NA
2.8%
3.0%
Civilian Employment
2.5%
1.6%
1.3%
1.0%
Retail Sales
4.2%
9.8%
4.7%
5.0%
Auto and Truck Sales
1.2%
4.2%
2.0%
NA
Value of Residential Building Permits
4.9%
5.2%
-6.0%
1.5%
Unemployment Rate
4.5%
4.2%
3.9%
4.0%
Hotel Receipts
4.1%
4.9%
NA
4.9%
Short Government Rates
Long Government Rates
Hampton Roads
* Length of average varies depending on the availability of data and the relevance of historic periods
Defense Sector
Challenges
#1 Defense Spending Has “Peaked”
Annualized Defense Outlays
320
Billions of Constant 1982-1984 Dollars
300
280
260
240
220
200
180
#2 Potential Relocation of Carriers
• Carrier John F. Kennedy may be retired
• Norfolk-based carrier could replace the JFK in Mayport
• Norfolk-based Carrier George Washington will be
sent to Japan in 2008 (or elsewhere in the Pacific depending on distance
to Taiwan)
• Cost of losing a carrier is large
• Carrier without air wing: $225 million GRP
• Carrier battle group and air wing: $980 million GRP
#3 BRAC Impacts
• Base Realignment and Closure
Commissions decide on the future of
domestic bases
• Current BRAC recommendations have
been accepted by the President and
Congress
On-Base Employment Will Decline by Nearly 2,400
Jobs If Oceana Remains Open
Direct Employment Impact of BRAC 2005 on Hampton Roads
(Excluding Oceana)
1,500
Net Impact = 2,355 Jobs Lost
1,000
500
0
-500
-1,000
-1,500
-2,000
-2,500
-3,000
Fort Monroe
Portsmouth
Navy Medical
Center
Norfolk Naval
Station
Yorktown NWS
Oceana Open
Little Creek AB
Fort Eustis
Langley AFB
Norfolk NSA
-4,000
Norfolk Naval
Shipyard
-3,500
How Will BRAC Impact the
Regional Economy?
• Used REMI Model
• Nation’s most powerful regional economic model
• Assumption
• Direct effects were allocated across five years
• Ten percent of the direct effect in 2007 – 22.5
percent in each of the years from 2008 to 2011
BRAC Impacts will be Large
The Employment Impact of BRAC 2005 on Hampton Roads
0
-5000
-10000
-15000
-20000
-25000
Oceana Remains Open
Oceana Closes
-30000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
When Will Impacts be Felt?
(Builddown/Carriers/BRAC)
• 2006: slight impact
• 2007: modest impacts
• 2008 – 2011: largest impacts
Two Scenarios
2008 - 2011
Best Case
Worst Case
 Lose 2400 on-base jobs
 Lose 2400 on-base jobs
 Slower increase in defense
spending
 Lose one/two carriers
 Close Oceana
 Large cuts in defense
spending
Impact of New
Communities
Impact of New Subdivision: Population and
Employment
Impact of Constructing a Residential Subdivision of 1000 New Homes: Population
and Employment
3500
3000
2000
Total Employment
Population
1500
1000
500
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
2005
Units
2500
Impact of New Subdivision: Employment
by Sector
New Residential Subdivision with 1000 New Homes: Jobs Created
1,400
Construction
Retail trade
Services
Government
Other
1,200
800
600
400
200
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
2005
Jobs
1,000
Impact of a New Subdivision: City Gross
Regional Product
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
$0
2005
Gross City Product in Constant 2000 Dollars
Impact of Constructing a Residential Subdivision of 1000 New Homes: Gross City
Product
Housing Economics
The Change in Interest Rates and the Pace of Local
Economic Growth are Important Predictors of
Residential Construction in HR
Predicting HR Home Building
(Building Expressed by the Annual Number of Residential Building Permits Issued)
7,000
6,000
Number of Building Permits
6,000
5,000
4,000
3,000
2,500
2,000
1,000
0
-1,000
Rs = 0.8
-2,000
Baseline Demand
-1,400
Percentage Points of Change in
Mortgage Rates
Percentage Points of Change in Total
Employment (Military Included)
Forecasting Example
Scenario One
One percent increase in mortgage rates
One percent increase in HR employment
Calculation
Replacement Demand = 6,000 units
Mortgage Effect = +1 x -1,400 = -1,400 units
Employment Effect = +1 x 2,500 = +2,500 units
Forecast = 6,000 + (-1,400) + 2,500 = 7,100 units
Scenario Two
No change in mortgage rate
Two percent change in HR employment
Calculation
Replacement Demand = 6,000 units
Mortgage Effect = 0
Employment Effect = +2 x 2,500 = +5,000 units
Forecast = 6,000 + 5,000 = 11,000 units
Impact of the HR Construction Industry
Output
$7.6 Billion
Gross Regional Product
$3.9 Billion
Jobs
80,000
The End