Strome College of Business Hampton Roads Economy And Residential Housing Market January 12, 2016 Professor Vinod Agarwal Director, Economic Forecasting Project Strome College of Business www.odu.edu/forecasting The views expressed in this presentation do not represent official positions on the part of Old Dominion University, the Old Dominion University Board of Visitors, or any of the sponsors of the Economic Forecasting Project. The data in this presentation may be subject to revision. To our knowledge, all data in this presentation are accurate at the time of the presentation.

Gross Domestic Product and Gross Regional Product Presentation outline Gross Domestic Product and Gross Regional Product Defense Spending in Hampton Roads Civilian Non-Farm Jobs Performance of Hampton Roads Economy through November 2015 Residential Housing Market in Hampton Roads

Rate of Growth of GDP (U.S.) and GRP (Hampton Roads): 2001-2015 2001- 2015 U.S. Hampton Roads Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Data on GDP incorporates latest BEA revisions in September 2014. Real GRP for Hampton Roads is calculated by using the GDP price deflator

Defense Spending in Hampton Roads

Caps on Department of Defense Discretionary Spending, FY 2012 to FY 2021 The legislated cap on spending increased by only $0.8B (0.15%) for FY 2015 and is now expected to increase by $26.8B (5.14%) during FY 2016 and by only 0.55% during FY 2017 Approximately $22 billion dollars each were cut in FY11 and FY12 Approximately $22 billion dollars each were cut in FY11 and FY12. Discretionary Defense spending cap increased by about $19 Billion in FY 2014 compared to FY 2013. Cap increases by only 0.15% for FY 15 and then by 0.35% in FY16; increasing by 2.4% annually thereafter Source: BCA2011,Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project.

Estimated Direct DOD Spending in Hampton Roads Between 2000 and 2012, DOD spending in our region increased by an average of 5.6% annually. In 2015, it will be about 3.2% lower than its peak in 2012. Billions of $ Cumulative annual growth rate of DOD spending from 2000 to 2012 was 5.6%. DOD spending in 2015 is expected to be 3% lower than in 2012. Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. *Includes Federal Civilian and Military Personnel and Procurement

Hampton Road’s Gross Regional Product Attributable to DOD Spending 1984-2015 Mil employment in late eighties and early 90s was at about 140k and had declines to 106K in 1998 before bouncing back to 113K in 2003 Total Military compensation from 1992 to 1999 declined from about $4.9 Billion to $4.3 Billion in 1998 Source: U.S. Department of Defense , U.S. Department of Commerce, and the Old Dominion University Economic Forecasting Project

Cumulative Average Growth Rate Growth in Estimated Average Compensation (Wages, Salaries and Fringe Benefits) Selected Categories Hampton Roads: 2001, 2013, and 2014 Earnings in 2001 Earnings in 2013 Earnings in 2014 Cumulative Average Growth Rate 2001 to 2010 2010 to 2014 Percent change 2013 to 2014 Military $47,077 $90,115 $91,503 7.2% 1.0% 1.5% Federal Civilian Govt. Employees $63,631 $97,800 $102,829 4.5% 2.1% 5.1% State and Local Govt. Employees $40,251 $56,933 $58,318 3.6% 1.3% 2.4% Private Nonfarm $29,415 $40,262 $41,198 2.9% 2.0% 2.3% Source: U.S. Bureau of Economic Analysis (BEA) and the Old Dominion University Economic Forecasting Project. * BEA calls compensation as earnings.

Civilian Non-Farm Jobs in Hampton Roads

The 2007-2009 Recession Including Virginia and Hampton Roads % Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak Through December 2015 for USA; November 15 for VA and HR

Unemployment Rate in U.S., Virginia, and Hampton Roads Source: Bureau of Labor Statistics

Annual Civilian Employment (Jobs) in Hampton Roads: 1999 to 2015 The HR economy added only 1,100 jobs in 2014. At the end of 2015, even with 7,000 jobs created in 2015, we will still be about 15,000 jobs below our pre- recession level. In thousands Source: U.S. Department of Labor CES data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted.

Annual Private Sector Civilian Employment (JOBS) in Hampton Roads Our Compound Annual Growth Rate (CAGR) in the private sector jobs was 2.54 percent from 1991 to 2000; it was 1.1 percent from 2000 to 2007; it has been NEGATIVE 0.5 percent since 2007. In thousands Source: U.S. Department of Labor CES data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted.

Job Gains and Loses (In Thousands) Hampton Roads: 2007 to 2015 (YTD November) Gainers (jobs) Losers (jobs) Construction Retail and Wholesale Trade Local Government Information Manufacturing Finance Transportation and Warehousing Source: U.S. Department of Labor CES data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted. Data will be revised in March 2016

Change in Employment by Sectors in Hampton Roads From 1st Quarter 2007 to 1st Quarter 2015 (Virginia Portion of Hampton Roads) Aggregate of all types of ownership Source: Virginia Employment Commission: Covered Employment and Wages by Private Ownership and the Old Dominion University Economic Forecasting Project.

Monthly Initial Unemployment Claims- 12 Month Moving Average Hampton Roads: January 2004 to December 2015 Currently: 3,833 High: 7,449 (May 2010) Previous Low: 3,974 (Dec. 2007) Source: Virginia Employment Commission and the Old Dominion University Forecasting Project

Performance of Hampton Roads Economy through November 2015

Performance of Hampton Roads Economy YTD November 2014 and YTD November 2015 YTD Nov. YTD Nov. % Change 2014 2015 Civilian Labor Force 845,535 838,749 - 0.80 Employment 797,284 795,886 0.18 Unemployment 48,251 42,863 11.17 Unemployment Rate 5.71% 5.11% - Civilian Non Farm Jobs 752,855 759,173 +0.84 Number of Jobs added since previous December 4,200 6,500 New Auto Registrations 75,886 79,612 +4.91 Taxable Sales $18.92B $19.60B +3.62

Performance of Hampton Roads Economy YTD November 2014 and YTD November 2015 YTD Nov. YTD Nov. % Change 2014 2015 Hotel Revenue $666.95M $707.55M + 6.09 General Cargo Tonnage 17.27M 18.39M + 6.46 TEU Containers 2,189,762 2,352,231 + 7.42 Number of 1 Unit Housing Permits 3,470 3,698 + 6.57 Value of 1 Unit Housing Permits $718.44M $780.80M + 8.68 Number of Existing Homes Sold** 18,700 20,595 +10.13 Distressed Homes as a percentage of all Existing Homes Sold** 21.88 18.32 Median Price of Existing Homes Sold** $193,205 $203,000 +5.07 ** Data shown here are for YTD December 2014 and YTD December 2015.

Residential Housing Market in Hampton Roads

Median Sale Price of Existing Residential Homes Hampton Roads: 2002-2015 Year Median Price Percent change year to year 2002 $116,900 7.3% 2003 $130,000 11.2% 2004 $156,500 20.4% 2005 $192,000 22.7% 2006 $214,900 11.9% 2007 $223,000 3.8% 2008 $219,000 -1.8% 2009 $207,000 -5.5% 2010 $203,900 -1.5% 2011 $180,000 -11.7% 2012 $185,000 +2.78% 2013 $190,000 +2.70% 2014 $193,205 +1.70% 2015* $203,000 +5.07% 90% increase from 2002-07 19% decrease From 2007-11 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

Existing Residential Homes Sold and Average Days on the Market Hampton Roads: 2000-2015 Source: Real Estate Information Network Inc. and the Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. Days on Market is calculated from the date listed to the date under contract date for existing homes sold.

Estimated Inventory of Existing Residential Homes as Measured by Active Listings Hampton Roads: 2007, 2010, and 2015 Average ( Jan. 1995 through December 2015) = 7,914 Source: Real Estate Information Network Inc. and the Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

Estimated Months of Supply of All Existing Homes in Hampton Roads Based on Average Sales in the Last 12 Months: January 1996 – December 2015 December 2015: 5.00 Peak: 10.24 (November 2010) Average (Jan 1996- December 2015) = 5.64 months Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

Summary on Existing Homes Inventories have decreased substantially since 2010. Days on Market have also decreased. Sales volume of Homes have increased. Supply of homes currently is at 5 months, lower than historic average of 5.64 months. But the median price of homes have increased only slightly: 2.8 % in 2012, 2.7 % in 2013, only 1.7 % in 2014, and 5.1% in 2015. The explanation lies in distressed market– Short sales and bank owned homes (REOs).

Active Listing of Distressed Homes (REO & Short Sales) As a Percentage of Total Existing Residential Homes Listings in Hampton Roads December 2015: 17.08% Peak: 29.23% (December 2012) Source: Real Estate Information Network (REIN) and the Old Dominion University Economic Forecasting Project.

Number of Existing Short Sale and REOs Residential Homes Sold Hampton Roads: 2006- 2015 Short Sales Percent Short Sales 3 <1% 40 217 1.4 598 3.8 784 5.3 1,127 7.1 1,644 9.8 1,769 9.4 1,347 7.2 1,230 6.0 REO Sales Percent REO Sales 56 <1% 223 1.2 833 5.5 2,271 14.3 3,021 20.6 4,213 26.6 3,337 19.8 3,178 16.9 2,744 14.7 2,542 12.3 Year All Sales 2006 22,405 2007 19,152 2008 15,047 2009 15,849 2010 14,696 2011 15,817 2012 16,856 2013 18,791 2014 18,700 2015 20,592 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed.

Average Price of Existing Short Sale, REOs, and Non-Distressed Residential Homes Sold Hampton Roads: 2006-2015 Short Sales Short Sales Price % Non - Distressed Price $241,666 96.6 $237,897 90.9 $239,110 93.5 $239,913 98.4 $231,211 91.9 $212,967 90.1 $187,527 79.1 $180,001 73.4 $171,745 70.1 $174,577 69.3 REO Sales REO Price % Non - Distressed Sales $120,817 48.3 $163,421 62.4 $184,462 72.1 $164,229 67.3 $151,612 60.3 $135,304 57.3 $134,535 56.7 $131,644 53.7 $128,242 52.4 $130,959 52.0 Year Non - Distressed Sales 2006 $250,254 2007 $261,723 2008 $255,852 2009 $243,902 2010 $251,572 2011 $236,358 2012 $237,215 2013 $245,344 2014 $244,940 2015 $251,941 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. REOs represent Bank Owned Homes..

Estimated House Rental and Principal, Interest, and Taxes for a House Payment Hampton Roads: 2002-2015 Year Median Monthly Rent for a Three Bedroom House PI&T Monthly for a Median Priced Existing House Ratio of Monthly Rent to PI&T 2002 911 861 1.06 2003 1,037 890 1.16 2004 1,044 1,073 0.97 2005 1,087 1,315 0.83 2006 1,118 1,533 0.73 2007 1,164 1,598 2008 1,247 1,507 2009 1,236 1,307 0.95 2010 1,277 1,233 1.04 2011 1,319 1,071 1.23 2012 1,454 1,015 1.43 2013 1,570 1,080 1.45 2014 1,562 1.40 2015 1,530 1,154 1.33 Source: H.U.D. and the Old Dominion University Economic Forecasting Project. It is assumed that real estate tax rate is 1% and the tax reduction received by home owners would compensate for home owners insurance and maintenance expenditures.

Housing Affordability: Monthly Payment for a Median Price Resale House as a Percent of Median Household Monthly Income Hampton Roads and the U.S. : 1979 to 2015 Mortgage rates were 4.17 for 2014 Source: The Old Dominion University Economic Forecasting Project. We utilize a 30-year mortgage rate of 3.85 Percent for 2015.

Number of New Construction Residential Homes Sold Hampton Roads: 2002-2015 Year Number Sold Percent change year to year 2002 4,969 2.8% 2003 4,757 -4.3% 2004 4,587 -3.6% 2005 4,379 -4.5% 2006 4,327 -1.2% 2007 3,912 -9.6% 2008 3,178 -18.8% 2009 2,673 -15.9% 2010 2,265 -15.3% 2011 2,366 4.5% 2012 2,664 12.6% 2013 2,878 8.0% 2014 2,485 -13.7% 2015 2,954 18.9% 54% decrease From 2002-10 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new construction activity in our region.

Median Sale Price of New Construction Residential Homes Hampton Roads: 2002-2015 Year Median Price Percent change year to year 2002 $186,415 9.1% 2003 $220,490 18.3% 2004 $260,000 17.9% 2005 $333,280 28.2% 2006 $349,900 5.0% 2007 $335,348 -4.2% 2008 $299,900 -10.6% 2009 $283,615 -5.4% 2010 $289,900 2.2% 2011 $276,755 -4.5% 2012 $273,950 -1.0% 2013 $286,218 4.5% 2014 $291,830 2.0% 2015 $300,143 2.9% 22% decrease From 2006-12 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new construction activity in our region

Estimated Months of Supply of New Construction Homes in Hampton Roads Based on Average Sales in the Last 12 Months: January 1996 – December 2015 Average (Jan 1996- December 2015) = 6.85 months Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

2016 Regional Summary Look for regional economic growth to be below its half-century annual average of 3.1 percent and below that of the nation. Port, health-care industries, and tourism are likely to help the region’s economic expansion in 2016 Single-family home prices in 2016 are likely to continue to increase at a moderate pace. Inventories, sale volume, and days-on-market are all moving in the right direction. Months of supply of existing homes are below their historic average. Lingering distressed volume continues to remain a concern REOs appear to be one of the driving forces behind a moderate growth in home prices.

Number of Existing Residential Homes Sold Hampton Roads: 2002-2015 Year Number Sold Percent change year to year 2002 19,869 5.0% 2003 21,421 7.8% 2004 23,548 9.9% 2005 24,755 5.1% 2006 22,405 -9.5% 2007 19,154 -14.5% 2008 15,046 -21.5% 2009 15,851 5.4% 2010 14,703 -7.2% 2011 15,818 7.6% 2012 16,856 6.6% 2013 18,791 11.5% 2014 18,700 -0.5% 2015 20,595 10.1% 39% decline from 2005-08 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

Number of Existing and New Construction Homes Sold Hampton Roads: 2002-2015 Year Existing Homes Sold New Construction Homes Sold Percent New Construction 2002 19,869 4,969 20.0% 2003 21,421 4,757 18.2% 2004 23,548 4,587 16.3% 2005 24,755 4,379 15.0% 2006 22,405 4,327 16.2% 2007 19,154 3,912 17.0% 2008 15,046 3,178 17.4% 2009 15,851 2,673 14.4% 2010 14,703 2,265 13.4% 2011 15,818 2,366 13.0% 2012 16,856 2,664 13.6% 2013 18,791 2,878 13.3% 2014 18,700 2,485 11.7% 2015 20,595 2,954 12.5% Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new construction activity in our region.

Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2002 and 2007 City Median Price 2002 2007 % change Chesapeake $134,900 $250,100 85.4% Norfolk $ 93,200 $195,000 109.2% Portsmouth $ 80,300 $165,500 106.1% Suffolk** $139,900 $257,500 84.1% Virginia Beach $125,000 $245,000 96.0% Hampton $ 92,900 $180,000 93.8% Newport News $105,000 $199,250 89.8% Williamsburg* $157,325 $284,450 80.8% Hampton Roads $116,900 $223,000 90.8% Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County. ** Median price in Suffolk peaked in 2006 at $263,950

Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2007 and 2014 City Median Price 2007 2014 % change Chesapeake $250,100 $219,000 -12.4% Norfolk $195,000 $157,038 -19.5% Portsmouth $165,500 $115,500 -30.2% Suffolk** $257,500 $207,900 -19.3% Virginia Beach $245,000 $229,000 -6.5% Hampton $180,000 $139,900 -22.3% Newport News $199,250 $157,900 -20.8% Williamsburg* $284,450 $257,250 -9.6% Hampton Roads $223,000 $193,205 -14.8% Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County. ** Median price in Suffolk peaked in 2006 at $263,950

Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2013 and 2014 City Median Price 2013 2014 % change Chesapeake $215,000 $219,000 -1.9% Norfolk $157,500 $157,038 -0.3% Portsmouth $108,500 $115,500 6.45% Suffolk $207,000 $207,900 0.43% Virginia Beach $223,000 $229,000 2.69% Hampton $131,000 $139,900 6.79% Newport News $153,000 $157,900 3.20% Williamsburg* $263,450 $257,250 -2.35% Hampton Roads $190,000 $193,205 1.69% Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County.