Update on the New England Economy and Housing Markets Alicia Sasser, Senior Economist New England Public Policy Center Federal Reserve Bank of Boston New.

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Presentation transcript:

Update on the New England Economy and Housing Markets Alicia Sasser, Senior Economist New England Public Policy Center Federal Reserve Bank of Boston New England Realtor’s Conference March 3, 2008 The presenter would like to thank Yolanda Kodrzycki and Ana Patricia Muñoz for providing data. The views expressed in the presentation are not necessarily those of either the Federal Reserve Bank of Boston or the Federal Reserve System.

Areas of Focus Employment situation Consumer and business confidence round-up Housing situation Economic outlook for New England

New England Employment Situation Good News: Employment held steady year-over-year. Employment grew by 0.8 percent, just below U.S. growth. No increase in unemployment rate, still below nation’s. Personal income growth comparable to the U.S. average. Bad News: Employment slipped at the end of Lost jobs at end of 2007, still below 2000 peak job level. Unemployment rate increased slightly in Nov and Dec. Unemployment claims increased, similar to U.S. trend.

4 I Employment in New England slipped at the end of Monthly Employment Change in New England Thousands of Jobs Source: U.S. Bureau of Labor Statistics.

5 As a result, year-over-year employment gains for New England were small. Percent Change from Year Earlier United States New England Employment Growth Source: U.S. Bureau of Labor Statistics.

6 By major sector, employment growth in New England was mixed compared to a year earlier. Percent Change, Dec 2006–Dec 2007 (Seasonally Adjusted) Source: U.S. Bureau of Labor Statistics. Note: New England data represent only CT, MA, and NH. Seasonally adjusted data are not available for ME, RI, or VT. Employment Growth by Supersector

7 New England’s unemployment rate edged up at the end of 2007, but was lower than the nation’s. Percent Source: U.S. Bureau of Labor Statistics. United States New England Unemployment Rates

8 Year-over-year, the unemployment rate was unchanged for the region, but fluctuated widely across New England states. Source: U.S. Bureau of Labor Statistics. Percent

Personal income in New England continued to grow through the third quarter of Percent Change from Year Earlier Source: U.S. Bureau of Labor Statistics. United States New England Total Personal Income

New England Consumer and Business Confidence Round-up The Good: Business confidence was unchanged in December and Massachusetts employers showed some optimism about future conditions. The Bad: Consumer confidence among New England residents held steady in December, but remained below year-ago levels. The Ugly: Compared to a year ago, the percentage of Boston area workers who see their personal financial situation as improving has fallen.

Confidence among Massachusetts employers was virtually unchanged in December. Index Source: Associated industries of Massachusetts. AIM Business Confidence Index Massachusetts

New England consumer confidence held steady at the end of 2007 but below year-ago peaks U.S. Average=100 Source: The Conference Board. Consumer Confidence US NE Present Situation US NE Future Expectations US NE

Confidence among employees continued to erode for Boston and the nation. Percent Responding Source: Hudson Highland Group. Workers’ Assessment of Personal Financial Situation US ImprovingBoston ImprovingUS WorseningBoston Worsening Dec 06 Nov 07 Dec 07 Oct 07 Dec 06 Nov 07 Dec 07 Oct 07 Dec 06 Nov 07 Dec 07 Oct 07 Dec 06 Nov 07 Dec 07 Oct 07

New England Housing Situation Good News: Not as bad as some other regions. Prices fell but not as sharply as some other areas. As prices continue to soften, affordability may improve. About one-quarter of subprime borrowers could refinance. Bad News: It’s not over yet. House prices continued to soften through the end of Existing sales and new home construction are down. Foreclosures are at record highs and still rising.

House prices continued to soften through the end of 2007 in both New England and the U.S. Source: Office of Federal Housing Enterprise Oversight (OFHEO). Percent Change from Year Earlier United States New England All-use index Purchase-only index OFHEO House Prices Indices

16 House prices for homes purchased fell in 2007 Q4 for every New England state except Maine. Percent Change Q3 2007–Q Source: OFHEO Percent Change Q – Q OFHEO Purchase-only House Price Index

House prices continued to fall in Boston, but not by as much as some metropolitan areas. Source: S&P/Case Shiller Percent Change from Year Earlier Composite Index, top 10 cities Boston S&P/Case Shiller Home Price Indices Composite Index, top 20 cities

Boston had the smallest decline in house prices among the Composite 10 metro areas for Source: S&P/ Case-Shiller Percent Change, Dec 2006 – Dec 2007 S&P/Case Shiller Home Price Indices

Growth in Real Single-Family House Prices, Source: Authors’ calculations based on the house price index calculated by the Office of Federal Housing Enterprise Oversight (OFHEO). Notes: Adjusted for inflation using the Consumer Price Index, excluding shelter. Yet despite the decline in prices, house price levels are still relatively high in New England. Index

Ratio of Real Annual Median Household Income to Real Annual Income Needed to Purchase the Median Priced House Notes: Annual median household income are three-year moving averages as calculated from the Current Population Survey for households where the head is age 25+ and is not enrolled in school, adjusted to $2006 using the CPI-U. Annual median income needed to purchase the median priced house are based on annual house prices as reported by the Federal Home Finance Bureau, adjusted by the OFHEO index and deflated by the CPI-U less shelter. “Middle-income” households are those that fall into the 3 rd quintile of the income distribution. Threshold of Affordability As of 2006, the affordability picture had not changed much for New England residents.

Existing home sales were down in New England, parallel to the national drop-off. Index, 1990 = 1 CT+ME+MA+RI Source: National Association of Realtors. Note: Data for New Hampshire and Vermont are not available for some quarters (data are missing). United States New England Existing Home Sales

Single-family housing permits in New England fell to levels seen in the early 1990s. Index, 1988 = 1 Source: U.S. Department of Commerce, Construction Statistics Division United States New England Single Family Permits

Multi-family housing permits have fallen even further in New England. Source: U.S. Department of Commerce, Construction Statistics Division Index, 1988 = 1 United States New England Multi Family Permits

Foreclosures Started, All Loans Source: Mortgage Bankers Association / Haver Analytics Foreclosures initiated in quarter, as a percent of loans in pool. Foreclosures reached record highs both in New England and nationally.

Foreclosures Started by Type of Loan Source: Mortgage Bankers Association / Haver Analytics Foreclosures initiated in quarter, as a percent of loans in pool. Foreclosures rates in New England are highest for subprime ARM mortgages.

New England Economic Partnership’s Economic Outlook Employment Employment forecast to grow slowly at 0.8 percent per year over the next three years, slightly below the national forecast. Housing House prices expected to decrease through the 2nd half of 2008 with slow recovery going forward, lagging the nation. Overall Economic Growth Real gross product for the region is expected to grow 2.2 percent per year for 2008 through 2011, slower than the nation. Credit crisis and the housing market downturn are expected to slow growth through 2008.

Employment in New England is expected to grow slowly over the next 5 years. Source: New England Economic Partnership.

House prices are expected to fall through the second half of 2008 then slowly recover. Source: New England Economic Partnership.

New England is expected to grow slower than the nation on average through Source: New England Economic Partnership.

Boston Sports Index Index 1920=1 (Babe Ruth traded to the Yankees, the curse begins) Celtics Reign of Terror (57-69) Multiple Bruins and Celtics Championships Buckner! Patriots Super Bowl Wins Yankees win Game 7 ALCS with walk-off homerun Red Sox come back to beat Yankees in ALCS and win WS Red Sox 2007 WS Champs Pats 16-0 and no Super Bowl Notes: Red Sox given favorable weights. Yankees suck. Celtics? But New England has been through tough times before...