1. 1 Hampton Roads Economy And Residential Housing Market January 13, 2015 Professor Vinod Agarwal Interim Dean 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.

2. 2 Presentation outline A.Gross Domestic Product and Gross Regional Product B.Defense Spending in Hampton Roads C.Civilian Non-Farm Jobs D.Performance of Hampton Roads Economy through November 2014 E.Residential Housing Market in Hampton Roads

3. Rate of Growth of GDP (U.S.) and GRP (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 2000- 2014

4. 4 Defense Spending in Hampton Roads

5. 5 Hampton Road’s Gross Regional Product Attributable to DOD Spending Source: U.S. Department of Defense, U.S. Department of Commerce, and the Old Dominion University Economic Forecasting Project 1984-2014

6. Estimated Direct DOD Spending in Hampton Roads Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. *Includes Federal Civilian and Military Personnel and Procurement Billions of $ 6 2000 to 2015 Spending increased from 2000 to 2012 by 5.6% on an annual basis; is expected to decline to about 3% from its peak.

7. 7 Caps on Discretionary Defense Spending Source: BCA2011,Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project. FY 2012 through FY 2021 Discretionary Defense spending cap increases by less than $1 Billion in FY 2015 compared to FY 2014 or only by 0.15%. It is expected to increase by only 0.35% in FY2016

8. 8 Impact of Caps on DOD Spending during FY 2014 and FY 2015 The Bipartisan Budget Act of 2013 provided $22.5 billion in sequestration relief in FY 2014 and $9.3 Billion in FY 2015. As a result Defense Discretionary Spending Cap increased from $498.0 billion to $520.5 billion in FY 2014 and from $512.0 billion to $521.3 billion in FY 2015. FY 2016 spending cap increases to $523.1 billion or by only 0.35 percent.

9. 9 Budget passed by the Congress for FY 2015 Budget passed by the Congress provides some good news for Hampton Roads for 2015 and beyond: –Congress endorsed to keep an ELEVEN carrier fleet. –provides funding for construction of Gerald R. Ford and overhaul of George Washington. –Rejected request to close bases. –Provides funding for two Virginia-class submarines in 2015.

10. 10 Budget passed by the Congress for FY 2015 –Provides funding for construction projects ($190 Million). –It limits the number of guided missile cruisers that can be deactivated. –Provides a one percent pay raise for most military and civilian Government employees

11. 11 Military Employment Hampton Roads: 2001 to 2013 Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Military Employment has declined by 23.7 % in 2013 from its peak observed in 2003.

12. 12 Total Military Compensation Hampton Roads: 2001 to 2013 Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Even though Military employment peaked in 2003, their total Compensation peaked in 2010 and has steadily declined. Compensation in 2013 is 6.9% below its level in 2010.

13. 13 Average Military Compensation Hampton Roads: 2001 to 2013 Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Average Military Compensation for the first time since 1969 declined in 2013; by about 2.6%.

14. 14 Growth in Estimated Average Compensation (Wages, Salaries and Fringe Benefits) Selected Categories Hampton Roads: 2001, 2012, and 2013 Source: U.S. Bureau of Economic Analysis (BEA) and the Old Dominion University Economic Forecasting Project. * BEA calls compensation as earnings. Earnings in 2001 Earnings in 2012 Earnings in 2013 Cumulative Average Growth Rate 2001 to 2010 Cumulative Average Growth Rate 2010 to 2013 Percent change 2012 to 2013 Military$47,077$92,741$90,3647.2%0.9%-2.6% Federal Civilian Govt. Employees $63,631$98,299$97,5964.5%1.0%-0.7% State and Local Govt. Employees $40,251$55,406$56,0673.6%0.5%1.2% Private Nonfarm $29,415$39,860$40,3302.9%1.9%1.2%

15. 15 Shares of Selected Sectors Measured by Total Compensation Hampton Roads: 2001 and 2013 Source: U.S. Bureau of Economic Analysis (BEA) and the Old Dominion University Economic Forecasting Project. * BEA calls compensation as earnings. 20012013 Share of private sector Share of Federal Civilian Government Share of Military Share of State & Local Government

16. 16 Civilian Non-Farm Jobs in Hampton Roads

17. 17 Annual Civilian Employment (JOBS) Hampton Roads: 1999 to 2014 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 2015

18. 18 Job Gains and Loses (In Thousands) Hampton Roads: 2007 to 2014 (YTD November) Losers (jobs) Gainers (jobs ) Manufacturing Finance Transportation and Warehousing Local Government Professional and Business Services Information Construction Retail and Wholesale Trade Leisure and Hospitality 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 2015

19. 19 Job Gains and Loses (In Thousands) Hampton Roads: 2013 to 2014 (YTD November) Losers (jobs)Gainers (jobs) Construction Local Government Information 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 2015. Federal and State Government Manufacturing Transportation and Warehousing Professional and Business Services

20. 20 Performance of Hampton Roads Economy through November 2014

21. 21 Performance of Hampton Roads Economy YTD November 2013 and YTD November 2014 YTD Nov. 2013 YTD Nov. 2014 % Change Civilian Labor Force833,856840,326+0.78 Employment783,089793,111+1.28 Unemployment 50,767 47,215-7.00 Unemployment Rate 6.11% 5.62% Civilian Non-Farm Jobs 752,591 753,591 +0.13 New Auto Registrations 74,118 75,886 +2.39 Taxable Sales $18.45B $18.92B+2.54

22. 22 YTD November 2013 and YTD November 2014 Performance of Hampton Roads Economy YTD Nov. 2013 YTD Nov. 2014 % Change Hotel Revenue$630.31M$660.90M+4.85 General Cargo Tonnage**18.84M19.06M+1.17 TEU Containers**2.22M2.39M+7.62 Number of 1 Unit Housing Permits3,8733,470-10.41 Value of 1 Unit Housing Permits $774.60M $718.44M -7.25 Number of Existing Homes Sold** 18,791 18,700 -0.48 Number of Distressed Homes Sold** 4,947 4,088-17.36 Median Price of Existing Homes Sold** $190,000 $193,205+1.69 ** Data shown here is for 2013 and 2014

23. 23 Residential Housing Market in Hampton Roads

24. 24 Number of Existing and New Construction Homes Sold Hampton Roads: 2002-2014 YearExisting Homes Sold New Construction Homes Sold Percent New Construction 200219,869 4,969 20.0% 200321,4214,75718.2% 200423,5484,58716.3% 2005 24,755 4,37915.0% 200622,4054,32716.2% 200719,1543,91217.0% 200815,0463,17817.4% 200915,8512,67314.4% 201014,7032,26513.4% 201115,8182,36613.0% 201216,8562,66413.6% 2013 18,7912,87813.3% 2014 18,7002,48511.7% 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..

25. 25 Median Sale Price of Existing Residential Homes Hampton Roads: 2002-2014 YearMedian PricePercent change year to year 2002 $116,9007.3% 2003 $130,00011.2% 2004 $156,50020.4% 2005 $192,00022.7% 2006 $214,90011.9% 2007 $223,0003.8% 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% Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. 90% increase from 2002-07 19% decrease From 2007-11

26. 26 Distribution of Existing Home Sales by Type of Financing Hampton Roads: 1995-2014 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed.

27. Existing Residential Homes Sold and Average Days on the Market Hampton Roads: 2000-2014 27 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.

28. 28 Estimated Inventory of Existing Residential Homes as Measured by Active Listings Hampton Roads: 2007, 2010, and 2014 Source: Real Estate Information Network Inc. and the Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. Average ( Jan. 1995 through December 2014) = 7,814

29. Estimated Months of Supply of All Existing Homes in Hampton Roads Based on Average Sales in the Last 12 Months: January 1996 – December 2014 29 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. Average (Jan 1996- December 2014) = 5.63 months December 2014: 5.90 Peak: 10.24 (November 2010)

30. 30 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 5.90 months, slightly higher than historic average of 5.63 months. But the median price of homes have increased only slightly: 2.8 % in 2012, 2.7 % in 2013, and only 1.7 % in 2014. The explanation lies in distressed market– Short sales and bank owned homes (REOs).

31. Active Listing of Distressed Homes (REO & Short Sales) As a Percentage of Total Existing Residential Homes Listings in Hampton Roads 31 Source: Real Estate Information Network (REIN) and the Old Dominion University Economic Forecasting Project. December 2014: 19.62% Peak: 29.23% (December 2012)

32. Sales of Distressed Homes (REO & Short Sales) As a Percentage of Total Existing Residential Homes Sold in Hampton Roads 32 Source: Real Estate Information Network (REIN) and the Old Dominion University Economic Forecasting Project. December 2014: 21.5% Peak: 42.8% (March 2011)

33. Number of Existing Short Sale and REOs Residential Homes Sold Hampton Roads: 2006- 2014 33 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. YearAll Sales 200622,405 200719,152 200815,047 200915,849 201014,696 201115,817 201216,856 201318,791 201418,700 Short Sales Percent ShortSales 3<1% 40<1% 2171.4 5983.8 7845.3 1,1277.1 1,6449.8 1,7699.4 1,3477.2 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

34. Average Price of Existing Short Sale, REOs, and Non-Distressed Residential Homes Sold Hampton Roads: 2006-2014 34 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. REOs represent Bank Owned Homes.. 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 Short Sales ShortSales Price % Non- Distressed Price $241,66696.6 $237,89790.9 $239,11093.5 $239,91398.4 $231,21191.9 $212,96790.1 $187,52779.1 $180,00173.4 $171,74570.1 REO Sales REO Price % Non-Distressed Sales $120,81748.3 $163,42162.4 $184,46272.1 $164,22967.3 $151,61260.3 $135,30457.3 $134,53556.7 $131,64453.7 $128,24252.4

35. 35 Number of New Construction Residential Homes Sold Hampton Roads: 2002-2014 Year Number Sold Percent change year to year 2002 4,9692.8% 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% 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. 54% decrease From 2002-10

36. 36 Median Sale Price of New Construction Residential Homes Hampton Roads: 2002-2014 YearMedian PricePercent change year to year 2002 $186,4159.1% 2003 $220,49018.3% 2004 $260,00017.9% 2005 $333,28028.2% 2006 $349,9005.0% 2007 $335,348-4.2% 2008 $299,900-10.6% 2009 $283,615-5.4% 2010 $289,9002.2% 2011 $276,755-4.5% 2012 $273,950-1.0% 2013 $286,2184.5% 2014 $291,8302.0% 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 22% decrease From 2006-12

37. Estimated Months of Supply of New Construction Homes in Hampton Roads Based on Average Sales in the Last 12 Months: January 1996 – December 2014 37 Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. Average (Jan 1996- December 2014) = 6.78 months

38. 38 Estimated House Rental and Principal, Interest, and Taxes for a House Payment Hampton Roads: 2001-2014 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. 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 2001 $ 882 8361.05 2002 911 8611.06 2003 1,037 8901.16 2004 1,044 1,0730.97 2005 1,087 1,3150.83 2006 1,118 1,5330.73 2007 1,164 1,5980.73 2008 1,247 1,5070.83 2009 1,236 1,3070.95 2010 1,277 1,2331.04 2011 1,319 1,0711.23 2012 1,454 1,0151.43 2013 1,570 1,0801.45 2014 1,562 1,1241.39

39. 39 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 2014 Source: The Old Dominion University Economic Forecasting Project. We are estimating that 30 year mortgage rate to be 4.17 Percent for 2014

40. Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2002 and 2007 40 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 City Median Price 2002 Median Price 2007 % change Chesapeake$134,900$250,100 85.4% Norfolk$ 93,200$195,000109.2% Portsmouth$ 80,300$165,500106.1% 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%

41. Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2007 and 2014 41 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 City Median Price 2007 Median Price 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%

42. Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2013 and 2014 42 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. City Median Price 2013 Median Price 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$193,2051.69%

43. 43 2015 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 2015 Single-family home prices in 2015 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 near their historic average. Lingering distressed volume remains a concern –REOs appear to be one of the driving forces behind lower sale prices.