Presentation to the Tidewater Builders Association By John W. Whaley Deputy Executive Director,...
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Transcript of Presentation to the Tidewater Builders Association By John W. Whaley Deputy Executive Director,...
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
The U.S. Economy Continued to Grow in 2005
Annual Percent Change in Real Gross Domestic Product
-4
-2
0
2
4
6
8
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Average = 3.5%
Regional Employment Continued to Grow but at a Slower Rate
Twelve-Month Percent Change in Hampton Roads Civilian Employment
-2%
-1%
0%
1%
2%
3%
4%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Twel
ve-M
onth
Per
cent
Cha
nge
The U.S. Economy Has Been Slow to Create Jobs
U.S. and HR Payroll Employment
99
101
103
105
107
109
111
1999
2000
2001
2002
2003
2004
2005
Inde
x =
100
in J
anua
ry 1
999
U.S.
HR
The Taxable Sales Growth Rate Slowed
Hampton Roads Deseasonalized Taxable Sales
$1,100,000,000
$1,200,000,000
$1,300,000,000
$1,400,000,000
$1,500,000,000
$1,600,000,000
$1,700,000,00020
00
2001
2002
2003
2004
2005
Tax
able
Sal
es
Auto Sales Have Weakened
Seasonally Adjusted Auto Sales in Hampton Roads
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Num
ber o
f Veh
icle
s
The Number of Homes Sold in Hampton Roads Has Begun to Decline
Number of Homes Sold in Hampton Roads
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
1998
1999
2000
2001
2002
2003
2004
2005
Mon
thly
Hom
e Sa
les
Residential Construction Has Slowed
Deseasonalized Value of HR Single Family Housing Permits
$10,000,000
$30,000,000
$50,000,000
$70,000,000
$90,000,000
$110,000,000
$130,000,000
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Do
llars
Home Prices In Hampton Roads Have Increased Faster than Inflation Since 2001
A Comparison: Home Prices in Hampton Roads and Inflation
90
110
130
150
170
190
210
230
250
1998 1999 2000 2001 2002 2003 2004 2005
CPI
and
Hom
e Pr
ices
Inde
xed
to 1
00 in
199
8
CPIAverage Home Price
HR Home Prices Have Outpaced the U.S. Increase for the Past Two Years
Four Quarter Percent Change in Home Prices
-5
0
5
10
15
20
25
30
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Perc
ent C
hang
e U.S.
HR
Average: U.S. = 5.0% HR = 5.2%
There have been 63 four-quarter changes in HR home prices since 1990 - only two exhibited a decline
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
0
5,000
10,000
15,000
20,000
25,000
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Num
ber
of B
uild
ing
Per
mit
s
The Increase in Housing Values Has Driven Up the Regional Cost of Living
ACCRA Cost of Living Index: Composite and Housing
80
85
90
95
100
105
Composite Index
Cos
t of
Liv
ing
(100
= U
.S. M
etro
Ave
rage
)
19992004
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
Long-Term 2005Average* (Year to Date) HRPDC ODU
U.S.Real GDP 3.2% 3.5% 3.1% 3.3%
Short Government Rates NA 3.2% 4.4% NALong Government Rates NA 4.3% 5.0% NA
Hampton Roads
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%
* Length of average varies depending on the availability of data and the relevance of historic periods
History2006
2006 Forecast
#1 Defense Spending Has “Peaked”
Annualized Defense Outlays
180
200
220
240
260
280
300
320
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Billio
ns o
f Con
stan
t 198
2-19
84 D
olla
rs
#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)
-4,000
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
Nor
folk
NS
A
Lang
ley
AF
B
Nor
folk
Nav
alS
hipy
ard
For
t Eus
tis
Littl
e C
reek
AB
Oce
ana
Ope
n
Yor
ktow
n N
WS
Nor
folk
Nav
alS
tatio
n
Por
tsm
outh
Nav
y M
edic
alC
ente
r
For
t Mon
roe
Net Impact = 2,355 Jobs Lost
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
-30000
-25000
-20000
-15000
-10000
-5000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Oceana Remains OpenOceana Closes
When Will Impacts be Felt?(Builddown/Carriers/BRAC)
• 2006: slight impact
• 2007: modest impacts
• 2008 – 2011: largest impacts
Two Scenarios2008 - 2011
Best Case
Lose 2400 on-base jobs
Slower increase in defense spending
Worst Case
Lose 2400 on-base jobs
Lose one/two carriers
Close Oceana
Large cuts in defense spending
Impact of New Subdivision: Population and Employment
Impact of Constructing a Residential Subdivision of 1000 New Homes: Population and Employment
0
500
1000
1500
2000
2500
3000
3500
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Uni
ts
Total EmploymentPopulation
Impact of New Subdivision: Employment by Sector
New Residential Subdivision with 1000 New Homes: Jobs Created
0
200
400
600
800
1,000
1,200
1,400
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Jobs
Construction
Retail tradeServices
GovernmentOther
Impact of a New Subdivision: City Gross Regional Product
Impact of Constructing a Residential Subdivision of 1000 New Homes: Gross City Product
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Gro
ss C
ity P
rodu
ct in
Con
stan
t 200
0 D
olla
rs
The Change in Interest Rates and the Pace of Local Economic Growth are Important Predictors of
Residential Construction in HRPredicting HR Home Building
(Building Expressed by the Annual Number of Residential Building Permits Issued)
6,000
-1,400
2,500
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Baseline Demand Percentage Points of Change inMortgage Rates
Percentage Points of Change in TotalEmployment (Military Included)
Nu
mb
er
of
Bu
ildin
g P
erm
its
Rs = 0.8
Scenario One
Forecasting Example
One percent increase in mortgage ratesOne percent increase in HR employment
Forecast = 6,000 + (-1,400) + 2,500 = 7,100 units
CalculationReplacement Demand = 6,000 units
Mortgage Effect = +1 x -1,400 = -1,400 unitsEmployment Effect = +1 x 2,500 = +2,500 units
Forecast = 6,000 + 5,000 = 11,000 units
Scenario TwoNo change in mortgage rate
Two percent change in HR employment
CalculationReplacement Demand = 6,000 units
Mortgage Effect = 0Employment Effect = +2 x 2,500 = +5,000 units
Output $7.6 Billion
Gross Regional Product $3.9 Billion
Jobs 80,000
Impact of the HR Construction Industry