Economists expect little improvement for housing industry

by Patricia E. Matson
Thursday, January 12, 2012

Staff photo by Allison Potter

Richard Kaglic, an economist at the Charlotte branch of the Federal Reserve Bank of Richmond, Va. speaks at the 20th Annual Economic Forecast hosted by accounting firm RSM McGladrey, the Greater Wilmington Chamber of Commerce and Wilmington Industrial Development Inc. at the Wilmington Convention Center on Thursday, Jan. 5.

tability seems to have returned to the economy, said two experts on Thursday, Jan. 5, at the 20th Annual Economic Forecast hosted by RSM McGladrey. Unfortunately, little significant growth can be expected in 2012, and housing prices may sink even more.

"The housing market is kind of emblematic of what is so frustrating about this economic recovery. Even though the homes are affordable, theyíre not attainable," said Richard Kaglic, an economist at the Charlotte branch of the Federal Reserve Bank of Richmond, Va. He stated that he was sharing his own views rather than representing the Federal Reserve.

"It would appear that there is stability in sales," said Dr. William"Woody" Hall, senior economist at the H. David and Diane Swain Center for Business and Economic Services at the University of North Carolina Wilmingtonís Cameron School of Business. However, he said prices might fall further.

The breakfast event was presented at the Wilmington Convention Center by the accounting firm, along with the Greater Wilmington Chamber of Commerce and Wilmington Industrial Development Inc.

Kaglic began with an overview of the economy, saying indicators were mixed but generally better than expected. However, war in Libya and the tsunami in Japan disrupted global supply chains in 2011, and more fundamental and persistent obstacles included high unemployment, moribund housing, and tremendous uncertainty led by the European sovereign debt crisis and political dysfunction in the United States.

"This is not to say that the economy wonít grow in 2012, but Ö itís not going to be a V-shaped recovery," Kaglic said.

New single-family home sales have basically flatlined, Kaglic said. The sustained rate during the last 18 months is worse than the housing slump during the early 1980s, when there were fewer households and mortgage rates were far higher, around 16 to 18 percent.

In addition, a large volume of homes in inventory keeps prices down, Kaglic said. Even though affordability is near record highs, and banks are no longer tightening standards on residential loans, the housing industry still has not revived.

Moreover, Kaglic confirmed that North Carolina is underperforming compared to the rest of the United States, partly due to its heavy concentration of struggling sectors including manufacturing, construction, the financial industry, and government. Case in point, he noted that state unemployment is a full percent lower than the national average.

Hall focused on economic data in the Wilmington Metropolitan Statistical Area, comprising Brunswick, New Hanover and Pender counties. Population soared between 2000 and 2010, and the gross domestic product grew by about 2 percent in 2010 after falling in 2008 and 2009. The areaís estimated 3 percent GDP growth rate in 2011 was almost twice that of the state and nation.

Since that time, however, unemployment rose dramatically in 2008-09 and has yet to recover. In 2012, Hall expects the local economy to match the predicted U.S. GDP growth rate of 2 percent, slightly more than the expected North Carolina rate.

"In the light of Ö what is forecast to happen in 2012, I think the best we can look for is no rise in unemployment," Hall said.

Hall said sales of existing single-family homes have stabilized, with no significant decrease in the last two and a half years. He said the Wilmington Regional Association of Realtors averaged roughly 900 monthly sales at the peak of 2005, but the average fell to
250 by 2008, a 72 percent decrease; by the end of 2011, monthly sales hovered around 150.The Brunswick County Association of Realtors averaged some 380 monthly sales at the peak and 91 at the trough, a 76 percent decrease; by the end of 2011, Hallís chart showed slightly less than 150 sold.

Regarding prices, WRAR statistics showed that the average sales price fell from a 2007 peak of $290,000 to roughly $237,000 for 2011, an 18 percent decrease. BCAR showed prices falling from a peak of $370,000 to $206,000, a 45 percent decrease.

Hall added that seven years ago, about a fifth of local employment was related to real estate development. Between 2008 and 2010, construction declined by almost a third, and now only one in 11 or 12 jobs is related to real estate development.

When asked to speak more about distressed properties, whether bank-owned or in foreclosure, Kaglic said inventory numbers donít necessarily reflect the true amount of housing stock available. He has heard estimates that the shadow inventory of existing homes will effectively double the number of homes for sale.

However, he said the judicial system canít handle more than a million foreclosures per year. Kaglic estimated that those properties will finish working their way through the system for the next four years; and he predicted that properties coming onto the market will continue to exert downward pressure on prices. He said it was estimated that prices would not recover to 2006 levels until after 2020.

There were 900 New Hanover County corporate owned and/or short sales handled by Realtors in year 2011 as shown in WRAR MLS data.

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