From Sublime to Subprime: The Outlook for Housing in New England

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From Sublime to SubprimeThe Outlook for Housing
in New England

• Spring Economic Outlook Conference
• May 24, 2007

Sponsored by
Additional support provided by the New Hampshire
Housing Finance Authority and MassHousing.
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New England Outlook

• Ross Gittell
• NEEP VP and Forecast Manager
• James R Carter Professor
• University of New Hampshire

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New England (in green) lower overall economic
(Gross Regional Product) growth than US (blue)
average expected over forecast period to 2011
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GSP Average Annual Growth. Region growing below
US avg., 2.6 compared to 2.9 average annual. NH
leading NE in growth, only state expected to grow
at US average, followed by CT and MA
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Total Employment average annual growth forecast.
Region growing below US average, .9 compared to
1.2 percent per year. NH highest employment
growth, Maine and Vermont with lowest
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Employment forecasted growth by sector. NE growth
below US for all major sectors except
Information. Highest growth Health Education,
Leisure Hospitality, Business Prof. Services.
Weakest sectors Manufacturing and Trade
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Unemployment Rate Average Annual. Similar to US.
Highest rate in RI Mass, lowest NH VT. NE
continues to have below US population growth.
NEs population growth just .3 annually, 1 in
US
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Construction employment Significant down turn.
From growth of 6.1 a year in last half of 90s
and 1.6 through first half of this decade,
construction employment expected to decline .4
per year
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New England Housing Market

• Conference Theme

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Housing Market Outlook??

• The regions housing market over-exuberant in
  the early 2000s.
• Declines in housing prices and residential
  housing permits are expected to be significant.
• However, a collapse and a return to the late
  1980s and early 1990s housing market conditions
  is not expected.
• Data on delinquencies and payments past due on
  mortgages suggests that New England housing
  markets might not be as vulnerable to pronounced
  decline and sustained weakness as some other
  areas in the nation.

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Median Housing Prices

• New England had double-digit annual growth in
  median housing prices from 2002 through 2004.
• In the second quarter of 2005 housing price
  appreciation began to decelerate and housing
  prices began to decline after peaking at 309,000
  and they continue to decline.
• In the NEEP forecast, housing prices (median
  price in nominal terms) in the region are
  expected to decline through the 2nd quarter of
  2008.
• The sharpest declines are expected to be in the
  last three quarters of 2007, followed by more
  modest decline, and then slow recovery.
• Housing prices are not expected to return to
  their peak level in the region until the middle
  of 2010. This is the same time that Moodys
  Economy.com expects housing prices nationally to
  return to their pre-decline peaks.

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Areas in New England included in red markets
with recent decline in median housing prices
Median Existing House Price, chg yr ago,
'06q1-'07q1
Decline
lt 3
gt 3
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Forecasted Peak (05Q3)-to-Trough (08Q2) Decline
in NE Median Housing Prices expected to be 12
(compared with US, 8). Decline expected to be
most pronounced in MA and RI and lowest in
Vermont.
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NEs Peak-to-Trough decline in total residential
permits expected to be 37, compared to US -30.
Most pronounced declines in RI and NH. No NE
state expected to return to peak total permit
levels over forecast. NE in 2011 expected to have
permitting 25 percent below the peak.
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All lines delinquency rate ..no NE Metro in top
third of 200 US Metro areas
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But 10 NE metro areas in top third of Metro areas
in subprime loans past due
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Credit Problems Coming to some areas in New
England in red...
Subprime Share of Originations, '05, , Source
HMDA
U.S. 19
Over 19 13 to 19 Below 13
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Within the Region there is Variation. Non-prime
loans as share of total originations, volume.
Darker areas are most vulnerable.
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The New England Outlook Summary

• Relatively slow growing New England economy
• Forecast for a slightly stronger regional economy
  than forecast in Fall 2006.. But growth remains
  below US average
• Weak housing market.. With some signs of
  vulnerability but collapse is not expected and
  the housing market weakness is not anticipated to
  extend to full economy