U.S. Regional Outlook Presented by: Mark McMullen Director of Government Consulting FTA Revenue Estimating Conference September 18, 26 Widespread Pattern of Economic Expansion Based on employment and industrial production Data as of July 26 States in recession Moderate growth Expanding 2 1
Regional Blocks Define Employment Growth Employment, July 26, 3 mo. MA, % change year ago U.S. = 1.4% Slow growth <1.2% Moderate growth Rapid growth > 2.5% 3 West Leads Job Growth; Pace Is Faltering Employment, % change year ago 3.5 3. 2.5 2. 1.5 1..5. -.5-1. -1.5 West South excl. LA South Northeast Midwest 3 4 5 6 4 2
Gap Narrows Between Regions Employment, 6 mo. MA, monthly annualized % change 3.5 3. 2.5 West 2. South excl. LA 1.5 1..5 Midwest Northeast. 5 6 5 Productivity Favors the Coasts Real gross state product per worker, 25, % change Sum of states = 1.8% Below average < 1.1% Average Above average > 2.2% 6 3
Housing Is on the Precipice 8 7 Sources: NAHB, Realtors, Census Builders' index (L) 4.2 3.8 6 3.4 5 3. 4 2.6 3 Unsold inventory, mil units (R) 2.2 2 2 4 6 1.8 7 Slower Home Sales Hit West Number of single-family home sales, % change year ago 15 1 5-5 -1 3 mo. MA South Midwest Northeast -15-2 Source: Realtors 5 6 West 8 4
Price Appreciation Has Halted Nearly Everywhere Median sales price, existing single-family homes 25 Quarterly annualized % change Northeast South 2 Midwest West 15 1 5-5 Source: Realtors 5Q1 5Q2 5Q3 5Q4 6Q1 6Q2 9 Slowing House Price Appreciation 26Q1: quarterly ann. % chg (blue); % chg year ago (red) Phoenix Tucson San Jose Stockton Sacramento Oakland Sarasota Washington DC Orlando Fort Lauderdale San Francisco Rochester NY San Antonio Bethesda Ranked by difference among 1 largest MSAs Source: OFHEO's repeat purchase price index -5 5 1 15 2 25 3 35 4 1 5
Price Appreciation Concentrated on the Coasts... Median sales price, single-family homes, % chg, 99Q4-6Q2 U.S. = 174% 2 largest metro areas 12-137% 137-186% 186-293% 11...Generating High Debt Service Burden... Mortgage debt service per household income, % U.S. = 6.6% 2 largest metros 7.3-15.% 5.4-7.3% 2.1-5.4% 12 6
...and Much Equity Extraction Ratio of equity extraction to household income, % U.S. = 9.2 2 largest metros -15.1 to 4.8 4.8 to 1. 1. to 33. 13 Credit Risks Are Emerging Change in mortgage delinquency rate, ppts, 5Q4 to 6Q2 2 largest metros Based on $ value U.S. =.1.4 to 1.3.1 to.4-2.4 to.1 14 7
Highly Overpriced Metropolitan Areas Portland Eugene San Francisco- Oakland Los Angeles-Santa Ana Honolulu Sacramento San Diego Las Vegas Riverside Phoenix Tucson Madison Milwaukee Albany Kingston Minneapolis Reading Sioux Falls Providence Rockford New York, Nassau Waterloo Chicago Newark Edison Champaign Kankakee Philadelphia-Camden Dover Davenport Lexington Hagerstown, Baltimore Washington - Bethesda Nashville Knoxville Virginia Beach Chattanooga Charleston Montgomery Jackson Jacksonville Mobile Baton Rouge Ocala Deltona Gainesville Orlando Tampa Palm Bay Gulfport Sarasota Miami-Fort Lauderdale Cape Coral New Orleans Highly overpriced 2 SD above historic average Based on the NAR median house price, 26Q2 Sources: Moody's Economy.com, NAR 15 Leading House Price Indicator > 4% probability of price decline in the next 12 months Redding Chico Sacramento Santa Rosa Reno Vallejo Carson City Oakland Merced Stockton Fresno St. George Visalia Bakersfield Las Vegas Santa Barbara Oxnard Los Angeles Riverside Prescott Santa Anna Phoenix San Diego Tuscon Honolulu Worcester Boston Kingston Barnstable Essex Allentown Long Island Edison New York Atlantic/Ocean City Baltimore Washington DC Gulfport New Orleans Ocala Orlando Sarasota Punta Gorda Deltona Palm Bay Port St. Lucie West Palm Beach Fort Lauderdale Miami 16 8
Construction Slows Most Quickly in West Const. employment, 6 mo. MA, monthly annualized % change 14 12 1 8 6 4 2-2 -4 South excl. LA 5 6 West Northeast Midwest 17 Housing-Related Employment Concentrations 1% or more of employment in housing-related industries (NAICS 238, 444, 4233, 5223, 5312, 5313, 5413, 5617) Coeur d'alene Bend Boise City Vallejo Reno Fort Collins Santa Rosa Sacramento St. George Denver Las Vegas Colorado Springs Riverside Santa Ana Prescott San Diego Phoenix Tucson Warren Barnstable Town Bethesda Washington D.C. Durham Raleig Huntsville h Wilmington Myrtle Beach Panama Charleston City Pensacola Jacksonville Deltona Fort Walton Orlando Palm Bay Beach Vero Beach Sarasota Port St. Lucie Punta Gorda West Palm Beach Cape Coral Naples Fort Lauderdale Red: Among 5 largest metro areas Blue: Smaller metro areas 18 9
Dependence on Property Tax Revenues State & local property taxes, % of general fund revenues Less than 25% 25% to 33% Over 33% 19 Taxes Lag House Prices by More Than a Year % change year ago 15 12 9 Single-family repeat purchase house prices, lagged 5 qtrs 6 3 State & local property tax revenue 96 98 2 4 6 2 1
Boom in Real Estate Transfer Fees Is Ending % change year ago 1 8 6 4 2-2 -4 State deed & stock transfer taxes (R) New & existing home sales (L) 95 96 97 98 99 1 2 3 4 5 6 25 2 15 1 5-5 -1 21 Capital Gains Realizations Will Slow Realized capital gains 7 6 5 4 3 2 1 $ bil (L) % change (R) 97 98 99 1 2 3 4 5 6 7 8 9 1 8 6 4 2-2 -4-6 22 11
Outlook for State Employment Growth Two-year annualized job growth, 26Q2 to 28Q2 U.S. = 1.% Below average <.8% Average Above average >1.4% 23 www.economy.com 12