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By Brad Watts
Although many indicators of economic performance have posted steady (if modest) gains in recent months, the nations housing market remains in the doldrums. According to the National Association of Realtors, existing home sales have posted a few gains over the past few months, yet still remain at a level significantly lower than during the same month one year earlier. Data from the U.S. Census Bureau, which tracks new home construction, also shows that new residential construction, as measured by building permits and completions, has fallen over the past year. Both findings are especially discouraging given that 2010 was a poor year for housing and 2011 does not appear to be any better despite the fact that the recession ended roughly two years ago.
So just how bad is the housing market? A look at long-term historical data on sales of newly constructed housing provides a stark visual reminder of how inflated the market for new homes became during the mid-2000s, and how rapidly the market has contracted since then. The chart below shows the actual monthly annualized rate of new home sales nationwide, along with a simple regression trend line that represents the hypothetical long-term expected rate of sales. As clearly illustrated by the strong break from the trend line, sales took off at a faster-than-expected rate starting in the late 1990s and continuing until hitting a peak annualized rate of 1.389 million new homes in July 2005. After that, the market crashed rapidly: in February 2011, the annualized rate of new home sales was only 278,000its lowest point since data were first collected in 1963.
On the positive side, the historic low rate of new home sales suggests that the market should be near bottom. As of April 2011, the annualized rate of new home sales, 323,000, was approximately 500,000 units below the level expected by the long-term regression trend, which suggests that housing developers, construction firms, and realtors may look forward to a doubling of the market over the next few years. Still, expectations should likely be held in check for the near term, given the still slow market for existing homes reported by the National Association of Realtors, which can be expected to pick up before the sale of new homes. Additionally, an aging U.S. demographic along with ongoing changes to the regulatory and financial environment for mortgages may also restrict demand to lower levels than were seen over the past two decades, even as the overall economy expands.
Brad Watts can be reached at Watts@upjohn.org.
By Brian Pittelko
A recent article from the Bureau of Labor Statistics (BLS) entitled Pay Comparisons Between Metropolitan Areas in 2010 looked at the differences in wages between metropolitan statistical areas (MSAs). The BLS created a simple index using wage data from the 2010 National Compensation Survey (NCS) with U.S. wages set to 100. The MSA with the highest index rating was the combined statistical area (CSA) of San JoseSan FranciscoOakland, California at 120 and the lowest was the BrownsvilleHarlingen, Texas MSA at 80. These index ratings means that these areas have wages 20% above and 20% below the national average, respectively.
I added another dimension to their comparison by using 2009 American Community Survey (ACS) data on the value of owner-occupied homes. I created a similar index and matched it to wage data in order to see if wages matched home values. The figure below shows the spectrum of home values and wages. Before considering a move to the Bay Area for a wage hike, one should realize that they are the furthest point on the top right, indicating that while wages are 20% above average, home values are 200% above average.Brownsville-Harlingen, while having lower wages, has home values of less than half of the national average.
The figure seems to show that most metro areas match
low-to-low or high-to-high wages and home values. Only 11 of the 77 metros are
either in the top left or bottom right quadrants. The top left could reflect an
area with a strong quality of life: residents are willing to pay high home
prices while receiving low wages because it is simply a great place to
live. Richmond, VA, Miami, FL, and
Phoenix, AZ are included in this quadrant. The bottom right suggests the
opposite: residents require higher pay
relative to housing costs to live in these areas. Detroit, MI, Reading, PA, and
Rochester, NY are in this group.
Brian Pittelko can be reached at Pittelko@upjohn.org.
By Brad Watts
It has been said that people are the most difficult resource to move, yet according to the U.S. Census Bureau CPS Geographic Mobility data, roughly 12.5 percent of the population changed residences between 2009 and 2010. Although this data suggests that America is a nation of movers, recent levels of mobility represent a significant decline compared to a decade earlier, when 16.1 percent of the population changed residences between 1999 and 2000. As the chart below shows, mobility declined across all age groups, although younger age groupswhich are the most mobile overallsaw the largest decrease in mobility rates during the past decade. During the same period, mobility rates for persons in the oldest age categories, which typically represent retirees, remained relatively stable. It should also be noted that the percentage of people that are moving long distances has also fallen; between 1999 and 2000, 23.4 percent of movers had migrated across a state line, versus only 14 percent during the 2009-2010 period.
Not surprisingly, the reasons for the change in mobility
rates appear to be frequently economic in nature. The reason that increased the most in
percentage terms was wanted cheaper housing, while the percent of movers
citing reasons related to desires such as wanted own home, not rent and
wanted new or better home/apartment declined substantially. Interestingly, the number of movers reporting
that a new job or job transfer was the reason for the move also declined
significantly, which would appear to reflect a lack of job opportunities during
By Brian Pittelko
A new paper by John V. Winters in the Journal of Regional Science asks Why Are Smart Cities Growing? Who Moves and Who Stays." Winters finds that having high levels of educational attainment actually does help cities grow.
The paper looks metropolitan statistical areas (MSAs) with a
large population of residents with college degrees. The analysis was conducted
using primarily Census migration and education data from 1980, 1990, and 2000.
Other factors included in the regression were manufacturing employment, income, weather
and region. Winters finds that having a
high population of residents with a bachelors degree or higher had a
significant positive effect on in-migration, out-migration, and net-migration. Many
of the areas were smaller towns centered around a large university, such as
Iowa City, Iowa and State Collage, Pennsylvania, that seem to be retaining a
certain population of their college graduates. Winters further analyzes MSAs that are not
considered college towns and again finds that these smart" cities are also
growing, although the driver of in-migration in these areas is still those
enrolled in college.
The only criticism I have is that the limited amount of variables besides education are likely not painting the whole picture. Other factors could be driving migration. We do not know what types of jobs are keeping the college grads, nor do we know if there are any other quality-of-life variables besides weather that are influencing net migration. Still, the research seems to say that having a well-educated population does indeed have some population growth benefits.
Brian Pittelko can be reached at Pittelko@upjohn.org.
By George Erickcek
Researchers are in conflict, once again, over the importance of small businesses in creating jobs. The current debate centers on whether small businesses weathered the Great Recession (2007 to 2009) better than larger establishments.
As recently summarized in an article by Kevin L. Kliesen and Julia S. Maus at the St. Louis Federal Reserve, the debate about the importance of small establishments in creating jobs started back in 1979 when David Birch claimed that small establishments employing fewer than 20 employees generated 2/3 of all jobs. Birchs work generated numerous papers which both fine-tuned and lowered his original findings. The general conclusion reached was that small establishments generate a lot of jobs; however, many die after a couple of years, so their net employment impact is much smaller.
Kliesen and Maus concluded that from 1992 to 2010, small establishments employing fewer than 20 workers created 16 percent of all net jobs during the period. Additionally, if the 2007 to 2009 recession is removed from the sample, small establishments account for 28 percent of all net jobs being created. In other words, hard times hit small establishments particularly hard.
These findings countered those of the Kauffman Foundation, which reported that entrepreneurial activity hit a 14-year high in 2009. Scott Shanes research at Cleveland Federal Reserve found that the Kauffman Foundation findings were correct in that the number of persons going into self-employment rose sharply in 2009; however, a greater number of existing self-employed individuals closed their businesses. The number of unincorporated self-employed persons dropped from 10.2 million people in November 2007 to 9.8 million people in June 2009.
Perhaps recessions generate what I call accidental entrepreneurs, or persons who open their own businesses because they have lost their previous employment. Some of these persons may become very successful and, in fact, benefit from that push out into the dynamic world of entrepreneurship. Nevertheless, hard times are simply hard times for all businesses, large and small.
George Erickcek can be reached at Erickcek@upjohn.org.