Although many think the housing boom in Connecticut and across the country has set the market up for collapse, that is not necessarily so, Nicholas Perna, economic advisor for Waterbury-based Webster Financial Corp., told a crowd of commercial real estate professionals at a conference last week.
The characteristics of the most recent housing boom do not match the factors that contributed to the collapse in the early 1990s, Perna said at the University of Connecticut Center for Real Estate and Urban Economic Studies’ annual commercial real estate conference, held at the Hartford Marriott Farmington in Farmington.
In the housing boom of the late 1980s and early 1990s, four factors caused the subsequent bust, according to Perna. The first was rampant overbuilding: Connecticut saw 25,000 new building permits in 1986 and 1987. Additionally, interest rates were at 10 percent or 11 percent during the boom, and were rising at that time. Statewide, jobs had fallen between 9 percent and 10 percent, and tax law changes also affected the housing market.
But the current housing boom in Connecticut is different, Perna said. There is not significant overbuilding in the state, as far fewer permits are being issued. Interest rates are rising again, and should be looked out for, but another point added will not harm the economy’s recovery, he said. He did warn attendees, however, to watch out for tax law changes.
“Be careful what you ask for,” Perna said.
But he added that it is unlikely the tax laws will change this year. And jobs are steady and growing slightly.
So Connecticut’s housing market, unlike other housing markets in Boston and Florida, is not facing much of a risk of major decline, Perna said.
‘Through the Roof’
But some other areas of the national economy are slightly more troubling.
“I think we’re in a bit more of a slowdown than those who say [problems with the economy are due to] Hurricane Katrina,” he said.
The slowdown started when automobile sales were “pushed through the roof” earlier this year when car manufacturers began offering employee discounts on cars. People came to the dealerships in droves in July, but then the automobile industry experienced a major slowdown.
Energy prices are also poised to be very high this year. Although gasoline has fallen to pre-Hurricane Katrina levels, energy costs have not, Perna said. Home sales also will flatten as interest rates rise, and the $600 billion people took out in home equity lines last year likely will not be repeated. But the rebuilding on the Gulf Coast after the hurricanes earlier this year will keep the economy from falling into a recession.
Perna predicted that the economy will be slow for the next couple of quarters, and then pick up.
“Market fears are overblown about inflation,” he said.
Interest rates will probably stabilize in the near future, Perna added.
“I think there’s a good chance the Fed is going to take a break soon,” Perna said.
And the new Federal Reserve leadership likely will not make much of a difference in the way the Fed views the economy. Incoming Chairman Ben Bernanke, who is slated to take over the position early next year, is more plainspoken than current Chairman Alan Greenspan, but the differences are more about style than substance, Perna said. Still, he added that one effect of the change could be that the markets may test the new chairman.