MARK ZANDI – Economy weakening
Despite the weakening in Connecticut’s real estate market, median sales prices will probably not follow the lead of the state’s neighbor, Massachusetts, and fall. Prices likely will flatten instead, according to Edward J. Deak, a professor of economics at Fairfield University.
Deak and other economists addressed a crowd at the New England Economic Partnership’s fall economic outlook conference earlier this week in Westborough, Mass.
Despite the relatively good news, housing will be one of the sectors that depresses the state’s economy in the next couple of years, according to Deak.
“The weakness in the state, not surprisingly, is going to be in the real estate market and in manufacturing,” he said. Deak added with a laugh, “You might not want to let your sons and daughters go anywhere near the real estate industry in New England.”
New-home permits in the state fell significantly in 2005, although not nearly as much as permits fell nationwide last year. This year, though, Connecticut’s permits dropped by more than 15 percent, compared to about 5 percent nationwide, according to statistics from Deak’s speech.
The magic year for the state will be 2008, Deak said. That is when he expects positive growth in new-home permits, and when he foresees the state recovering the jobs that have been lost since the recession in the early part of this decade. The state has seen positive job growth since 2004, and that continues.
“We have agonizingly slow, but positive, job growth this year,” he said.
NEEP is predicting new-home starts in Connecticut to fall by 6.2 percent this year and by 8.3 percent in 2007. The group also is forecasting the nominal sales price for existing homes to be up by 3.6 percent this year, and by 0.5 percent next year.
“One bright spot is that the above housing projections will still be above historical annual averages,” according to NEEP. “However, the minimal gains in nominal home prices should mean that inflation-adjusted home prices will fall, while the effective price of new homes, including buyer concessions and free upgrades, should decline as well.”
That could create problems for homeowners with adjustable-rate mortgages, according to NEEP. The interest rates on those mortgages will reset at a higher rate next year. Connecticut’s economy as a whole is a mixed picture, according to the partnership.
‘Highly Uncertain’
Unemployment rates are low and real income is higher, although the pace of job creation is low. The state saw one of the slowest recoveries in nonagricultural jobs in any state in the country. But compared to the rest of the country, job loss likely will not have as much of an impact on Connecticut.
“Looking ahead to 2007, national job declines in housing-related industries, along with manufacturing, should have a lesser negative impact on Connecticut,” Deak said in a prepared statement. “Conversely, anticipated strong national job growth in financial services and professional services should help the state where these jobs are relatively more important.”
New England’s economy as a whole will perform below the U.S. average until late 2007 or 2008, according to NEEP. Total employment and per capita income growth will be below the rest of the nation. Massachusetts and New Hampshire are expected to have the strongest economies in New England.
NEEP predicts employment across the region to grow at a rate below that of the nation until 2010, and expects employment to expand at an average rate of 0.8 percent per year. Nationally, job growth is supposed to increase 1.3 percent during the same time period.
Mark Zandi, chief economist for Moody’s Economy.com, also spoke to the crowd, and noted that the national economy’s growth has weakened during the second half of the year.
“Moody’s Economy.com expects U.S. growth to remain below the economy’s 3 percent real gross-domestic-product growth potential through next spring,” Zandi said in a prepared statement. “Unemployment will edge higher during the period, rising to near 5 percent. Higher unemployment, along with continued low energy prices and tethered inflation expectations, will be sufficient to ensure that underlying inflation will peak in early 2007. Core consumer price index inflation is expected to top out at 3 percent. While this is above policymakers’ inflation target, the below potential economy will forestall further monetary tightening, and indeed odds are that some modest easing will be necessary early next year.
“The risks to the expansion remain skewed to the downside, with an estimated one-in-four probably of recession in the coming year. This is well about the one-in-10 probability that prevailed at the start of this year. Recession risks will remain elevated as long as the housing correction continues to unfold. The severity of the correction and its secondary effects remain highly uncertain.”
