States in Recovery: Housing
By Pamela M. Prah, Staff Writer
Sunbelt states that bore the brunt of the housing collapse are making a comeback based in part on the very sector that sent them into free fall.
Housing starts, housing prices and foreclosures are all interwoven with jobs, and a Stateline analysis shows California and Arizona adding jobs at a higher rate than the rest of the country while Florida and Nevada are on the mend too.
“Housing has an over-sized impact on the economy,” says Sujit CanagaRetna, senior fiscal analyst of the Council of State Governments. “There are all kinds of ripple effects generated by the housing sector. Whether it’s the makers of kitchen cabinets and flooring to architects and construction workers . . . housing affects every sector of the economy.”
Here’s how much: For every single family house built, more than three full-time jobs are created. Half of those jobs are in construction and the other half are related to products that go into a home, such as lumber, concrete, lighting fixtures and heating equipment, according to the National Association of Home Builders.
The impact goes far beyond construction. There are real estate agents and brokers who provide services to home builders and home buyers, as well as lawyers who get involved with closings and foreclosures. Tax-wise, state and local governments will collect an estimated $90,000 in taxes for every single-family house built.
This June will mark four years since the official end of the 2007-2009 recession, which was brought on largely by the bursting of the housing bubble and a credit crisis. The economic downturn depressed home buying, and when people weren’t buying houses, they weren’t purchasing big-ticket items like refrigerators and carpets and other home supplies, affecting demand and thus jobs.
Marked Change in California
Just last year, California, which has the world’s ninth largest economy, was looking at double-digit unemployment, multibillion-dollar deficits and the dubious ranking of first in the nation in foreclosures. But over the course of 2012, California added jobs at a rate faster than the rest of the country, including posting more new construction jobs than any state besides Texas. The state’s budget is essentially balanced for the first time in years, thanks to rising revenues from increased economic activity and Democratic Governor Jerry Brown’s tax hike, which voters approved last fall.
While California’s unemployment rate of 9.8 percent remains higher than the national average of 7.9 percent, the state typically has had a higher jobless rate for the past 20 years, even when it was creating more jobs than the rest of the country, says Sarah Bohn of the Public Policy Institute of California in a new report.
This paradox occurs because California’s labor force grows faster than the U.S. labor force. So while the state’s economy generates jobs at a rate similar to the national rate, it’s not enough to keep up with California’s faster-growing population.
Meanwhile, consumer spending in California is up, and tourists are again flocking to Hollywood, the Golden Gate Bridge, and other California venues such as Sea World, which saw a 13 percent increase in attendance last year.
Housing, commercial real estate and bank lending are all moving forward, says Christopher Thornberg, founding partner at Beacon Economics in Los Angeles. “Real estate has finally begun to add to the state’s economy, rather than detract from it.”
And for the first time since January 2007, California no longer leads the country in foreclosure filings—Florida has claimed that spot. One in every 300 Florida housing units had a foreclosure filing in January, according to RealtyTrac, more than twice the national average. California foreclosure filings stood at one in 753 properties.
Florida Ranks First in Foreclosures
|Source: RealtyTrac, 2013.|
Daren Blomquist, vice president at RealtyTrac, says a key reason for declining foreclosures is California’s new “homeowner bill of rights” law. The law, which went into effect in January, makes it illegal for lenders to repossess a house while the owner is trying to negotiate lower mortgage payments.
In Florida, all foreclosures go through the court system, typically taking more than two years. Other states use a non-judicial process that involves the court only if the foreclosed homeowner files a lawsuit to stop the sale.
Lance deHaven-Smith, a Florida State University professor, says Florida has a bigger problem than foreclosures. The state has a large inventory of empty houses that need to be sold before the housing market will recover. He says home values need to recover nationally “so Baby Boomers nearing retirement can sell their houses and move to Florida.”
Florida’s overall unemployment rate is 8 percent, but the state has just half the construction jobs it had in the peak year of 2006, according to the Associated General Contractors of America. Florida enjoyed a huge boom in retirement and vacation homes before the recession, and some parts of the state remain overbuilt in the residential sector.
Jerry Parrish, chief economist at Florida TaxWatch, a tax watchdog group in Tallahassee, notes that Florida’s economy began to suffer months before the U.S. economy did. So while the national recession lasted 19 months, Florida’s recession lasted 35 months.
Florida’s recovery depends largely on tourism, which employs more Floridians than any other sector. The number of tourism jobs actually grew in the early part of the recession, and last year tourism generated 30,000 new jobs, more than any other sector, Parrish says.
A new Harry Potter attraction at Universal Islands of Adventure in Orlando provided a boost. Universal Orlando saw a nearly 30 percent increase in attendance in the year after Harry Potter was added in 2010, bringing in more than 1.7 million visitors.
These visitors are important because the state lacks an income tax, so the state relies heavily on the sales tax, including sales to tourists. Here the state is lagging: Overall sales tax collections are still 15 percent below the 2006 peak, according to the latest figures from the Nelson A. Rockefeller Institute of Government.
Arizona Moving Faster on Jobs
|States with Most Losses in Construction|
|Source: Associated General Contractors analysis of U.S. Bureau of Labor Statistics data.|
Like California, Arizona is creating jobs at a higher rate than the rest of the country, but still has not dug itself out of a deep hole.
Arizona fell much further than most states during the recession. The state lost 12 percent of its jobs, compared to the 6 percent national rate, according to Lee McPheters, economics professor at Arizona State University’s W. P. Carey School of Business. McPheters estimates that Arizona’s rate of job growth from its lowest point to December 2012 is 4.6 percent_higher than the 3.7 percent national rate. “Arizona is further behind and has a longer way to go to recover, but is moving faster than the U.S.,” he says.
Arizona is experiencing one of the sharpest rebounds in construction of any state, even though the number of workers employed in that sector is still 51 percent below its peak in 2006. The state added 7,000 construction jobs last year, ranked sixth in the country.
Mortgage foreclosures have fallen in Arizona, but delinquencies remain high. And with house prices still far below pre-crisis levels, many homeowners find themselves owing more on their mortgages than their houses are worth. Housing permits, however, were up in 2012, a hopeful sign.
Arizona relies heavily on sales tax revenue, and collections in 2012 were nearly 30 percent below the peak in 2007. The state has been steadily cutting other taxes since the 1990s, and Republican Governor Jan Brewer has continued the trend with new business tax cuts, including a cut in the corporate tax rate, which will decline by 30 percent between 2013 and 2017.
A temporary one-cent sales tax is set to expire this year after voters last fall refused to make it permanent. State lawmakers will have to figure out how to make up the revenue. The governor has proposed revamping the state sales tax to make it less complex for businesses, including allowing the state to collect taxes on Internet sales.
Nevada Lags Behind
Of the states hit hardest by the housing bust, Nevada has the longest road to recovery. The state is tied with Rhode Island with the highest unemployment rate of any state (10.2 percent) and has foreclosure rates second only to Florida.
Historically, this is unfamiliar territory for Nevada, which saw the strongest population and employment growth of any state in the two decades leading up to the recession. In the last recession, the state saw the largest percentage drop in employment than any other state.
In large part, Nevada’s economy is still lagging because of lackluster growth in the construction and hospitality sectors. Stephen P.A. Brown, director of the Center for Business and Economic Research at the University of Las Vegas, figures that had these two sectors performed as well as their national counterparts during the recession and recovery, they would have generated another 119,000 jobs. Those new jobs would have brought the state close to its pre-recession employment peak.
Employment in Nevada’s construction sector dropped 66 percent from its pre-recession peak to the end of 2012, the most of any state. The recovery is being hampered by the surplus of housing and commercial space, which was overbuilt during the 2000-2007 real estate boom.
Like Florida, Nevada relies heavily on tourism, particularly from Las Vegas casinos. Gambling, once considered recession-proof, is a driver of the state’s overall economy. The state’s major casinos have been posting billion-dollar losses for the past four years. Casinos generated a net loss of $1.2 billion in 2012; still, better than $4 billion loss the previous year, recent figures show. And the $865 million that the state collected from casinos in 2012 in tax revenue is still below the $1 billion collected in 2007.
Nevada tourism is recovering. Last year, Las Vegas welcomed a record 39.7 million visitors, a half million more visitors than the previous high of 39.2 million in 2007.
Job growth is showing signs of life, too. The 1.7 percent increase in private sector jobs created during the first half of 2012 was stronger than growth in 17 other states. “So improvement is evident, but much ground is left to be made up,” the state’s chief economist Bill Anderson, said in the economic overview released in February.
Overall Nevada foreclosure activity fell 43 percent from a year ago. But with one in every 344 housing units filing a foreclosure notice in January, Nevada still posted the nation’s second highest foreclosure rate.
Thornberg of Beacon Economics says he thinks too much attention has been given to foreclosure rates, which he says was a symptom of lax credit standards, not a cause of the recession. “What we’ve been going through the past four years is the mother of all hangovers,” he says. “Getting rid of the headache doesn’t get rid of the fact that you were out boozing.”