This quarterly series is supported by a Tennessee Housing De- velopment .... Housing Price Index (HPI) published by the Federal Housing. Finance Agency.
1st quarter 2010
Tennessee Housing Market Business and Economic Research Center • David A. Penn, Director • Jennings A. Jones College of Business • Middle Tennessee State University his quarterly series is supported by a Tennessee Housing DeT velopment Agency grant.
The unemployment rate for the first quarter was unchanged at 10.7 percent. While some job gains did occur, they were offset by an increase in the number of persons searching for work. Another relatively positive sign is that job losses in manufacturing slowed to a trickle during the first quarter, suggesting that job growth may well turn positive during the second quarter. Nationally, manufacturing has experienced expansion for nine consecutive months, according to the Purchasing Managers Index (PMI). In addition, automakers are regaining their footing—good news for auto parts suppliers in Tennessee.
Economic Overview
The first signs of recovery emerged during the first quarter in Tennessee as the labor market almost stopped shedding jobs. Finally, the improving national economy began to exert some positive signs for Tennessee. Nonfarm employment, for example, was steady during the quarter, and employment in servicesproviding sectors posted a modest increase (Table 1). However, even though some labor indicators improved, the housing market experienced setbacks.
Housing Construction
Housing construction continued to climb during the first quarter, fueled mostly by gains in multifamily construction. Singlefamily construction, the core of the housing market, increased for the fifth consecutive quarter, but the gain was modest, up just 2.5 percent from the fourth quarter (Table 2), climbing to 13,700 units. Multifamily permits, on the other hand, experienced a large increase to 6,000 units, returning to pre-recession (2007) levels of activity.
Initial claims for unemployment insurance in Tennessee remained unchanged in the first quarter following several quarters of improvement (Figure 1). Initial claims is the number of newly laid-off payroll workers, considered an indicator of the future path for the unemployment rate. The current level of initial claims is consistent with job growth, but we are not yet experiencing net employment increases.
Table 1. Selected Tennessee employment indicators (thousands, seasonally adjusted)
Employment by industry (nonfarm) Total nonfarm Goods-producing sectors Manufacturing Services-providing sectors Labor force Total employment Unemployed Unemployment rate
2009.1
2009.2
2009.3
2009.4
2010.1
2,670.9 443.4 326.6 2,227.4 3,045.3 2,752.8 292.5
2,619.4 419.4 309.1 2,200.0 3,030.1 2,705.9 324.3
2,596.4 409.3 302.4 2,187.1 3,010.4 2,683.4 327.0
2,592.7 405.0 301.1 2,187.7 2,995.4 2,674.1 321.3
2,594.0 403.6 300.9 2,190.4 3,002.5 2,682.1 320.4
9.6%
10.7%
10.9%
10.7%
10.7%
Source: Bureau of Labor Statistics
Figure 1. Tennessee initial claims for unemployment insurance (quarterly averages of weekly data, seasonally adjusted) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Source: U.S. Dept. of Labor, Employment & Training Administration 1
2
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Tennessee Housing Market Brief
1st quarter 2010
Table 2. Permits issued for privately owned new housing (thousands, seasonally adjusted annual rate) Source: Census Bureau
Single-Family Permits Tennessee South U.S.
Quarter 2007.2 2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3 2009.4 2010.1 Change from previous quarter Change from previous year
Multi-Family Permits Tennessee South U.S.
Tennessee
Total Permits South
U.S.
29.3 27.0 22.3 18.8 17.4 15.3 9.8 10.8 11.1 12.6 13.4 13.7
528.3 474.7 414.0 364.0 327.7 286.3 219.7 198.7 213.0 242.3 248.3 267.7
1,031.7 916.3 786.0 670.0 627.0 550.7 420.7 361.0 405.7 459.7 474.3 518.3
7.2 6.4 9.3 4.9 3.5 5.7 5.5 2.3 3.8 1.2 2.2 6.0
204.3 163.3 175.3 174.0 154.3 159.3 104.3 79.0 64.0 46.3 50.7 55.7
425.0 398.0 402.3 358.3 420.7 311.7 220.3 169.7 123.0 113.3 123.3 128.0
36.6 33.4 31.6 23.7 20.9 21.0 15.3 13.1 14.9 13.8 15.6 19.7
732.7 638.0 589.3 538.0 482.0 445.7 324.0 277.7 277.0 288.7 299.0 323.3
1,456.7 1,314.3 1,188.3 1,028.3 1,047.7 862.3 641.0 530.7 528.7 573.0 597.7 646.3
2.5% 27.2%
7.8% 34.7%
9.3% 43.6%
169.9% 159.7%
9.9% -29.5%
3.8% -24.6%
26.4% 50.6%
8.1% 16.4%
8.1% 21.8%
Figure 2. Tennessee single-family home permits (seasonally adjusted annual rate, thousand units) 25
Thousands
20 Trend 15 10
Source: Census Bureau, with seasonal adjustment
Seasonally adjusted
5 0
1
2
3
4
5
6
7 2008
8
9
10
11
12
1
2
3
4
5
6
7 2009
8
9
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11
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1
2 3 2010
Figure 3. Real estate transfer tax collections (seasonally adjusted annual rate) $190 $170
Millions
$150 $130 $110 $90 $70 Source: Tennessee Department of Revenue and BERC $50
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2003
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2004
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2005
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Tennessee Housing Market Brief
1st quarter 2010
Figure 4. Mortgage tax collections (seasonally adjusted annual rate) $90
Millions
$80 $70 $60 $50 $40 Source: Tennessee Department of Revenue and BERC $30
1
2
3
2003
4
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3
2004
4
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1
2005
Tennessee experienced much more construction activity compared with the South and U.S. markets during the first quarter, again solely due to multifamily activity. Single-family permits lagged behind the South and the U.S. during the first quarter. Real Estate Transactions and Mortgages
Consistent with the decline in home sales activity, taxes collected on new mortgages and real estate transactions fell during the first quarter (Figures 3 and 4). Mortgage tax collections resumed a declining trend after rising in the previous quarter. Falling real estate values combined with fewer transactions and lower mortgage rates are reasons for falling mortgage tax revenues. Real estate transfer tax collections fell 7.6 percent in the first quarter following gains in the previous two quarters. Poor weather may have been a contributing factor, along with falling real estate prices. Home Sales
Residential real estate markets witnessed declining activity during the first quarter, as sales of single-family homes plunged in all three of the markets tracked by this report. Nashville sales fell to about the same level as two quarters earlier, while Memphis and Knoxville also experienced significant declines (Figures 5-7). The first quarter declines are out of step with the improving trend and may not be indicative of future sales in the short term. Two reasons may help explain the sudden decline. First, sales in October and November were undoubtedly boosted by the first round of the first-time home buyer tax credit that was slated to end at the end of November. The tax credit was renewed at the eleventh hour, expiring at the end of April 2010. But one could argue that much of the impact of the tax credit was front-loaded in the months of October and November, with much less impact in the first quarter 2010. This explanation seems to fit the national data from the National Association of Realtors (NAR).
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The NAR data for the first quarter show significant sales declines for all four major regions and almost every state, after adjusting for seasonality. The second reason for the decline has to do with weather. Very cold, wet conditions hampered shopping in general, and particularly for homes, in January 2010. Going forward, we would expect second-quarter results to be more in line with previous quarters. Home Prices
Home prices continued to soften in Tennessee, according to the Housing Price Index (HPI) published by the Federal Housing Finance Agency. The HPI is a repeat-sales index, tracking price changes for repeat sales or refinancings for the same properties over time. The most recent figures for the fourth quarter 2009 show housing prices in Tennessee down 3.2 percent over the year, compared with a 4.6 percent decline for the United States. Among the metropolitan areas tracked by this report, prices in Nashville are down 4.3 percent, while Memphis shows a decline of 3.4 percent and Knoxville a drop of 2.0 percent. Prices will continue to be soft as long as inventories of unsold homes remain high. Conclusion
The national economic recovery began to take hold in Tennessee during the first quarter, as evidenced by steady payroll employment, job gains in the services sector, and a steady, but high, unemployment rate. The first quarter will likely set the stage for gradual improvement in coming quarters. Although the first quarter was kinder for the labor market, that was not the case for the housing market. Poor weather and market distortions from the home buyer tax credit caused home sales to fall significantly. Permits issued for single-family construction rose somewhat, but multifamily permits rebounded sharply. Once the effect of the home buyer tax credit is behind us, we may expect a more gradual improvement in the housing market.
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1st quarter 2010
Tennessee Housing Market Brief
Figure 5. Single-family sales and inventory (seasonally adjusted quarterly average of monthly figures) 3,000
16,000 15,000
2,500
14,000
Nashville Area
13,000
1,500
12,000 11,000
1,000 Closings Inventory
10,000 9,000
0
8,000
2,500
14,000
2,300
13,000
2,100
12,000
1,900
11,000 10,000
1,700 Closings Inventory
1,500
9,000 8,000
1,300
7,000 6,000
1,500
15,000
1,400
14,000
1,300
13,000
1,200
12,000
1,100
11,000 Closings Inventory
1,000
10,000
Inventory
Closings
Memphis Area
900
9,000
900
8,000
800 700
Inventory
Closings
500
1,100
Inventory
Closings
2,000
Knoxville Area
7,000
600
6,000 1
3
2
2006
4
1
3
2
2007
4
1
3
2
4
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2008
3
2
2009
4
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2010
Source: Greater Nashville Association of Realtors, Memphis Area Association of Realtors, Knoxville Area Association of Realtors, and BERC
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