The decline in real estate activity is a significant contributor to the depth of the economic downturn here in the Southeast, and it is also a big part of why our national recovery has been slow. Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, spoke to the National Funding Association's Council for Quality Growth in Atlanta in mid-May. The title of his remarks was "Real Estate and the Economic Recovery." With regard to the national picture, President Lockhart commented that
"The residential real estate market remains depressed. In my baseline forecast, the housing sector will contribute only modestly at best to economic growth this year and next."
The same can be said for housing's contribution to economic activity in the region as well. The theme regionally continues to be that housing is stabilizing at very low levels. Whitney Mancuso noted this in her May 17 SouthPoint post.
Looking again at President Lockhart's remarks, he noted that
"Home sales have not shown any clear trend of improvement since the end of the recession, except for a short pick-up during the period of the federal tax credit last year."
Looking at home sales in the states that have experienced the largest decline in housing activity—Florida and Georgia—the national picture is quite similar. Some areas of Florida have experienced a renewed upward trend in sales, and the chart below reflects this uptick. However, it is important to recognize that our Florida contacts in the real estate sector have told us that this is being driven largely by sales of distressed properties and by investors making block purchases of condos, in many cases with cash. Therefore, we hesitate to conclude that a sustainable recovery in home sales is under way.
With regard to home prices, President Lockhart said that
"S&P/Case-Shiller data show that home prices are down more than 30 percent from their peak. While prices appeared to stabilize in 2009 and 2010, today prices appear to be under renewed pressure from the increasing supply of distressed properties that are selling at a deep discount."
The next chart shows that home prices in Miami and Tampa, two Florida metro areas that are components of the national S&P/Case-Shiller Index, are down much more than the national measure—50 percent in Miami and 46 percent in Tampa. They are down 26 percent in Atlanta, the only other southeastern metro area in the national composite measure. Importantly, as President Lockhart noted, prices have been drifting lower recently, although not at the pace of decline seen in 2007 and 2008. Nonetheless, we do not see a recovery in home prices in the Southeast to date.
Weak sales and drifting prices have resulted in a very slow pace of new construction activity in the region. The last chart shows that permits for new residential construction remain at historically low levels. Reflecting this data, our most recent survey of homebuilders noted that more than half of builders reported that sales and construction were down from weak levels a year earlier.
President Lockhart concluded his remarks by noting that
"Because of the factors I've discussed, I do not expect significant new residential construction nationally. Thus, it's unlikely that residential real estate will directly contribute much to GDP growth this year or next."
Unfortunately, the same can be said for the region's real estate outlook.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department