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Market Insights

Text of John Rice's speech to Women's Council of REALTORS February 11 Concord, NH

2014 Real Estate Trends

Thank you for inviting me here today. And thank you to Debbie Baird and Denise Rogers for thinking of me. I guess old soldiers don't completely fade away and I should be flattered you still remember my name! Tom Riley warned me that being an ex-president is quite a dramatic change. Nobody speaks to you anymore. No one cares what you think about stuff. So, thanks for making my "retirement" from the NHAR political scene a little less painful. At least for the next few minutes I hope to be relevant again!

For many of you, 2013 was probably a great year-I know it was my personal best and I have been selling homes since 1972. Let's review (bask in?)the 2013 numbers and then take a look at the factors which will influence 2014 and where the market might be heading.
By the way, my wife Joan warned me about using too many numbers and statistics-which I just love to do. So, I've tried to tone the numbers down, but they do illustrate in a concrete just how far we've come and where we might be going.

First, looking from 10,000-feet, the market across the country in 2013 made the Great Recession of 2007-2012 an unpleasant passing memory. Home sales and prices went way up while foreclosure loads went way down. Multiple offers became common place and are now almost a way of life in some markets in New Hampshire at least.

Nationally, the median existing sales price was up 11.5% to $197,100 for single family homes-the strongest gain since 2005. It climbed 8.8% to $160,000 for condo properties. Months supply of inventory decreased 23.2% for single family units and 33.3% for condo units. I don't have to tell you that here in New Hampshire we are starting to hit at least three-year lows in available inventory. I know this is true on the Seacoast.

This past year, we could all see the confidence in consumers. And why not? There was slowly improving unemployment, low interest rates and still affordable prices. Not to mention a 30% increase on the Stock Market. All despite gridlock in Washington and the ravishes of Sequestration. It's not surprising that the NAR said 2013 was the market's strongest performance since 2006.

But, of course, no review of the market would be complete without the in-put of NAR Chief Economist Lawrence Yun. Last month Yun pronounced that housing has experienced a healthy recovery in the past two years:
-Home sales are up 20%
-Near Record low interest rates
-Pent-up demand
-Sales of distressed homes (foreclosures and short sales) accounted for only 14% of December sales, compared to 24% in 2012.
Yun also said the market was held back because...
-Although there was some job growth, momentum was restrained because job growth was too slow
-Lack of inventory

And now let's turn our focus to 2013 in New Hampshire. The news was 99% all good.
-Total volume exceeded 15,000 sales for the first time since 2005, as opposed to to 2006 for the nation as I mentioned earlier.
--We continued a 22-month winning streak of sales increases that came to an end in November-only to bounce right back in December.
--The year-end median sale price of $210,000 marked a 9% jump from 2012.
--Average days on market dropped 12% in 2013 to an average of 102 days.
--Pending sales were up 9% for the year and 2% in December-All good news for the year ahead.
--Condominium sales for the year were up 17% from 2012.
--Condo median sale price of $160,950 was a 7% increase.
--Total sales volume increased an impressive 26% for the year.
--Nine of 10 New Hampshire counties saw residential sales increases in 2013 with only Coos experiencing a slight drop of 2%. Coos, with the state's highest poverty rate by far, was also the only county with a decline in median sales price.
So that was the "Year that was." So what of 2014?

-Continued rising consumer confidence right through 2d quarter 2015.
-Unemployment improving only .4% for the year
-30-year fixed mortgage rate will rise from 4.6% to 5.3% in fourth quarter 2014. (Much of this depends on the effect of the Fed's scaling back of "quantitative easing," the Fed's so-called priming of the economy. As an aside, the median NH monthly mortgage payment of $1,050 is down 37% from where it was in 2006. That's affordability! )
-Existing home sales: essentially will flat line with an uptick in the 4th quarter.
-New home sales will increase 29.2%.

Let me interject here that according to a story last month in the New Hampshire Business Review, November new residential construction was the strongest sector in New Hampshire's construction industry. There was a nearly 200% increase in the value of future residential contracts in November from the previous year. Through November, total sales were 60% ahead of 2012. That's success!

But back to our forecast:
-Median Existing Home sale prices should rise 5.3% and new home prices 4%.
NAR President Steve Brown summed things up nicely: "The only thing holding us back are on-going issues of restrictive mortgage credit and constrained inventory."

But there are other "things" which we are going to have to work through. There are two immediate issues: The stock market and FEMA. Although the real estate and stock markets are not as tied together as some may think, a rising market is a strong consumer confidence factor. Conversely, investors are very likely to look to real estate as a safer, steady-eddy-type investment. It's a mixed blessing. Is the current stock market decline just profit taking? What's up with this? Stay tuned.
--FEMA is another matter that is not going away. The roll out of the new FEMA Flood Maps and their impact on new construction, home improvement as well as flood insurance rates is potentially devastating to the waterfront market.

We are currently being held hostage by FEMA while the Feds drag their feet getting these maps out. Consequently consumers stall buying decisions while prudently waiting to see just how bad the new ratings might be-even though not all communities are expected to see things get worse. Seacoast NH was slated to have their maps by October-now its supposed to happen late this month. Whenever the roll out happens, I can't see how these new maps can do anything but depress values as it becomes harder to finance the purchase of waterfront since it will be nearly impossible to insure. Let alone improve on what's already there.

And now those demographics I was talking about.
--Probably the biggest issue we have in New Hampshire is that we are a rapidly graying state in an already-aging country. The US is getting older and younger countries tend to be more dynamic economically. In 2010 the US median age was 36.9...New Hampshire's was 41.1-a level the rest of the country won't reach until somewhere around 2045. I think we are currently the third oldest state in the country behind Maine and Vermont.
--The implication for our state is slower economic growth within a national climate of already slow growth, increased social costs for the elderly and less needs for schools and resources for the young. In fact there is a net negative migration out of the Granite State.
--This really is not a good thing. In the 70's, 80's 90's, economic growth in our state meant a gain of 10 to 20,000 new residents each year. Potential buyers! But now we have out-migration even as the state reaches it's pre-recession employment peak sometime this spring, according to the New England Economic Partnership.

As REALTORS, we should be aware that out migration seems to have picked up steam and has continued unabated since 2006. It's modest (about 2300 in 2010) but it still means that potential buyers are leaving us. For the health of our state and our industry, we should be doing what we can to reverse this trend.

--As we all know, our economy is partially dependent on Massachusetts-we offer a low cost alternative for employees and firms looking to reduce expenses. But with younger employees leaving the state, manufacturing jobs are expected to decrease by .4% for the next five years-even though out-put should increase. There is some good news here, however, which I will speak to in a moment.
--The Private Services sector will grow but only by a stubborn 2% annually-this would include Professional and Business Services, Leisure and Hospitality, Education and Health Services.
--State foreclosure rates should continue to decline and our rental market remain strong with rental vacancies running below 5% in most areas. Foreclosure rates, to be sure are still high, but under 3,000 now for the first time since 2007.

In short, however, across the country and in New Hampshire we still had fewer jobs in 2012 than we had in 2007, the beginning of the Great Recession. It's not helpful to the real estate industry as we continue to struggle to find ways to grow our economy.

Remember I talked about declining work in the manufacturing sector? One ray of light comes from a UMass report released last month claiming that Massachusetts' and national economy are poised for an improvement from "fair to good." In the fourth quarter, the Mass economy grew by 5.5% outstripping the national economy which grew by 3.2%. I think this economic expansion can only help the New Hampshire real estate market among "commuting towns."

And there's still more good news. Key to our industry is consumer confidence. According to the UNH Survey Center, more than half of Granite Staters surveyed think New Hampshire will do better next year-that's the most in the last six years. Only 27% think things will get worse and another 27% think they will be "mixed." That's pretty much how people thought prior to the recession of 2007.

We should be building on that consumer confidence. The reasons behind it are rooted, among other things, in the second-highest homeownership rate in the country, a very well-educated work force, including a #5 ranking in science and engineering, favorable business tax climate, high volunteerism rate and high tourism spending rate. Also important and particularly relevant is the high-rate of health insured folks in the state (#9)

But New Hampshire also suffers from one of the highest corporate tax rates, deteriorating infrastructure including a #39 ranking in obsolete and deficient bridges (come to Portsmouth!) and expensive work force housing (#43)...We also rank #46 in capital investment projects per 100,000, #47 in land use regulation (have you been watching what's going on in Portsmouth) and a staggering #50 in student debt-a key reason why young people are migrating to states with higher paying jobs and less overhead. As it is, long-term overall unemployment remains high, especially among young workers without college degrees.

So in summary, with consumer confidence high, interest rates still low and inventory in short supply we seem poised for a pretty good "seller's market" kind of year. Total real estate activity in 2013, good as it was, totaled 60% below the peak of activity seen in 2006. Hence there should still be room for at least modest increases in volume and more definitive increases in median sales prices-all this despite a shrinking population.

At this point, I want to stress what I have already said, the country is aging and the national workforce shrinking. So it's not a unique problem to New Hampshire-it's just that we are older than 46 other states and people are not falling over themselves to come here. As an aside, thank you very much to AOL and the AARP which named Portsmouth the #4 place to retire to last month. Just what we need, though, more old folks!

In closing, I think we should be supportive of immigration initiatives that might bring families and, therefore, potential new homebuyers to New Hampshire. We need to keep our young people here to foster our economic vibrancy as well as our social fabric. We should be as enthusiastic about improvements and financial support to our universities and schools and infrastructure as we are about the construction of retirement communities. We need to educate our population to the demands of the national economy and provide jobs that meet that demand.
And we need to ensure our business climate is healthy and competitive, while our well-educated work force has affordable, quality housing in which to live.

I think as REALTORS we "get it." I am willing to bet that the vast majority of you in this room, like myself, are deeply involved in your community. I urge you to stay involved so that we can not only keep our state strong but also be good stewards of our profession and this real estate market. Thank you and have a fabulous 2014!


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