New England Outlook: Regional Economy and Residential Housing Industry Forecast Ross Gittell Professor, University of New Hampshire Vice President and Forecast Manager, New England Economic Project (NEEP)

New England regional economy  -- Regional economy expected to improve but grow at rate below US average y-- Even fastest growing sectors in the regional economy are expected to grow at rates below US average y-- Overall (GSP) growth is expected to be moderate and remain below 4 percent… much slower growth than late 1990s of above 9 percent y-- NH expected to be strongest overall performing state y-- Massachusetts economy expected to improve slowly

The Employment outlook…improving...but y-- Total Employment growth returned in 2nd Q of 2003 after 8 consecutive quarters of decline y-- Employment growth expected to remain below 1 percent till mid 2004 y-- Employment growth expected to peak at 1.9 percent in 1st Q 2005 y-- Then decline to 1 percent per annum.. below US overall employment growth rate

When will the lost jobs return? yThe region will not return to end of 2001 employment levels until the 3 rd quarter of 2005 a quarter after US economy recovers lost jobs yManufacturing will continue to decline and not return to 1998 peak yInformation sector expected not to return to its 2000 peak during forecast period yProfessional and business services will return to 2000 peak level but only in 2007

NH Strongest Overall Economy in region, followed by CT, RI, MA, VT and Maine

Total Employment Ave Annual Growth Only NH is expected to have employment growth at US average

Construction and Housing Industry relatively strong in weak overall US and NE regional economy…

Key Trends.. Construction industry a relatively strong sector in US & region y Longer term ( ) construction employment increased in New England at about same rate as nationally helped by strong residential housing market and large projects (e.g., Big Dig) yConstruction employment in US and NE grew 3-times rate of overall employment over last decade yBut last 2 years construction employment declined more in NE than in US (but again out-performed overall economy) yRI recently has had the strongest growth in construction y NH and Maine also rank among top 15 states in construction employment growth..this has helped during overall recession

Construction Industry in region… accounts for 4% of all employment in the region.. about 1/2 of all construction industry jobs in the region are in Mass.

Construction Industry Occupations in New England.. many different occupations…

Housing & Construction Industry Outlook… yNew England has had some of the “hottest” housing markets. (National Association of Realtors). yReal Percent Change in median single family home price over last two decades (compared to US average of 35%) –Portland, 202% –Boston, 167% –Barnstorm-Yarmouth, 142% –Providence, 137% –Burlington, 113% –New London-Norwich, 96%

Interest rates bottoming out mid and then rising

New England Housing Market Indicators.. “moderating”outlook …with highest growth in multi-family (addressing affordability?)

Housing prices expected to moderate but not fall…forecasted average annual price increases

Construction Industry Employment: Percent change NE & US After decline in NE in 2004 “flat” over period below US performance

Construction industry outlook..RI strongest growth and Maine greatest decline forecasted

Summary: New England Construction Industry Outlook Housing and construction sector remain relatively strong in a stagnant regional economy Major opportunities: - Growth in areas “outside” greater Boston..e.g., RI and NH - Second and “retirement” home markets. (Northern NE states have highest percent of second homes in nation) Major risks - R apid interest rate rise - Continued stagnant economy and slow employment growth - Rising energy costs”displaces” investment in homes & depresses housing prices - Post-election recession