How housing affects Idaho's economy

Bubble? There’s No Bubble. Go Broncos!

By Sharon Fisher, 1-04-07

The main focus of today's Economic Outlook & Revenue Assessment Committee hearings had to do with the real estate and construction industries, which according to John Eaton of the Idaho Association of Realtors represents 18% of Idaho's economy.

Representatives from those industries assured the committee that just because housing prices had fallen 25% over the previous year -- and on a month to month basis, sometimes more than 40% -- of course didn't mean we were witnessing the bursting of the housing bubble or anything like that. And several of them mentioned the Broncos' stunning Fiesta Bowl victory earlier in the week, because at least everyone could agree on that.

Dr. Kelly Matthews, an economist with Wells Fargo Bank, gave his economic forecast, and noted that the decrease in Idaho's housing industry was responsible for the drop in the growth rate from 3.5% to 2.25% (which went along with a Federal estimate of a 1% drop). He estimates that the state growth rate will be on the order of 2.75, which is a slight improvement over the last couple of quarters. He also doesn't expect there to be major changes in the interest rate or inflation.

In addition, Matthews showed off a whole variety of startling statistics about what the housing market had done in the last half of calendar 2006, such as construction of single-family units dropping 36.4% in August compared to the previous year in Idaho, a drop of 59.45% in newly constructed home sales in November compared to the previous year in Ada County, and 46.61% in existing home sales in November compared to the previous year in Canyon County. Eek! However, he does not expect it to get significantly worse this year, even though the economy is showing what's called an "inverted yield curve," or long-term interest rates lower than short-term interest rates, coupled with falling housing prices -- a combination that typically results in "economic heartburn," he said, such as a recession.

Eaton characterized a 20% one-year drop in housing prices as a "mild correction" (yes, and Stanley in the winter gets "a little chilly"). Because real estate and construction is the largest single area of Idaho's economy, the state budget surplus is likely to be lower in subsquent years unless some other industry picks up, he added helpfully.

Also contributing to the problem was up to 25% investment by out-of-state investors, the same groups that had invested heavily and then contributed to a big drop in the economy by pulling out of states such as Arizona. This was a great lead-in to the next speaker on the agenda, Bob Taunton, president of SunCor Idaho Inc., a division of SunCor, based in -- oops -- Arizona, who spoke about residential construction. Approximately 10,000 housing starts -- including 13 planned communities --are expected in the Treasure Valley in 2007, he said

George Iliff of Colliers International, and also chair of the Boise Metro Chamber of Commerce, talked about limitations in Idaho's commercial real estate market as well, particularly in the industrial area. The commercial area in the Treasure Valley s less tight due to the new Banner Bank building and openings in the Boise Cascade building, he said. He also noted how urban renewal was helping Boise, with 14 projects of 240 units in the works, plus 11 projects with 300 units in the planning stage. Currently that property is worth $43 million and generates $650,000i n tax revenue, he said If all those projects are built, the property will be worth $360 million and generate more than $5 million in property taxes. Plus, there will be 750 more people living downtown, and the average downtown resident spends $4 for every $1 that someone who just works downtown spends, he said.

On the other hand, those industries also had a whole wishlist of things the legislature could do to help them. They, along with Michael Gifford of Associated General Contractors, noted that areas of serious concern were transportation and community colleges -- all of which, of course, they would be happy to help build -- and that acts taken by the legislature, such as last year's increase in the homeowner's exemption and future increases tied to the cost of living, were keeping outside investors away from Idaho. The legislature should cap the homeowner's exemption increases and remove the cost of living adjustment, Eaton suggested.

Another area of serious concern, that of air quality, received less attention from this group, perhaps because it's not a problem that can be solved by building something.

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