Statistics Can Go Either Way

We all have to be careful not to take statistics too seriously, because we can find ones that support more than one point of view about the market.  In fact, we can support opposing points of view with available data.  One side argues that the residential market is pretty good—low supply, low mortgage rates, eager millennials, influx from NY, and improving job reports.  The other shows a bleaker picture—prices still 10% below 2006, job growth in lower level jobs, outmigration to other states among the wealthier boomers, a lagging economy over 20 years, and high State debt.  What’s a person to think?

 

The answer is, as it always seems to be, it depends.  If you are a seller, this is a good time to sell, given low supply, new household formation, low interest rates, and a mild winter.  If you are a buyer, this is a good time to buy, because of those same low interest rates, the improving position of the State, high quality of life, and room for appreciation, with good prices to be had.  When you take those two things together, you see a fairly balanced market, with both buyers and sellers finding points in their favor, and points against.  At the end of the day, the purchase of a home is about your life, and not just your money. Lower interest rates, over time, make much more difference than the price, within some range. The sale of a home involves being ready for next steps, and wanting to reinvest in smaller houses, perhaps in different places.  Those factors very often outweigh strictly economic concerns.  Like any lawyer, I could make an argument for either side.  Instead, I’ll content myself with saying that cognitive dissonance means that, whatever you do, you can convince yourself that you did the right thing.  And there’s evidence to support that idea, no matter what you do this year.  So follow your instincts, and do what’s best for you and your family.

Deficit Forecasts, Economic Concerns Spark New Calls for Spending Reforms

Article is from CBIA, click here to read online

The OPM report says Connecticut's job growth since the recession ended in 2010 "has been skewed toward lower-wage industries, especially when compared to the jobs lost during the recession."

Connecticut lost 54,300 jobs in higher-wage industries-45% of all job losses-during the 2008-2010 economic downturn, recovering just 8,900 or 16% of those jobs through September of this year.

In comparison, Connecticut lost 39,400 jobs in lower­wage industries during the recession, recovering 49,300 (125%) of those positions.

"Average annual wages are growing at 1.9% per year in the post-recession period compared to 4.0%
per year before the recession," the OPM report says. "In FY 2019, employment grew 0.4 % while the average annual wage grew 2.8%."

The report also notes Connecticut trails the region and country in a number of key economic growth indicators, including jobs, population, home sales and prices, and gross domestic product.



Fixed Costs
Fixed costs-funding state employee pension and retirement benefits, teacher retirement and
health benefits, debt service, and Medicaid and other entitlements-continue to dominate any state budget discussion.

For instance, active and retired state employee wages and benefits represent 31.7% of fiscal 2020 spending, municipal aid (including teachers' retirement costs) accounts for 21.7%, and 11.6% of this year's expenditures are for debt service.

OPM projects the state's fixed costs will grow an average 4.8%-$2 billion-from fiscal 2020 through 2024 while revenues are forecast to increase an average 2.4%, a gap of $770 million.

While revenue growth is projected to exceed fixed cost growth in fiscal 2024, the state's long-term liabilities-now around $85 billion-continue to diminish Connecticut's ability to properly address essential state services such as education and transportation.

Mccaw told legislators that based on contribution changes made during the 2019 legislative session, the State Employees Retirement System should be fully funded by 2048, with the Teachers' Retirement System following two years later.

Debt service as a percentage of the state budget is also forecast to begin leveling out, growing from the current year 11.7% ($2.28 billion) to 12.7°/o ($2.83 billion) by fiscal 2024, based in part on the Lamont administration's self-imposed "debt diet."

Reserve Fund
The state's reserve fund now stands at a relatively robust $2.5 billion, although Mccaw cautioned that $1.3 billion of that was attributable to "one-time, non-repeatable factors," including the repatriation of deferred overseas hedge fund profits and the new pass-through entity tax.

The fund balance is expected to reach 15% of the annual state budget in fiscal 2021. Under state law, any reserves above that threshold are directed to the state employee and teacher retirement funds and paying down bonded debt.

Both Mccaw and OFA director Neil Ayers warned that the U.S. may be overdue for a recession, given the current economic expansion is now the longest since the end of World War II.
"We're not predicting a recession or predicting a lack of recession," Ayers said.

"We should continue to brace ourselves and be prepared," Mccaw said, adding that while the state
is relatively well-positioned to navigate a moderate economic downturn, it has "insufficient resources" to withstand a severe recession.

Connecticut has not escaped its endless cycle of deficits, as shown by the state's post-recession job and economic growth numbers, an indication lawmakers should put greater emphasis on cutting costs and promoting pro-growth tax policies in the 2020 legislative session and beyond.

Ireland is a Lot Like Connecticut

We got back late last night from a lightning trip to Ireland, on the new flight from Bradley that leaves every evening.  It was great!  We had a guide to take us around the Ring of Kerry, and, as we watched the beautiful countryside pass by, he told us that properties there were still way below what they were going for before the Great Recession.  In fact, he wasn't sure that some of the waterfront homes would ever sell for what they were worth ten years ago.

When we got to Dublin, though, it was another story.  It's hard to find housing there, and costs are high, especially so in new neighborhoods near the economic center, like the Docklands.  Rents are expensive and there are lots of students looking for housing.  Properties out in the far suburbs, on the other hand, are underwater, and owners there cannot move in closer, because they owe more than they can sell for at this time. 

So, the center city is doing well, rental housing is booming, second homes have taken a big hit (and Brexit is likely to make that hit greater), and homes not in the right place aren't selling.  Sound familiar?

Connecticut, like Ireland, had a big boom in the early 2000s, and prices went way up.  People moved farther away from cities to find affordable homes and second homes, and borrowed way too much.   Now we have low supply at the lower end and in rentals, with a very large supply at the very upper end.  The biggest cities, though (New York and Boston for us) have fully recovered in most categories. 

Ireland is banking on tourism to improve things further, but new companies are moving in and expanding.  Jobs will get them out of their problems, and Connecticut needs to work on finding the same solution.

Slow and Steady Wins the Race?

Connecticut continues to wend its way toward the recovery levels now enjoyed by the rest of the country.  It's discouraging for sellers, in particular, to read about strong levels of demand in other places, while sales in Connecticut fell for the period from last year to this year.  The news is not all bleak, however.  The prices of properties sold has gone up in most towns, from 2012 to 2013.  In some towns, sales have also increased, sometimes substantially so.

  All indications are that Connecticut will continue to recover lost jobs and will see slow, but steady, increased demand for real estate over the next few years.  While the pace of growth will be somewhat anemic, in the view of most experts, it's headed in a positive direction.  And, arguably, slow growth is more sustainable.

 Furthermore, the stark contrast between the fortunes of this state and others has emphasized the need for the State, and municipalities, to court economic development, improve infrastructure, and train workers for the jobs of tomorrow.  All of these efforts will be required to make Connecticut competitive in upcoming years, and we should be glad about anything that makes that clear to State and local officials.

If at any point we lose heart, we should take comfort from the tale of the tortoise and the hare.  Doesn't slow and steady win the race?

Vacation post

Just a quick update from Scottsdale. It feels mean to say that it's 77 degrees and sunny here every day, when there is so much cold and snow in Connecticut! But everybody needs a break, and this is mine. I run a lot, read a lot, and just generally chill out. We've played golf, shopped, and fiddled around.

Phoenix has been very badly hit by the economic downturn, and it shows how lucky we are in our region not to have the tremendous overbuilding that exists here. There are shopping centers and restaurants on every corner; it's hard to imagine where all the business can come from to keep them afloat. They've had phenomenal job growth here as well, but now they're just ahead of Detroit in new job growth, so the party's over. Our education and health care-based economy looks pretty good in comparison.