April 06, 2020

Expert: Home sales key to economy

ROCKPORT – There are some disturbing similarities between current housing sales figures and those from the lead-in to the 1991 recession, a consultant said at Thursday’s annual Governor’s Housing Conference.

But Frank O’Hara of Planning Decisions said housing can be seen as fuel for Maine’s economy, beyond being an economic indicator and perhaps predictor.

O’Hara advocated for what he called “counter cyclical” spending by state government, or investing more money in affordable housing during bad times, to spur economic growth.

National housing experts disagree on the recent slow-down in housing sales and starts, he said, with some calling it a “blip” and others saying it’s a harbinger of times worse than the tech bust of the late 1990s.

“The debate is not trivial,” O’Hara said, “because what is at stake is that the whole Maine economy is driven by housing.”

Though known as the recession of 1991 – a national slump that was long and deep in Maine – the state economy actually began receding the first quarter of 1989, he said, “but Maine home sales volumes started to go down 21/2 years before.” Volume measures the number of sales.

And housing permits – indicating new construction and renovations – started dropping some 18 months before the recession, O’Hara said.

Yet home values – the prices at which homes were selling – did not begin to fall until 18 months into the recession, and only began recovering 21/2 years after the recession ended.

Maine’s economy is flat, he said, but the spike in energy costs that began in earnest last summer and the interest rates that began rising in the spring may convince prospective home buyers to wait.

Supporting that analysis is a recent survey that showed Mainers’ consumer confidence at its lowest ebb since 1992. In July, 57 percent did not have confidence in the economy, and 36 percent said it’s a bad time to make a big purchase.

“Oil prices and interest rates have taken a toll on people,” he said.

The number of construction permits began dropping in February, the number of home sales began to drop in April, and prices have just begun to sag. The last statistic may not qualify as a trend, he said.

“The trend lines are similar [to the late 1980s], but not nearly as dramatic,” O’Hara said.

But there may be good news.

International immigrants and retirees are coming to Maine, sparking a housing demand, and as they have in each of the last four decades, the Baby Boom generation is seeking a new kind of housing as it hits retirement.

O’Hara urged a two-prong response to what may lie ahead.

First, invest in training for carpenters, electricians, masons and heavy equipment operators, as well as construction business supervisors and managers. Those building houses and apartments report that jobs are going unfilled, hampering development.

The jobs pay on average $30,000 annually, and usually include health insurance. It costs about $4,500 to train someone in the trades at a two-year community college, he said.

If all 600 unfilled jobs were filled, $90 million in housing would be built, O’Hara said. New housing causes spinoffs for hardware and furniture stores, real estate agencies, landscaping businesses, law firms and others.

The second prong is to invest more state money in providing and creating affordable housing, O’Hara argued. Affordable housing supports a reliable and stable labor force.

By upping investment from the $246 million Maine housing generates annually – from a combination of federal, state and private sources – jobs can be created, he said, with most coming in central and Down East Maine.

A postscript to O’Hara’s presentation was his observation that the fate of the national economy and federal policy decisions on interest rates and loan programs are still the major determinants in Maine’s fate.

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