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March 11, 2008
Building Storm Update
On January 31st Keystone released a report "A Building Storm: The Housing Market and the Pennsylvania Economy" explaining the potential effects the housing market meltdown and the credit squeeze could have on the Pennsylvania economy.
On February 26th new data on housing prices were released by the Office of Federal Housing Enterprise Oversight (OFHEO).
(see figure larger)
As a reminder what we knew as of the 3rd quarter was that housing prices from 2006 to 2007 grew in Pennsylvania by 4%. Adjusting for inflation that number fell to 1.8%.
According to the new data housing prices from the 4th quarter of 2006 to 4th quarter of 2007 increased by 2.8% (slower than in the 3rd quarter). Non-housing prices grew over the same period by 2.8% percent. Adjusting for inflation Pennsylvania housing prices grew by 0% in the 4th quarter.
As the growth in housing prices nationally slowed, they have also slowed in Pennsylvania. In fact in the fourth quarter national housing prices in the OFHEO data actually declined before adjusting for inflation. Should we expect Pennsylvania prices to follow?
The Philadelphia Federal Reserve Bank reported to in the Beige Book on March 5th that residential real estate markets in the region were weak due mainly to tightened credit conditions. They did however expect the real estate market to stabilize soon.
You will note that today the Federal Reserve announced that it would auction off $200 billion of treasury securities. The treasuries will be lent for 28 days and the fed will accept as collateral mortgage backed securities which are because of home foreclosures of suspect value. So the borrower is giving to the Fed assets of questionable value for U.S. Treasuries which can then be re-sold for cash. This is according to Paul Krugman another attempt by the Fed to encourage financial markets to get a hold of themselves.
Dean Baker worries that this is just the Fed "handing over hundreds of billions of taxpayer dollars to the world's richest people."
How does this affect Pennsylvania? If residential real estate activity in Pennsylvania is to stabilize and prices are not to fall credit markets need to recover and like soon. The same thing can be said for the broader Pennsylvania economy.
--Mark Price
Posted by Price at March 11, 2008 04:07 PM