Housing and The Illinois Economy

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Housing and The Illinois Economy
January 2009

• Geoffrey J.D. Hewings
• Director
• Regional Economics Applications Laboratory
• University of Illinois
• Institute of Government and Public Affairs
• 217.333.4740 217.244.9339 (fax)
• hewings_at_illinois.edu
• www.real.uiuc.edu

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Housing and The Illinois Economy

• Overview
• Introduction to REAL
• The Puzzle that is The Illinois Economy
• The Housing Market Outlook for 2009
• Some current challenges

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Housing and The Illinois Economy

• Introduction to REAL
• Operate like a science lab with PhD students,
  Visiting Scholars and Visiting Professors in one
  large room (over 100 international visitors who
  have stayed 3 months in last 15 years)
• Current Projects
• Demographic change (aging, migration) and the
  Chicago economy
• Annual changes in in- and out-migration in
  Chicago and Illinois
• Exports and Housing and The Illinois Economy
• Forecasts for the CMAP region through 2040
• Real estate forecasts for Illinois and Chicago
  (monthly) and other MSAs (quarterly)
• Monthly Chicago Business Activity Index and MSA
  indices

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Housing and The Illinois Economy

• Consider three numbers
• 3 trillion
• 700 billion
• 1.15 billion

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Housing and The Illinois Economy

• Consider three numbers
• 3 trillion
• Estimated long-term costs of the Afghanistan and
  Iraq wars
• 700 billion
• Annual transfer of funds from US each year to pay
  for imported oil (equivalent to the combined
  Gross State Products of Ohio and Indiana!)
• 1.15 billion
• International export volume in 2007

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Housing and The Illinois Economy

• Expectations
• An economy that is heavily dependent on old
  industries (e.g. manufacturing) will probably not
  fare as well as one based on more modern
  industries
• An economy that looks similar to the US in terms
  of economic structure should perform in similar
  fashion (i.e. if you have a portfolio that
  mirrors the SP index, you should expect it to
  grow/decline along with the index)

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Housing and The Illinois Economy

• How is Housing and The Illinois Economy doing?
• Depends whom you ask
• When you ask
• Over what time period
• Which indicator
• Economic double-speak?....on the one hand.on the
  other hand?
• No reflects the enormous complexity of the
  economy, its structural transformation and the
  challenges of globalization

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Housing and The Illinois Economy
Focus on employment one issue we all think we
understand

• Rest of the Midwest Indiana, Iowa, Michigan,
  Missouri, Ohio and Wisconsin
• Over the last 12 months, Illinois growth rate
  better than the national rate but still negative!
• Note Until September, Illinois had gained more
  jobs in the last 12 months than RMW still lost
  far fewer jobs that RMW
• Illinois has lost 50,100 jobs since Jan 1 and
  73,000 since Feb 1

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Total non-farm Employment growth rate Jan 1990
Mar 2008
But, since early 1990s, Illinois growth rate
fallen behind the US and Rest of the Midwest, but
catching up with the latter
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While Illinois economy gained 41,900 jobs in
2007, losses in 2008 finds that Illinois is still
123,700 below peak level of November 2000 as of
December, 2008.
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Housing and The Illinois Economy
Short-term performance varies month-month but
Illinois has not been able to match any of the US
sectors growth rates since 1990 and is ahead in
only 2 sectors compared to RMW
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Housing and The Illinois Economy
Shadow unemployment rates suggest reserve labor
pool in state, less so in nation as a whole Need
234,000 more jobs to bring these rates together
in Illinois
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Housing and The Illinois Economy
Within the state.
Month-to-month performance varies, but Metro has
outperformed Non-Metro over past 12 months (but
month-to-month varies) and over the last
decade?............
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Housing and The Illinois Economy
Non-metro has struggled the most
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Housing and The Illinois Economy
Only 1 MSA declined in 2007, but 5 have lost
jobs over the past 12 months
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Housing and The Illinois Economy

• Notes on Recovery
• Recovery from 2000-1 recession will exceed
  longest in Illinois history (8 years)
• Several MSAs (Rockford, Decatur) not expected to
  recover until 2014 or beyond at current growth
  rates
• Only Peoria and Kankakee have recovered prior
  peak
• In the period 2000-2009 (state recovery),
  population and labor force have grown so state
  needs an additional 100,000 jobs just to get back
  to equivalent position in 2000
• US as a whole recovered in February 2005
  Illinois recovery in 2012 would put us 7 years
  behind US

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Housing and The Illinois Economy
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Housing and The Illinois Economy
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Housing and The Illinois Economy
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Housing and The Illinois Economy
Example Springfield, MSA
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Housing and The Illinois Economy
ILLINOIS ECONOMIC REVIEW The monthly Illinois
Economic Review contains information on national,
statewide, and local economic performance by
measuring job growth, unemployment, and business
activity
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Housing and The Illinois Economy

• Why has Illinois economic performance lagged?
• Is it because we have the wrong structure?
• or
• Because we have lower growth rates?

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Housing and The Illinois Economy

• It is not structure.

Differences between Illinois and US are trivial
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Housing and The Illinois Economy
532,000 more people would be working had Illinois
grown at the national job growth rate since
January 1990
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Housing and The Illinois Economy

• Why have Illinois growth rates been so anemic?
  Here are some of the issues that need to be
  explored
• Is this a function of level of technology
  employed in Illinois sectors?
• Labor and/or capital productivity?
• the nature of the products produced by sector?
• the markets served?
• the age of capital?
• differences in the cost of doing business in
  Illinois vis a vis the Rest of the Midwest or
  Rest of the US?
• Out-migration of income?

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Housing and The Illinois Economy
Illinois is losing 2 billion annually to
out-migration
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Housing and The Illinois Economy

• Implications
• Loss of 2 billion in income in the region
  translates, through the ripple effect into the
  loss of 30-40,000 jobs
• Net Out-migration of income significant drain on
  Housing and The Illinois Economy also need to
  consider loss of sales and income tax revenues
• Slower employment growth translates into greater
  difficulty in slowing out-migration of income
• REAL analyzing impacts of significant Latino
  in-migration, aging and other demographic changes
  (e.g. retiree out-migration) on Housing and The
  Illinois Economy

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Housing and The Illinois Economy

• Analytical Challenges
• How can Illinois re-think its competitiveness in
  the national and international arena?
• Are state policies effective and based on sound
  economic analysis?
• How much real influence do state policies have in
  fostering economic growth and development?

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Housing and The Illinois Economy

• States Dilemma
• Increased dependence on exports
• To other states but 40 to Rest of the Midwest
  where economic fortunes are declining
• To other countries - Illinois ranks 5th among the
  states in terms of contribution to U.S. exports
  in 2007 (behind TX, CA and NY) generating 56
  billion in sales
• Over 80 to Canada and Mexico
• Export portfolio very specialized how much
  international growth dependent on cheap US
  dollar?
• Migration and slow job growth combining to reduce
  Illinois competitive position now 14th in per
  capita income (20 years ago, we were 6th)

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Housing and The Illinois Economy

• Housing Trends

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Housing and The Illinois Economy
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Housing and The Illinois Economy
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Housing and The Illinois Economy

• Housing Trends
• There appears to be little trend to the forecast
  prices changes there is a slight downward trend
  in the declines but it is really not
  statistically significant.
• The median prices in both Chicago and Illinois
  may recover in mid year (2009) but will trend
  down again in the last four months of 2009.
• By years end, the median prices in Illinois are
  forecast to be well below the levels of January
  2005 by about 20,000 for Chicago the comparable
  data suggest a decline of about 10,000 over the
  same period.

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Housing and The Illinois Economy

• Housing Trends
• All of these forecasts have been made without
  considering any potential impact of a major
  stimulus program (beyond the not very effective
  rebate plan enacted earlier).
• While there is always a sense of optimism
  associated with a new President, there is a
  guarded sense of realism about the depth of the
  problems and a realization that recovery is
  probably going to extend over a period several
  years rather than several months.

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Housing and The Illinois Economy

• Time on the market
• 2-3 months 11-12 months

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Housing and The Illinois Economy
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Housing and The Illinois Economy
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Housing and The Illinois Economy

• Housing Trends
• Important variations across metropolitan areas
• Reflect
• Differences in the structure and economic
  performance of the metropolitan economies
• Influence of Chicago (e.g. Kankakee)
• In the last 6 months, almost all areas have
  experienced an increase in average time on the
  market.

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Housing and The Illinois Economy
Three Issues for which State Policy Needs to be
Developed Frame Impact Time
Aging/Migration 10-15 years Trade/Transportat
ion 2-5 years Competitive Challenges now but
critical decisions need to be taken now
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Housing and The Illinois Economy

• Summary
• Illinois economy likely to loose 50-60,000 jobs
  over the next 12 months
• Housing market that once was a leading indicator
  is now very much dependent on the economic
  recovery
• Illinois economy responds more favorably to
  non-defense government spending domestic
  infrastructure stimulus package would be very
  positive
• Global recession likely to depress commodity
  prices (including oil and gas) - will also
  generate uncertainty about investment in
  renewable energy and viability of bio-fuel
  initiatives

Regional Economics Applications Laboratory