There is No Housing Bubble, Says Senior Economist
By Battinto Batts Jr., The Virginian-Pilot, Norfolk, Va.
Jan. 19–NORFOLK — A nationally known economist visited Hampton Roads on Wednesday, bringing good news for developers and those charged with growing the region’s economy.
Interest rates are expected to remain low throughout 2006 and likely for a while beyond. And businesses are expected to make investments in expansion and technology.
Those two scenarios, offered by Mark Vitner, senior economist with Wachovia Corp., were presented to a lunchtime gathering of the Hampton Roads Association for Commercial Real Estate. The annual luncheon, held at the Hilton Norfolk Airport, featured a brief presentation from Vitner on the U.S. economy, the financial markets and Hampton Roads.
“There’s a couple of shifts taking place in the economy,” said Vitner, who has been featured on CNBC. “We are shifting from a home-building economy to one of business investment.”
Numbers he presented, comparing change from a year ago , show that national spending on information processing equipment and software was up 11.1 percent during the third quarter of 2005. At the same time, other capital spending was up 10 percent. Also, nondefense capital goods orders were up 7.4 percent.
For economic development directors, that means opportunities, said James Eason, director of development for the city of Hampton. “There is always a focus on the kinds of jobs that we are bringing,” Eason said. “We think we have a solid base to build on and to meet our goals.”
The business investment numbers and employment growth are indicators that the economy is strong, Vitner said. He cited statistics showing the U.S. economy added 108,000 jobs in December and the civilian unemployment rate was 4.9 percent nationally and 3.5 percent in Virginia.
“The economy is shaking off the effects of the stock market bubble,” Vitner said.
The Wachovia economist cautioned against the perception that the housing market will be the next to go bust.
“Everybody is looking for evidence of a housing bubble,” he said. “There is not a housing bubble. The supply had not kept up with demand.”
Although the number of housing starts has begun to decline, that is an indicator that the supply is catching up, Vitner said. And he said the housing market continues to be driven by baby boomers who are retiring or close to doing so.
Vitner expects interest rates to remain low, a factor that will affect the number of people taking out mortgages on homes. Someone in the audience asked Vitner whether he was concerned that so many of the home buyers were financing their purchase through the use of interest-only or other nontraditional mortgage methods. Some experts have predicted that an increase in interest rates could lead to scores of loan defaults by buyers who have purchased more house than they can afford.
Vitner thinks that is an overblown doomsday prediction.
“It takes a lot to foreclose on your home,” he said. “If you just pick up the phone, the bank can work up a plan with enough payment holidays to get you through just about anything.”
The prediction that interest rates will remain low at least through this year was welcome news to commercial real estate developers, such as Harvey L. Lindsay Jr. whose company has a number of projects in the region.
“I think his analysis is right on the mark,” said Lindsay, chairman of NAI Harvey Lindsay Commercial Real Estate Services, Worldwide. “The cost of land is so high that it makes it difficult to do development. My fear is that buyers are paying high prices. At some point, they will realize they will not get the return they had expected.”
Reach Battinto Batts Jr. at (757) 446-2642 or battinto.batts@pilotonline.com.
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Copyright (c) 2006, The Virginian-Pilot, Norfolk, Va.
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