Housing Market Update March 2017
New Hampshire s Housing Market and Challenges Market Overview Dean J. Christon Executive Director, New Hampshire Housing Finance Authority New Hampshire s current housing market performance, as well as its overall economy, reflects some positives such as a low unemployment and rising home prices. One indicator that New Hampshire s housing markets have recovered are rising prices in key areas of the state, especially in Hillsborough and Rockingham counties. Statewide, the inventory of homes for sale has decreased, and in active markets the lack of inventory may be slowing the pace of sales. Buyers wishing to take advantage of current low interest rates may find it difficult to achieve homeownership due to the low inventory of starter homes. Borrowers must also have an adequate downpayment and excellent credit to qualify for a mortgage under tighter credit requirements in place since the Great Recession. Foreclosures are expected to continue to decline this year. While not decreasing as rapidly as once anticipated, 2016 cumulative foreclosure deed recordings declined 15.5% compared with 2015. They are down more than 63% from 2010, the peak of the last foreclosure crisis. This is likely the result of continued economic improvement and price increases in some parts of the state that allow owners to sell their property rather than face foreclosure. Statewide, the median gross rent for twobedroom units increased 4.2% in 2016, and has increased nearly 20% over the past 10 years. There has been limited rental housing production, primarily serving the higher end of the market. The demand for rental housing remains strong, with vacancies at less than 2%. The relative strength of demand in this sector allows property owners to raise rents, indicating that as a commodity, rental housing has fared well. For renters, however, it demands a higher percentage of household incomes, meaning it is both less affordable and less available. Growth in New Hampshire s housing market during this recovery is directly related to broader economic conditions. Improvements in the housing market echo the slow improvements in the broader economy. With a 2.7% unemployment rate, any increase in jobs requires an increase in labor which, in turn, forms households that need a broad range of housing, from low-cost rental units to moderately priced ownership units. While the state continues to enjoy a diverse economy, signs of growth are decidedly mixed. Our unemployment rate is one of the lowest in the region; however, our post-recession growth in private employer jobs has been slower than in other New England states and the nation as a whole. Market Challenges New Hampshire s housing infrastructure could become a drag on future economic growth and stability if it does not respond to shifts in the state s demographics and economy. Among the major findings from Housing Needs in New Hampshire, a study commissioned by New Hampshire Housing in 2014 and conducted 1
by the New Hampshire Center for Public Policy Studies and Applied Economic Research, Inc., was that New Hampshire s current housing supply is poorly aligned with evolving market preferences. Specifically: Empty nesters and seniors. Household size has decreased with aging empty nesters living far from amenities. New Hampshire s senior population is expected to nearly double between 2010 and 2025, and that population prefers to stay in their current homes and age in place. Senior households that choose to downsize are competing for housing with young professionals since both populations are in need of similar affordable houses and rental units. Younger would-be homebuyers are delaying entering the homeownership market as they face high student debt, stagnant wages, and stricter lending requirements for mortgages. While wages have improved, would-be homebuyers now face a shortage of starter homes to purchase. Some younger persons, as well as empty nesters, tend to prefer mixed-use communities and housing that reflects a more urban lifestyle. Due to a significant decline in housing construction, New Hampshire could have insufficient housing to meet demand. Historically, New Hampshire added 5,000 to 7,000 units per year, but this number has dropped to about 3,200 since the Great Recession. While there recently has been an increase in multi-family construction in the southern part of the state, the majority of new rental unit construction is at the highest rents possible, and are thus not suitable for low- to moderate-income households. New Hampshire continues to address this challenge by providing increased access to mortgage funding for low- and moderateincome homebuyers, helping almost 2,000 households to enter the market in 2016, financing the creation or rehabilitation of almost 1,000 high-quality affordable rental units for working families and seniors, and by providing direct rental assistance to thousands of very low-income households each year. Collectively, this effort involved the investment of almost $500 million in the state s real estate economy last year. However, resources remain limited and the challenge of providing affordable housing to meeting the needs of our state s citizens and support a growing economy remains great. New Hampshire Housing is committed to working creatively with our partners to address this important challenge. 2
Employment and Labor Force New Hampshire s labor force is as large as it has ever been, at about 752,000, and total employment is currently at a high of just over 731,000. New Hampshire s labor force participation rate, which reached a peak in early 2001 at 72.5% and declined steadily through 2015, has rebounded somewhat in 2016 to nearly 69%. The decade-plus decline in the labor force participation rate can be attributed to both the depth of the recent recession and the beginning of the baby boom generation s exit from the workforce. A rebound, while early to predict, will signal a growing participation by the millennial generation. Jobs lost in manufacturing and construction have been replaced by jobs in leisure and hospitality, education and health services, and professional and business services. Also, government employment has declined since the end of the recession. Many of the jobs recovered since the end of the recession were of lower average wage than the jobs lost. There has been some wage improvement in the recovery. From the third quarter of 2015 to the third quarter of 2016 the average weekly wage in the state rose almost 8%. 3
Unemployment New Hampshire s seasonally adjusted February unemployment rate of 2.7% is the lowest rate in New England and is the lowest state rate in the nation. Based on this measure, NH has returned to its prerecession level of unemployment. Using the alternative U-6 measure of unemployment, which includes part-time and marginally attached workers who would work full-time jobs, there remains some room for improvement. 4
Housing Permit Activity Permit activity is showing signs of improvement; however, construction activity remains at only half of the level of a decade ago. New Hampshire and New England continue to lag behind the U.S. on average. In addition, while New Hampshire produced more than 1,400 units of multi-family housing per year in 2014 and 2015 (most of which is rental housing), this is only about 65% of the multi-family housing production per year recorded in the recent peak years between 2003 and 2005, and is not nearly adequate to keep up with the current demand for rental housing. Mortgage Interest Rates Interest rates for 30-year fixed rate mortgages rose from their summer low of 3.44% to 4.17% in February 2017. It is expected that rates will continue to increase. 5
Household Income New Hampshire s median household income increased in 2015 to $70,303, an increase of $3,800 or about 5.7% over the 2014 median income, and well above the prior peak reached in 2008 before the recession. When the same numbers are adjusted for inflation it becomes apparent that not only was the median New Hampshire household better off in 2015 than in 2014, they also have finally recovered much of the buying power lost during the recession. 6
Home Price Index Shows Regional Improvement Home prices in New Hampshire increased by 4.4% over the past year, recovering nearly all of the total 21.8% decline in prices from their most recent peak in 2005 to their trough in 2012. Throughout much of this series, New Hampshire and New England out-performed the U.S. as a whole. However, since the end of the recession, New Hampshire and New England have under-performed the nation. 7
Continued Increases in Home Sale Prices Based on MLS 1 sales in New Hampshire, purchase prices have rebounded to pre-recession highs. The December 2016 median price increased 7.4% from December 2015 and more than 30% since December 2011 (6% per year). In 23 of the past 24 months prices have shown an increase when compared with the same month in the prior year. 1 The statistics used in this analysis are based on information from NNEREN for the period January 2003 through December 2016 for all towns in the State of New Hampshire. All analysis and commentary related to the statistics in this report is that of NHHFA and not that of NNEREN. This analysis excludes land, interval ownership, seasonal camps/cottages, multi-family property, mobile/manufactured homes and commercial/industrial property. 8
Slowing Pace of Home Sales A decline in sales in the last four months of 2016 left the cumulative sales 11.6% lower than the total sales volume in all of 2015. Declining Housing Inventory The December housing inventory is at 5 months and is nearing the expected seasonal low point usually seen in January and February. But, a further reduction in the months to absorb listings may be tempered by the slowdown in sales pace. The overall trend reflects a decline in the number of active listings and an increase in demand. The low inventories put upward pressure on prices in those markets and may be slowing the sales pace. 9
Housing Supply On a statewide basis, the number of units being offered for sale has been declining. The number of homes for sale at under $300,000 has been declining more rapidly than those above $300,000. The under $300,000 homes are typically in the price range desired by those people looking for their first home. With far fewer choices available to this demographic, many buyers may be shut out of the market. In the very active market of Rockingham County, the number of listings has dropped significantly and, more importantly, the number of starter homes available (under $300,000) is extremely low. 10
Mortgage Delinquincy Rates May Be Leveling New Hampshire s 24-month decline in delinquency rates came to an end during 2016. The 2004 high was 9.04% of mortgages and dropped to a seasonal low (3.9%) in the first quarter of 2016 before going up to what is expected to be a seasonal high of 4.38%. New Hampshire s rate is lower than both the New England and the national rates, however the pattern is the same. It is too early to tell whether the delinquency rates will level off above their pre-recession levels. 11
Improvement in Foreclosure Numbers The cumulative total for 2016 is 15.5% below the total for 2015, and a lower annual total than any year since 2006. Foreclosures are anticipated to decline again in 2017. There is a correlation between unemployment and mortgage delinquency since most households with mortgages that experience a job loss will fall behind in their payments once savings have been exhausted. Steady improvement in the unemployment rate in New Hampshire since the end of the recession has contributed to improvements in the mortgage delinquency rate. Still, delinquencies remain above their pre-recession level. 12
Decline in Foreclosure Auction Notices The cumulative total of foreclosure auction notices for 2016 is 12% below the total for 2015. While we saw a seasonal uptick in foreclosure notices in January 2017, the first quarter of the year typically shows a decrease in foreclosure auction notices as borrowers frequently use their tax returns to become current in their mortgage payments. 13
Rental Housing Market The statewide median gross rent (including utilities) for two-bedroom units increased by 4.2% to $1,206 from $1,157 in the prior year. The two-bedroom median gross rent remains above the $1,000 mark for the 11th year in a row (throughout the recession). Most of the rental units in the state (approximately 73%) are located in Hillsborough, Rockingham, Merrimack, and Strafford counties. 14
Rental Housing Market (continued) Not surprisingly, the highest median gross rents in the state are in Rockingham and Hillsborough counties, closest to the Boston metropolitan area. The high median rental costs in Grafton County are driven by the robust market in the Hanover/Lebanon area, which also represents the largest percent of rental units in the county. 15
Vacancies The rental housing vacancy rate remains very low. Low starter home inventory in areas of economic improvement and ongoing demographic shifts have slowed the movement of renter households into homeownership. The resultant increased demand for rental housing has caused a decline in the vacancy rate. New Hampshire s vacancy rate of 1.8% for all units is significantly below that of the U.S. at 6.8% and the Northeast at 5.5%. 16
Rental Affordability Affordability for renter households remains a problem in most areas of the state. Statewide, rental housing affordability is limited to less than 15% of the housing units surveyed. Only in those counties with the highest median income (Belknap, Grafton, Hillsborough and Rockingham) are 15% or more of the surveyed units affordable. 17
Board of Directors Stephen W. Ensign, New London - Chair Amy L. Lockwood, Deerfield - Vice Chair Kendall Buck, Wilmot John A. Cuddy, North Conway Pauline Ikawa, Manchester Connie Boyles Lane, Concord Mary Beth Rudolph, Dover Stephanye Schuyler, Portsmouth Donald L. Shumway, Hopkinton 18
New Hampshire housing market, economic and demographic data are available at www.nhhfa.org/data-resources-planning. New Hampshire Housing promotes, finances, and supports affordable housing for Granite State residents. P.O. Box 5087, Manchester, NH 03108 (603) 472-8623 comments@nhhfa.org www.gonewhampshirehousing.com www.nhhfa.org