2019 Annual Economic Forecast Robert M. McNab and Vinod Agarwal - - PowerPoint PPT Presentation

2019 Annual Economic Forecast

Robert M. McNab and Vinod Agarwal Dragas Center for Economic Analysis and Policy Strome College of Business Old Dominion University

January 30, 2019

Agenda for Today

I will cover economic conditions in the United States and Virginia and the challenges to growth. My colleague, Vinod Agarwal, will examine economic conditions in Hampton Roads and the prospects for growth in 2019. All of our presentation materials can be found at our website: www.ceapodu.com

Presenting Sponsor

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Our forecasts and commentary do not constitute official viewpoints of Old Dominion University, its President, John R. Broderick, the Board of Visitors, the Strome College of Business,

• r the generous donors who

support the activities of the Dragas Center for Economic Analysis and Policy.

The data in this presentation are subject to revision. To our knowledge, all data used are accurate at the time of the presentation.

Prospects for 2019

Current and Historical Expansions

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Expansion Duration In months Annual Employment Growth Annual Real GDP Growth October 1949 – July 1953 45 4.35% 6.95% May 1954 – August 1957 39 2.51% 3.96% April 1958 – April 1960 24 3.58% 5.42% February 1961 – December 1969 106 3.23% 4.81% November 1970 – November 1973 36 3.38% 4.99% March 1975 – January 1980 58 3.51% 4.20% December 1982 – July 1990 91 2.81% 3.90% March 1991 – March 2001 120 2.01% 3.55% November 2001 – December 2007 73 0.88% 2.86% June 2009 – Present* 114 1.42% 2.30%

Sources: Bureau of Labor Statistics, Bureau of Economic Analysis, National Bureau of Economic Research, and Dragas Center for Economic Analysis and Policy. Real GDP in chained 2012 dollars. CAGR = Compound Annual Growth Rate. Annual Real GDP CAGR derived from quarterly series. Annual employment CAGR derived from monthly series. *Current expansion data ends in 2018 Q3 for GDP and November 2018 for US Nonfarm Payrolls. Average annual Real GDP CAGR of previous expansions = 4.21% while average annual employment CAGR from previous expansions = 2.92%.

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• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Annual Real GDP Growth

Growth in Real Gross Domestic Product Virginia, 2003-2018*

Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. *Data for 2018 represents our forecast. CAGR GDP growth in horizontal bars.

3.0% 0.6% 1.4%

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8.6% 6.4%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 Change from Pre-Recession Peak

Recovery from the Great Recession Measured in Total Jobs Restored, 2008-2018*

United States Virginia

Sources: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Peak Pre-Recession Dates are January 2008 (United States), and April 2008 (Virginia). *Data through December 2018. US data are preliminary the last two months. Virginia data are preliminary for the last month. Seasonally adjusted data.

2018-2019: The Good

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• Price and wage inflation remain moderate, and interest rates

remain historically low.

• Virginia was one of the two sites selected for Amazon HQ2.
• Decreases in federal business tax rates and increased

repatriation of overseas profits increased share buybacks and dividends.

• Increases in federal discretionary spending caps continue to

boost growth in Virginia.

Amazon

Projected Impact of Amazon’s HQ2 – 2019 to 2030

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• About 25,000 more Amazon jobs in Virginia by 2030
• About 30,000 more jobs through indirect and induced effects
• An economic impact of around $14 billion annually by 2030
• A $300 million-plus increase in tax collections
• The potential to create an innovation – technology cluster that attracts
• ther firms to Virginia

Projected Costs Associated with Amazon’s HQ2

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• Increased road congestion in Northern Virginia
• Higher home prices and rents in Northern Virginia
• Increased demands on public infrastructure and schools
• Increased economic inequality across Virginia
• The public policy challenge is to ensure the benefits associated with HQ2

are spread throughout the Commonwealth

Federal Spending

What Was the Cost of the Shutdown?

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• Approximately 800,000 federal employees worked without pay or were
• furloughed. Over 10,000 firms had contracts with federal agencies that had a

lapse in appropriations.

• While federal employees will receive pay for the period of the shutdown, many

contractors will not receive reimbursement. Businesses that serve federal employees, agencies, and contractors will also not recoup most of their losses.

• The Congressional Budget Office projects that GDP in 2019 will be about $3

billion lower than it would have been if there had been no shutdown.

• There are now less than three weeks to either pass another Continuing

Resolution or full-year appropriations. Failing that, another partial shutdown would occur.

Note: The CBO estimate is likely a lower bound as it does not include other impacts of the shutdown, including delayed travel, slower permitting, and a host of other issues. As federal workers are repaid, 2nd and 3rd quarter 2019 GDP will increase above the prior projection, assuming there is not another shutdown. See https://www.cbo.gov/publication/54937.

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$521 $523 $590 $617 $634 $601 $651 $546 $500 $520 $540 $560 $580 $600 $620 $640 $660 FY16 FY17 FY18 FY19 FY20 Billions of Budget Year Dollars

Department of Defense Base Budget, FY 2016 – FY 2020

FY 20 (September 18) FY 20 (October 18) FY 20 (December 18) FY 20 (BCA Caps)

Sources: U.S. Department of Defense and the Dragas Center for Economic Analysis and Policy. FY 2019 DoD appropriations bill and CQ Now. FY 20 estimates assume $69 billion in OCO and $30 billion in non-DoD national defense spending. The proposed 5% reduction in the base budget is a reduction from the FY20 full request, not FY 19.

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• 4.2%
• 6.7%
• 2.9%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 1968 1975 1982 1989 1996 2003 2010 2017 2024 Percent of GDP

Total Federal Deficit or Surplus as Percent of GDP 1968 - 2029

Actual and Projected Deficit Average Deficit

Sources: Congressional Budget Office (2019), Budget and Economic Output: 2019 to 2029 and Dragas Center for Economic Analysis and Policy. Alternative fiscal scenario deficits. Average deficit is for 1968 – 2018.

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4.9% 14.8% 3.0%

0% 2% 4% 6% 8% 10% 12% 14% 16% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Percent of GDP

Federal Outlays as Percent of GDP 1968 - 2029

Discretionary Mandatory Net Interest

Sources: Congressional Budget Office (2019), Budget and Economic Output: 2019 to 2029 and Dragas Center for Economic Analysis and Policy.

2018-2019: The Bad

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• There are several upcoming fiscal speedbumps in 2019
• Expiration of the 3-week CR (February 15th)
• Debt Ceiling (Spring-Summer)
• National Flood Insurance Program (May 31)
• Discretionary Spending Caps (October 1)
• Paid Family Leave Credit Expires (December 31)
• Affordable Care Act Taxes are Reinstated (December 31)
• The defense environment is also quickly evolving
• Climate driven conflicts will strain alliances and supply chains
• Sea-level rise will threat DoD infrastructure in Virginia
• Future wars will be “hot, urban, and complex”
• Asymmetry in costs will erode U.S. advantages (Quantity has a quality all its own)
• China is cutting its ground forces and increasing air and naval assets

Earnings and Expectations: Prospects for 2019

2.75%

• 0.03%
• 4.42%
• 5.26%
• 8.71%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% Synchrony Bank 15-Month CD Vanguard Total Bond Market Fund Schwab S&P 500 Index Fund Vanguard Total U.S. Stock Market Fund MSCI World Stock Market Index Annual Rate of Return

Comparing Annual Rates of Return, 2018

Sources: Yahoo Finance and MSCI (2019). Annual rates of return for 2018. CD rate as of January 21, 2019. Bitcoin lost approximately 65% of its value over 2018. Vanguard Bond (VBTLX), Schwab (SWPPX), Vanguard Total US Stock (VTSMX).

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32.6 44.2 28.5 16.9

5 10 15 20 25 30 35 40 45 50 1881 1890 1899 1908 1917 1926 1936 1945 1954 1963 1972 1981 1991 2000 2009 2018 Price-to-Earnings Ratio

Cyclically Adjusted Price/Earnings Ratio Standard and Poor’s Composite Price Index January 1881 – January 2019*

Source: Robert Schiller, Irrational Exuberance. Prices and earnings are in January 2000 dollars. *Data as January 15, 2019 market close. For further information: http://www.econ.yale.edu/~shiller/data.htm

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2.26% 1.77% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Sep-18 Expected Inflation Rate

10-Year Breakeven Inflation Rate January 2014 – January 2019*

Source: Board of Governors of the Federal Reserve System. *Data current as of January 24, 2018. The 10-Year breakeven inflation rate is a measure of expected inflation that is equal to the difference between 10- Year U.S. Treasury Constant Maturity Securities and 10-Year Treasury Inflation-Index Constant Maturity Securities. The value implies expectations of inflation in the next ten years.

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• 18.8%

7.7%

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Change from 4th Quarter 2006

Change in Employment and Median Real Hourly Earnings Full-Time Workers with Less than High School Education 1st Quarter 2007 to 3rd Quarter 2018

Change in Employment Change in Real Earnings

Sources: Bureau of Labor Statistics, Current Population Survey and Dragas Center for Economic Analysis and Policy. Individuals 25 years or older employed full time. Real median hourly earnings calculated using the Consumer Price Index for All Urban Consumers.

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• 5.1%
• 0.9%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Change from 4th Quarter 2006

Change in Employment and Median Real Hourly Earnings Full-Time Workers with High School Education (No College) 1st Quarter 2007 to 3rd Quarter 2018

Change in Employment Change in Real Earnings

Sources: Bureau of Labor Statistics, Current Population Survey and Dragas Center for Economic Analysis and Policy. Individuals 25 years or older employed full time. Real median hourly earnings calculated using the Consumer Price Index for All Urban Consumers.

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39.1% 2.8%

• 10%
• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Change from 4th Quarter 2006

Change in Employment and Median Real Hourly Earnings Full-Time Workers with Bachelor’s Degree or Higher 1st Quarter 2007 to 3rd Quarter 2018

Change in Employment Change in Real Earnings

Sources: Bureau of Labor Statistics, Current Population Survey and Dragas Center for Economic Analysis and Policy. Individuals 25 years or older employed full time. Real median hourly earnings calculated using the Consumer Price Index for All Urban Consumers.

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$4,942 $9,140 $2,289 $4,372

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billions of Dollars

Household Debt in Billions of Dollars 2nd Quarter 2003 – 3rd Quarter 2018

Mortgage Non-Mortage Debt

Source: Center for Microeconomic Data, Federal Reserve Bank of New York and Dragas Center for Economic Analysis and Policy.

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$241 $1,442 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billions of Dollars

Non-Mortgage Household Debt in Billions of Dollars 2nd Quarter 2003 – 3rd Quarter 2018

HE Revolving Credit Card Auto Loan Student Loan

Sources: Center for Microeconomic Data, Federal Reserve Bank of New York and Dragas Center for Economic Analysis and Policy. Does not include mortgage debt or other debt. Total household debt was approximately 13.4 trillion dollars in Q3 2018.

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78.3 74.8

40 50 60 70 80 90 100 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Expectations (1966 = 100)

University of Michigan, Index of Consumer Expectations January 2009 – January 2019

Expectations Average Expectations

Source: University of Michigan, Survey of Consumer Sentiment, January 2019.

2018-2019: The (Potentially) Ugly

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• Interest rates are likely to rise over the coming decade due to

increased borrowing by the federal government.

• Global economic growth is slowing and Brexit is a disaster.
• The Federal Government will run trillion dollar deficits through 2028.
• The Federal Reserve is trying to ‘claw back’ monetary policy space.
• All business cycles come to an end. When it happens, can we

manage a ‘soft landing’ or will it be similar to 2008-2009?

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2017 Actual 2018 Forecast (May) 2018 Actual* 2019 Forecast U.S. Real Gross Domestic Product 2.3% 3.1% 3.0% 2.5% Civilian Job Growth 1.2% 1.2% 1.6% 1.2% Unemployment Rate 4.1% 3.6% 3.9% 3.7% Consumer Price Index 2.2% 3.0% 2.4% 2.7% Core Consumer Price Index 1.7% 2.3% 2.1% 2.3% 3-month Treasury Bill 1.4% 2.1% 2.4% 2.5% 10-year Treasury Bill 2.4% 3.3% 2.8% 3.0% 30-year Treasury Bill 2.8% 3.6% 3.1% 3.6% 30-year Conventional Mortgage 4.0% 5.0% 4.6% 4.8% Federal Deficit

• $666 Billion
• $825 Billion
• $793 Billion
• $998 Billion

Virginia Real GDP 2.0% 2.7% 2.6% 2.6% Virginia Employment Growth 1.4% 1.5% 1.9% 1.5%

Notes: Data reflects the annual rate of growth, last month, or day business day of the year where appropriate. Data are rounded to nearest tenth. *2018 data are, where possible, actual, or forecasted due to the lack of data on the 4th quarter of 2018. Virginia’s Real GDP data is estimated for the 3rd and 4th quarter of 2018.

2018 Hampton Roads Economic Forecast Stagnant Growth, Improving Future? Professor Vinod Agarwal January 31, 2018 2018 Hampton Roads Economic Forecast Stagnant Growth, 2019 Hampton Roads Economic Forecast Improving Prospects

Presenting Sponsor

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$61,481 $99,578 $71,944 $83,643 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 $110,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Millions of Dollars

Nominal and Real Gross Domestic Product (GDP) Hampton Roads, 2003 – 2018*

Nominal GDP Real GDP

Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. Data for 2017 for Hampton Roads is the advance estimate. *Data for 2018 represents our forecast. Real GDP in 2009 Chained Dollars.

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• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Annual Real GDP Growth

Growth in Real Gross Domestic Product Hampton Roads, 2003-2018*

Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. Data for 2017 for Hampton Roads are the advance estimates. *Data for 2018 represents our forecast. CAGR GDP growth in horizontal bars.

4.55%

• 0.15%

1.60%

Defense Spending in Hampton Roads

Sources: U.S. Department of Defense and Dragas Center for Economic Analysis and Policy. Includes Federal Civilian and Military Personnel and Procurement. *Data for 2018 are estimates while 2019 is our forecast.

$10.0 $19.8 $19.9 $20.8 $22.1 $5 $7 $9 $11 $13 $15 $17 $19 $21 $23 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019f Billions of Dollars

Estimated Direct Department of Defense Spending Hampton Roads, 2000 to 2019*

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154 158 159 159 155 155 153 152 147 146 144 140 137 139 142 142 139 20 40 60 80 100 120 140 160 180 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Employees in Thousands

Military and Federal Civilian Employment Hampton Roads, 2001 - 2017

Military Federal Civilian

Sources: U.S. Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Last updated by BEA on November 15, 2018.

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Estimated Average Compensation Hampton Roads, Selected Categories 2016 2017

Change in Compensation

Military $92,112 $94,067 2.12% Federal Civilian

• Govt. Employees

$110,092 $113,961 3.51% State and Local

• Govt. Employees

$62,224 $64,558 3.75% Private Nonfarm $41,628 $42,647 2.45%

Sources: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Compensation includes wages, salaries, and benefits. Last updated November 15, 2018.

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Jobs and Employment (Steadily Growing)

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3.84% 1.20%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 133 137

Recovery from the Great Recession Measured in Jobs and Employment Restored in Hampton Roads: 2007-2018*

Employment Payroll Jobs

Sources: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Peak Pre-Recession Dates are July 2007 for payroll jobs and July 2008 for employment. Data shown for jobs are through December 2018 and data for employment are through November 2018. Hampton Roads data for jobs are preliminary for December 2018 and data for employment are preliminary for November

• 2018. Seasonally adjusted data.

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102.5 166.5 90 100 110 120 130 140 150 160 170 180 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Index of Employment (2001 = 100)

Index of Wage & Salary and Nonfarm Proprietors Employment Hampton Roads, 2001-2017

Wage & Salary Nonfarm Proprietors

Nonfarm Proprietors accounted for 11.3% of total employment in 2001; their share increased steadily to 17.2 % in 2017

Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data incorporate latest BEA revisions on November 15, 2018. Proprietors employment excludes limited

• partners. Farm Proprietors employment throughout this period has accounted for 0.12% to 0.14 % of total employment.

• 726
• 707
• 326
• 226
• 215
• 149

286 294 1,308 1,532 2,571 3,356 3,583

• 1200
• 200

800 1800 2800 3800

Wholesale Trade Retail Trade Information Educational Services Professional, Scientific, and Technical Transportation and Warehousing Construction Finance and Insurance Management of Companies Accommodation and Food Services Health Care and Social Assistance Manufacturing Administrative and Support

Change in Employment: Selected Industries in Hampton Roads, 2017 Q1 to 2018 Q1

Sources: Virginia Employment Commission: Covered Employment and Wages by all types of Ownership (VA part of MSA) and the Old Dominion University Economic Forecasting Project.

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775.5 737.1 772.6 779.9 785.9 680 700 720 740 760 780 800 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Thousands of Jobs

Average Civilian Nonfarm Employment (Jobs): Hampton Roads, 2000 – 2018

Sources: U.S. Department of Labor CES data and the Old Dominion University Economic Forecasting Project. Annual averages based on non-seasonally adjusted data. Data will be revised in March 2019.

3.4% 7.6% 4.7% 4.2% 3.3%

0% 1% 2% 3% 4% 5% 6% 7% 8% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Unemployment Rate: Hampton Roads, 2006-2018*

Sources: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. *Data for 2018 are our estimates.

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• Good news: Increases in defense spending in FY 19 will help raise

economic growth. Increases in ship building and maintenance are included in the FY 2019 appropriations bill.

• An immediate challenge: Finding the right labor at the right time for
• employers. The long-term challenge: Labor force participation rates

have not recovered; difficulty moving disaffected back into workforce.

• The opportunity: Improving collaborative efforts among cities to

retain/attract businesses while defense spending is increasing.

• Federal deficits are expected to exceed $1 trillion in FY 22 (and

beyond); interest on the debt may reach $800 billion annually by FY 27.

• Position Hampton Roads now to win in the coming BRAC round.

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Residential Housing is Looking Up Again

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$1,338 $980 200 400 600 800 1,000 1,200 1,400 1,600 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Millions of Dollars

Value of Building Permits for One-Unit Family Homes Hampton Roads: 1991-2017

26.8%

Sources: U.S. Bureau of the Census and the Old Dominion University Economic Forecasting Project.

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19,869 24,755 14,703 24,587 4,969 2,265 3,142 5,000 10,000 15,000 20,000 25,000 30,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Existing and New Construction Home Sales Hampton Roads, 2002-2018

Existing Homes New Construction

Sources: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new construction activity in our region.

Sources: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County.

City Total Homes Sold Existing Homes Sold New Construction Homes Sold Percent New Construction

Chesapeake

4,564

3,590

974 21.3%

Norfolk 3,237 2,959 278 8.6% Portsmouth 1,748 1,614 134 7.7% Suffolk 1,714 1,319

395 23.1%

Virginia Beach

7,549

7,097

452

6.0% Hampton 2,008 1,889 119 5.9% Newport News 2,154 2,065 89 4.1% Williamsburg* 3,066 2,655

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13.4% Hampton Roads 27,729 24,587 3,142

11.3%

Existing and New Construction Homes Sold, Selected Cities in Hampton Roads, 2018

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$116,900 $223,000 $180,000 $225,000

$0 $50,000 $100,000 $150,000 $200,000 $250,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Sale Price of Existing Homes Hampton Roads, 2002-2018

91% 19%

Sources: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. 2002-2007 = 91% increase. 2011-2018 is a 25% increase.

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City 2017 2018 Percent Change

Chesapeake $245,000 $254,900 4.04% Norfolk $183,500 $192,000 4.63% Portsmouth $140,000 $149,900 7.07% Suffolk $240,000 $243,000 1.25% Virginia Beach $247,750 $254,900 2.89% Hampton $155,000 $165,900 7.03% Newport News $170,000 $179,000 5.29% Williamsburg* $283,000 $291,500 3.75% Hampton Roads $219,000 $225,000 2.74%

Median Sale Price of Existing Residential Homes for Selected Cities in Hampton Roads: 2017 and 2018

Sources: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County.

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Observations on the Existing Homes Market since 2011

• Inventories continue to decrease.
• Days on market have also decreased.
• Number of homes sold has steadily increased.
• Estimated months of supply have declined substantially.
• Mortgage rates continue to be at historically low levels.
• But the median home price, however, has increased only

slightly.

• The explanation lies in the distressed market– short sales

and bank-owned homes (REOs).

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606 3,224 704 500 1,000 1,500 2,000 2,500 3,000 3,500

Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Number of Active Listings of Distressed Homes: Hampton Roads, June 2008 to December 2018

Sources: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. Distressed properties are short-sales or bank-owned .

0.2% 7.1% 2.5% 1.2% 5.5% 26.6% 7.2%

0% 5% 10% 15% 20% 25% 30% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Short Sales REO Sales

Short Sales and Bank-Owned Sales as Percent of Existing Homes Sales: Hampton Roads, 2006 - 2018

Sources: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

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34.4 26.0 30.6 21.4 5 10 15 20 25 30 35 40 45 1979 1989 1999 2006 2008 2010 2011 2012 2013 2014 2015 2016 2017 2018 Percent

Housing Affordability: Monthly Payment for a Median-Price Resale House as a Percent of Median Household Monthly Income, Hampton Roads and the U.S.: 1979 to 2018

U.S. Hampton Roads

Sources,: H.U.D. and the Old Dominion University Economic Forecasting Project. It is assumed that real estate tax rate is 1%, and the tax reduction received by home owners would compensate for home owners insurance and maintenance expenditures. Prevailing 30-year average mortgage rate is used for each year. For example rate used for 2015 is 3.85 %; for 2016 it is 3.65% ; for 2017 it is 4.00 % ; and for 2018 it is 4.54 %.

Hotel Industry Growth Continues

$708 $711 $841 $880

$342 $343 $351

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Millions of Dollars

Nominal and Real (Inflation-Adjusted) Hotel Revenue Hampton Roads, 2000 - 2018

Revenue Real Revenue

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Sources: STR Trend Report January 2019, Bureau of Labor Statistics, and the Dragas Center for Economic Analysis and Policy, Economic Forecasting Project.

5.0% 2.3% 4.7% 2.9% 1.3% 3.9%

0% 1% 2% 3% 4% 5% 6% United States Virginia Hampton Roads

REVENUE REVPAR

Growth in Hotel Revenue and Revenue Per Available Room United States, Virginia, and Hampton Roads, 2017-2018

Sources: STR Trend January 17, 2019 and the Old Dominion University Economic Forecasting Project.

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REVPAR in U.S., Virginia, and Selected Markets: 2007 and 2018

2007 2018 Percent Change Real Percent Change

USA $65.54 $85.96 +31.2% +8.3% Virginia $61.91 $71.24 +15.1%

• 5.0%

Hampton Roads $52.78 $65.03 +23.2% +1.7% Virginia Beach $64.29 $82.44 +28.2% +5.2% Williamsburg $47.47 $60.03 +26.5% +4.4% Newport News/Hampton $41.49 $49.85 +20.1%

• 0.8%

Norfolk/Portsmouth $54.05 $64.34 +19.0%

• 1.7%

Chesapeake/Suffolk $52.90 $56.95 +7.7%

• 11.1%

Sources: STR Trend Reports, January 24, 2017, January 17,2019, Bureau of Labor Statistics (base year is chained; 1982-84=100), and the Dragas Center for Economic Analysis and Policy at Old Dominion University.

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Monthly Airbnb Revenue in Hampton Roads and Virginia Beach, October 2014 to July 2018 (Millions of $)

Source: Airdna data received in September 2018 excluding shared rooms.

$0.1 $0.4 $2.2 $5.9 $7.3 $3.63 $3.83

$- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0

Hampton Roads Virginia Beach

Millions

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0.4% 1.8% 4.7% 5.9%

0% 1% 2% 3% 4% 5% 6% 7% Percent of Hotel Revenue

Airbnb Revenue as Percentage of Total Hotel Revenue Hampton Roads, October 2014 to July 2018

Sources: STR Trend Reports and AirDNA data received in September 2018 excluding shared rooms. Selected data points are July of each year. July 2018 = $7.3mil.

Port of Virginia: Managing Growth

17.83 18.84 21.97 21.98

5 10 15 20 25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Millions of Tons

General Cargo Tonnage Port of Virginia, 2000-2018

Sources: Virginia Port Authority and Old Dominion University Economic Forecasting Project.

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1.35 2.13 1.75 2.84 2.86 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Millions Of TEUs

Twenty Foot Equivalent Container Units (TEUs) Port of Virginia, 2000-2018

Sources: Virginia Port Authority and Old Dominion University Economic Forecasting Project.

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Shares of Total Loaded TEU Containers for Selected Ports on the East Coast, 2006-2018*

Sources: American Association of Port Authorities, websites of ports and the Old Dominion University Economic Forecasting Project. Market shares are based on TEUs for Baltimore, Boston, Charleston, Virginia, New York/New Jersey, and Savannah. * for 2018, data are through November 2018.

17.9% 18.3% 17.6% 16.8% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Savannah & Charleston Virginia New York/NJ

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2018 Forecast 2018 Actual 2019 Forecast Hampton Roads Real Gross Domestic Product 2.2%

• 2.4%

Civilian Job Growth 0.5% 0.8% 0.8% Unemployment Rate 3.9% 3.3% 3.1% Taxable Sales 3.0% 3.4% 3.3% Hotel Revenue 3.9% 4.7% 3.8% General Cargo Tonnage 2.8% 0.0% 2.0% General Cargo TEUs 4.0% 0.5% 3.6% One Unit Housing Permit Value 2.4% 2.8% 2.0%

Source: 2018 data reflects the annual rate of growth. Dragas Center forecast current as of January 2019.

2019: Accelerating growth in Hampton Roads

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• Regional GDP growth in 2019 is forecasted to be greater than the

growth observed in 2018 and 2017.

• Defense, port, health-care industries, and tourism are likely to

help the region’s moderate economic expansion in 2019.

• Single-family home prices in 2019 are likely to increase at a

moderate pace. Months of supply of existing homes are lower than their historic average.

• Going forward, uncertainty in Washington will be a major

concern.

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