New home demand high; number of permits down

Builders pulled 40 fewer new residential permits during the first quarter of this year than last year, but that’s not necessarily a slow-down signal. May was the wettest month on record, and prolonged wet spells are not friendly to construction. There are also headwinds builders are contending with, but demand isn’t one of them.

Since the beginning of last year, rising lumber prices – made worse by tariffs on imported Canadian softwood lumber – have increased the price of an average single-family by $7,000, according to the National Association of Homebuilders. Framing lumber, including installation costs, accounts for about 18% of an average new home’s cost, so more expensive lumber comes at a bad time for local builders struggling to keep up with strong consumer demand while balancing increasingly higher materials and labor costs.

Tim Hicks, of Hicks Construction, said logistics is as much of an issue for his business. Due to the shortage of trucks, I’m having to order materials two and three weeks ahead of time, he said. But than hasn’t dampened the pace of business. Hicks is a custom home builder, and he says he’s getting at least a call a day.

New residential permits.

He says the current construction recovery is following the same path as it has in the past. It begins with the demand for homes in the $250,000 to $350,000 range. As the recovery builds, it moves into the $500,000 plus range.

Michael Garland, Garland Farm Estates, said he isn’t pulling any permits right now. “There’s lots of information coming down and any slowing down that shows up is due to the business side, not demand.” He said his contact with potential new customers has been very steady. “We’re doing more aggressive marketing, and I’m moving forward on my next phase.”

Eric Kistner said development at Edinburgh and Danny Karst’s and John Rose’s newest venture – Riverwatch – is performing well. Riverwatch is a 10-acre development on Netherland Inn Road on the Hawkins County portion of Kingsport along the Holston River. Kistner said it has been a magnet for buyers who are moving into retirement.  When Karst and Rose announced Riverwatch, their plan was for 1,900 to 2,200 square foot homes that would be in the high $220,000 to $280,000 range. That was almost a year ago.

The number of new homes and prices have become more of an issue since existing home sales closed the inventory to a two-month supply in the major local housing markets. Realtors are trying to motivate owners than now is a good time to put their home on the market, but many owners haven’t found the product they want. And the price is part of that.

Speaking at a recent meeting of the Northeast Tennessee Association of Realtors’ Commercial Multiple Listing Service meeting Shane Abraham, principal at Universal Development and Construction, stepped up to the price issue when answering a question about housing for retirees. He said it is becoming increasingly difficult to meet the price point that many retirees or those nearing retirement are looking for.

The last year 1021 new residential permits were pulled for the Tri-Cities region. Dale Akins, president of the Market Edge in Knoxville, projected a 17% increase for this year. But even with those gains, the local new home industry is performing at barely more than half its pre-recession capacity.  At the same time, recent projected population gains join an improving economy to create more housing demand.

Although fewer new residential permits were pulled during the first quarter, the permit moving average trend for the first quarter was 16.2% better than the first quarter of last year.

 

 

 

Tri-Cities birth-death balance gets worse in 2017

Unicoi and Washington counties saw a small increase in births last year, but it wasn’t enough to keep the Tri-Cities off the region’s slippery slope of the births v. deaths.

According to the Census Bureau’s components of population change report, there were seven more births in Unicoi County and three more in Washington County than there were during the 12 months ending in July 1, 2016. Sullivan was the only county that had a decrease in the number of deaths.

But when area counties totals are compared, there were 1,226 more deaths than births. That’s a trend that has been around for a long time in our part of the state and one that is getting a little more attention these days as businesses, and civic leaders are looking harder at the changes an aging demographic imposes.

Currently, about 29 Tri-Cities residents turn 65 every week and if the population projections hold by 2028 one in every four area residents will be over 65. The region’s aging tsunami has peaked yet. That happens sometime in 2028 – a few years before it crests across the United States. So, some of the local cultural, business and economic challenges now playing out in the Tri-Cities will be on the national front in a couple of years.

2017 Tri-Cities births and deaths. 

If you compare the population loss created by the births v. deaths imbalance you’ll see it has dramatically increased in just the last seven years. The Census report for 2011 shows 457 more deaths than births. By 2017 deaths outnumbered births by 1,226.

Looking at the issue on a county basis shows what you would expect. The counties with an overall older population base have more deaths. And although Unicoi had more births in 2017 than in 2016, its population declined by 111 when deaths v. births were factored into the equation.

Washington was the only county with a net natural population gain.

The bottom line is the Tri-Cities – like the United States – has a baby-making problem. The most current Centers for Disease Control and Prevention reports shows the 2017 U.S. birth rate dropped 2% from 2016. It was the lowest birth rate the nation has ever recorded.

Experts put the primary blame on the 2008 recession – when the economy shrinks people most people opt to have fewer children – and the crippling costs of going to college. Economists are ringing the alarm bell about what this trend will do the future labor force and economy.

Kathy Bostjancic, an economist at consulting firm Oxford Economics, told the Associated Press that falling birth rates have already had a crippling effect on the U.S. economy over the past 10 years because there are fewer Americans working or looking for work. The impact is equivalent to a 0.7% drag on the U.S.’ long-run growth rate, she said.

That’s a situation the Tri-Cities is already dealing with.

The four-county Kingsport-Bristol Metropolitan Statistical Area (MSA) has seen four straight annual real Gross Domestic Product (GDP) decline, and after a couple of small gains, the three-county Johnson City MSA dipped into negative territory. Neither economy has recovered to their respective pre-recession highs. Updated GDP numbers on the local level will be available later this year.

It’s not really a new issue. Birth rates have been ebbing since the 1970s throwing the local and national replacement level out of what. The replacement level is the rate at which new births keep the population steady by matching the number of people who are dying. The bottom line for that trend is as the older generations age out of the workforce, the ratio of retirees to working people becomes progressively skewed. Unless balanced by technology that’s a productivity killer and less productivity means a shrinking economy.

April another Tri-Cities full-employment month; Johnson City jobless rate drops to 2.8%

The Tri-Cities recorded another month of full-employment in April. Nonfarm jobs were up 1,200 from March’s total. Employment in the seven-county region hit a 54-month high, and even though the labor force was up for the first time in three months, the employment numbers drove unemployment rates lower.

Johnson City’s jobless rate dropped to a record low of 2.6%. It was just one of 18 of the state’s 33 cities with 25,000 or more population that was under 3% last month. Franklin had the lowest unemployment rate – 1.9%.

The jobs trend was up for the first time this year in the region and both of its metropolitan statistical areas (MSAs).

That’s the good news from last month non-adjusted, preliminary numbers. When compared to the pre-recession high there were 2,100 fewer nonfarm jobs and employment was down by 15,741. The reason unemployment rates are so low is the labor force is down 22,685 from its pre-recession high.

And despite the jobs and employment changes, the Tri-Cities still has underemployment issues and many of the new jobs that have been created are part-time or contract work. But “we’re hiring” signs are common and the recent Bristol Hiring Expo hosted 40 local employeers who were looking to fill 1,500 positions.

But in today’s labor market – which is considered recovered from the recession – we’re at a point where a labor shortage is being talked about more than unemployment. And it’s not just the lack of workers with high-skills that employers say they can’t find. That’sdriving local average private sector wages higher. Still, some of the people looking for workers seem clueless that wages are increasing. A recent example was a recent posting on Facebook looking for a maintenance worker for rental properties. The person posting cited a $9.50 to $10 an hour wage, which followed by a string of comments that the average for those type workers was now about $12 an hour – $15 an hour if the person did some electrical and plumbing work. There have also been reports of some workers leaving office temp workers leaving for jobs temp work at Walmart and Target which have recently increased their wage levels. And nursing internships have a base salary of $11 an hour.

April’s weekly average in the Johnson City MSA was $739.82 which is $76 a week better than April last year. And since workers were on the job an average of a half hour a week more during the same period most of that increase was an actual gain. April was the 33rd straight month for a year-over-year wage gain in the three-county metro area.

Kingsport-Bristol workers also took home more money in April. The weekly average was $646.53, up $13,73 from April last year. And like private sector workers in the Johnson City Metro Area, their average work week was up a little more than a half hour a week. April was the second month this year wages in the four-county metro area have increased ending a 15-month wage decline.

Tri-Cities private sector wages are still among the lowest in the state. In April Kingsport-Bristol had the lowest average among state MSA. It was $183 a week less than the state average. The Johnson City MSA ranked 6th among the state’s 10 MSA and was $90 a week below the state average.

Nashville had the highest average private sector average –  $943 – followed by Knoxville with $919 a week.

All but one Tennessee county recorded unemployment rates lower than 5% in April. Houston County’s unemployment posted at 5%, but that is a nearly one-point drop from 5.9% in March.

Williamson County continued to have Tennessee’s lowest level of unemployment with a rate of 2%.

Gov. Haslam attributed the state’s low jobless rates to “our investments in education and workforce development. Tennessee will lead in job recruitment because we are focused on developing a high-quality workforce.”

Here are the unemployment rates for the region, its metro areas with the counties that make up the MSAs, and cities with 25,000 or more population:

  • Tri-Cities – 3.1%.
  • Johnson City MSA – 3%.
  • Carter County – 3.1%.
  • Unicoi County – 3.9%.
  • Washington County 2.8%.
  • Kingsport-Bristol MSA – 3.1%.
  • Hawkins County – 3.3%.
  • Sullivan County – 3%.
  • Southwest Virginia portion – 3.1%.
  • Bristol – 3.1%.
  • Johnson City – 2.8%.
  • Kingsport – 3.1%.

The U.S. unemployment rate was 3.9%.

Tennessee’s rate was 3.4%.

 

Kingsport leading Tri-Cities population growth

 

Mark 2017 as the year Kingsport got its mojo back.

After two straight years of population declines, the Model City led the area in population gains. It also had the hottest existing home sales market; its best employment numbers in five years; and while it didn’t have the strongest new home market builders were pushed to keep up with demand. Its sales tax collections position also improved.

The biggest jewel in the crown is the just-released Census population estimates for 2017 that show Kingsport added 1,016 residents last year boosting its population to a little over 53,300 people. Last year’s population gain was seven times greater than it was in Johnson City, which had the area’s second-best growth.

Annual population gains. Clicking on chart renders a larger version.

Johnson City remains the largest area city with almost 66,400 residents. It’s also the only city that has added population every year since the 2010 census and its own progression of economic recovery.

Elizabethton, Erwin, and Unicoi had their first population increases in five years, and Greeneville was positive after a two-year slump.

The Twin Cities posted twin population loses.

Population growth wasn’t across the board since smaller Northeast Tennessee cities and towns were stagnant. The aggregate was a loss of 178 people.

Losses were across the board in the region’s Southwest Virginia cities and towns. The lone exception was Haysi. Its population was the same as 2016. The combined population loss was 432 people.

The seven-county Tri-Cities region had a population gain of 2,311. It was the second straight gain after losses in 2013, 2014 and 2015. Migration remains the sole population change driver. During 2017 there were 4,875 births and 6,069 deaths in the Tri-Cities.

Some of that migration was job-related, and some were retirees. The latter is of particular interest since the number of this type newcomers dwindled until housing markets nationwide improved enough for those folks to sell their homes and relocate. And most of them are moving South. At the same time, the folks who watch demographic shifts says the halfbacks are speeding up their relocation from Florida to middle Appalachia.

So, what drove so many newcomers to Kingsport last year?

Some of the expansion was job-related, but housing affordability was likely the larger driver. Simply put, housing in Kingsport was less expensive than it was in Johnson City during a year when home prices were rising faster than wages and inflation. Home sales in Johnson City peaked in 2016 then began to soften while prices increased. Last year the annual average inflation-adjusted Johnson City existing home sale price was up 4.8% while it was up 2.9% in Kingsport. The bottom line was the average sales price in Kingsport was $171,741 while it was $222,687 in Johnson City. That gave bargain seekers or those whose budget put them in the $200,000 and below market almost 51,000 reasons to look at homes in Kingsport.

At the same time, an attractive forgivable loan program from the Tennessee Housing Development Agency in the 37660-zip code was another strong incentive. And then there’s the Kingsport rental market. Early last year there were bets that the addition of so much new apartment product would drive occupancy rates to scary levels. But that hasn’t happened. While the apartment market is in more flux that the markets in Bristol or Johnson City it has given give renters more options. The test will be how long rents – which are under pressure to increase by some of the large complex owners – will remain affordable.

The challenge or Kingsport this year is to sustain some of the momentum it gained it gained in 2017. Most of the region has exhausted housing as an untapped growth resource and while builders are replenishing the stock, not nearly enough new homes are being built to meet demand. By most standards, the region is at full employment and it’s increasingly beginning to look like labor has joined housing in the crunch department. What hasn’t proportionally increased with last year’s economic gains is wages. They are increasing but both the Johnson City and Kingsport-Bristol Metropolitan Statistical Areas have some of the lowest private sector wage averages in the state.

 

 

 

 

 

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