Arkansas Economic Development Institute

Arkansas Housing Markets – A Status Report

By , August 27, 2010 3:20 PM

“the expiration of the home-buyer tax credits is the elephant in the room”

Information on residential real estate markets has dominated the news over the past few days.  When it comes to evaluating the housing markets in Arkansas, recent reports from various sources show a consistent picture of recent trends, but the outlook is very uncertain.

Home Sales

The Arkansas Realtors Association (ARA) released statistics this week showing that June home sales were up slightly over the previous year, but down from the previous month.  As shown in Chart 1 below, housing sales follow a recurring seasonal pattern, with the summer months tending to have higher sales than winter months.  July is often the peak sales months of the year, but so far this year, sales peaked in April and have declined since then.

Chart 1:
Source:  Arkansas Realtors Association

Source: Arkansas Realtors Association

Disentangling the cyclical and seasonal effects is crucial to understanding recent trends.  Chart 2, below, shows seasonally adjusted data that are averaged over calendar quarters to smooth out some of the month-to-month variability (the data are seasonally adjusted using the technique described in a previous article).

Chart 2:
Sources:  Arkansas Realtors Association, National Association of Realtors

Sources: Arkansas Realtors Association, National Association of Realtors

With these refinements, the cyclical pattern of home sales is more evident:  After declining throughout 2007 and 2008, sales steadily increased over the course of 2009.  The first quarter of 2010 saw a sharp decline, followed by a rebound in the second quarter.  Recent data for Arkansas home sales from the National Association of Realtors  (NAR), also displayed in Chart 2, confirm the recent quarterly pattern in the adjusted ARA data.

The sharp decline in the first quarter of 2010 can be partly attributed to weather.  Sales are usually low in the winter months, and this past winter in Arkansas was particularly ill-suited to house shopping.  Sales recovered in the second quarter to about the same pace as in the fourth quarter of 2009.

But when it comes to assessing the outlook for home sales, the expiration of the home-buyer tax credits is the elephant in the room.  Sales in the fourth quarter of 2009 were boosted by last-minute purchases under the original tax credit program for first-time buyers that expired at the end of October.  Weather might have kept activity low in the first quarter, but the impending deadline for taking advantage of the extended and expanded home-buyer tax credit on April 30 was undoubtedly a factor in the second quarter resurgence.

The recent tax-credit deadline required that a contract be in place by the end of April, but the closing date could be later.  As a result, recorded sales in May and June included some transactions that are associated with last-minute contracts to qualify for the credits.  The crucial question is whether the second quarter increase reflects sales that would have taken place later in the year in the absence of the tax-credit deadeline — implying that we should expect a sharp decline over the next few months — or whether it reflects a sustainable improvement in market conditions.

Preliminary information suggests that we will see a drop-off in the third quarter.  New data on existing home sales and new home sales nationwide showed sharp declines in July.  Information on home sales in central Arkansas for July show that Arkansas housing market experienced this downturn as well.  For example, sales in Pulaski county were reported to be down 30.2 percent from the previous month and down 31.5 percent from July 2009.  When the statewide sales figures for July are released by the ARA next month, they are likely to show a sharp downturn.  

Arkansas home sales over the remaining summer months will probably be relatively weak, as the market returns to an equilibrium undistorted by government subsidies.  On the other hand, mortgage rates remain low and house prices have fallen (see below), so the market continues to be favorable for buyers.  This factor should help sustain sales later in the year.

House Prices

In addition to reports from the ARA and NRA, new data on housing prices were released this week by the Federal Housing Finance Authority (FHFA).  Since the housing downturn began in early 2007, the FHFA purchase-only price index has shown a distinctly lower rate of appreciation than the all-transactions index, which includes appraisal data from refinancings.  Ultimately, it is the market sales price that matters, so the purchase-only index provides more accurate information on current market conditions.  However, refinancings are more likely to be prevalent in areas where houses are retaining their value, so the all-transactions index might give a better indication of long-run home values.  [See also, Comment:  Differences Among Home-Price Indices]

As shown in Chart 3, below, the two measures of house prices have diverged considerably since the market downturn began, with   the purchase-only index showing considerably more variability.  Over the past four quarters, the purchase-only index has experienced quarterly ups and downs, but has changed little on net.  The all-transactions index has fallen by 2.4 percent.

Chart 3:
Source:  Federal Housing Finance Authority
Source: Federal Housing Finance Authority

Under either method, house prices in Arkansas have not experienced declines as large as the nationwide average.  Over the past four quarters, for example, the FHFA all-transactions index for the U.S. showed a 5 percent decline compared to the 2.4 percent decline in Arkansas. 

Chart 4, below, compares the two FHFA house price indexes for Arkansas with the average sales-price data from ARA.  The series are normalized to take on a value of 1.0 in the first quarter of 2007, so the data presented in the chart show cumulative price changes since that time.

Sources:  Federal Housing Finance Authority, Arkansas Realtors Association,  and authors' calculations

Sources: Federal Housing Finance Authority, Arkansas Realtors Association, and authors' calculations

 Not surprisingly, the average price data from ARA shows some similarity to the FHFA purchase-only index.  Both measures are based on prices of actual sales.  Both series show a sharp decline in the first quarter of 2010.  This drop is associated with the decline in home sales discussed earlier.  With fewer homes selling in general, the segment of the market including foreclosures and other distressed sales constituted a larger share of total sales, depressing average prices.  With the pickup in market activity in the second quarter, the price spike was also reversed.

Cumulatively, from 2007 through the second quarter of 2010, house prices in Arkansas have decline modestly.  All three measures of home prices show prices down over the period, but by magnitudes of only about 1 to 3 percent.

The FHFA also releases all-transactions indexes for metropolitan areas.  As shown in the table below, these data show that house price changes vary considerably across Arkansas’ metro areas.

Source:  Federal Housing Finance Authority

Source: Federal Housing Finance Authority

Northwest Arkansas has experienced the largest and most persistent declines in house prices.  Earlier in the decade, the Fayetteville metro area showed the greatest appreciation in the state, so declines more recently serve to offset some of those earlier gains.  Hot Springs has recently shown fairly large declines as well, but compared to five years ago, prices are up about 14.6 percent.  Data for Jonesboro, Texarkana and Little Rock show that house prices increased in the second quarter, with prices also higher than a year ago.  In fact, Jonesboro serves as a counterexample to the experience of Northwest Arkansas:  Rather than rising sharply in the early part of the decade and subsequently declining, house prices in Jonesboro have experienced a relatively slow but steady upward trend.

Arkansas Employment and Unemployment – July 2010

By , August 20, 2010 10:44 AM

 The latest information on Arkansas employment and unemployment was released by the U.S. Bureau of Labor Statistics and the Arkansas Department of Workforce Services this morning.  The report showed encouraging signs of continuing improvement in the Arkansas labor market.  The unemployment rate ticked down one-tenth of one percent to 7.4%.   The household survey also showed that the number of unemployed persons fell by 1,800 in July, dropping below 100,000 for the first time since May 2009.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Analysis of the payroll survey is complicated by seasonal patterns.  Without seasonal adjustment, the data show employment down by nearly 11,000 in July.  However, as shown in the chart below, July is typically a low-point in the recurring seasonal cycle diplayed by employment data.  (See Seasonally Adjusted Unemployment Rates for Arkansas MSAs.)  After seasonally adjusting the raw data, the statistics from BLS show that payroll employment rose by 3,600 jobs.  Since the end of 2009, payroll employment has increased by nearly 16,000 jobs.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The increase was broad-based, with increases in every major sector except financial services and government.  Employment in manufacturing showed its 7th consecutive monthly increase.  Trade, transportation and utilities was up by 900 jobs, and business and professional services rose by 1,400.  Education and health services continued to expand, adding approximately 2,400 jobs in July.  The decline in government employment can be primarily attributed to layoffs of temporary census workers.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Typical summer doldrums aside, the July employment report provides additional evidence that labor markets in Arkansas are steadily improving.

#  #  #

*Seasonally adjusted data for nonfarm payroll employment, reported in a format compatible with the monthly press release from the Arkansas Department of Workforce Services, are available here
Table – Seasonally Adjusted NFPE.

Arkansas Taxable Sales up 4% in the Second Quarter

By , August 11, 2010 8:00 AM

The July General Revenue Report  from the Department of Finance and Administration (DFA) showed that gross receipts collections (primarily sales and use taxes) were up sharply in July– 8.9 percent higher than the previous year and 2.7 percent above the DFA  forecast.   This information implies a surge in taxable sales toward the end of the second quarter of 2010.  

In fact, newly calculated statistics show that Arkansas Taxable Sales rose by 4.0 percent in the second quarter (preliminary*) following a revised 2.6 percent growth rate in the first quarter of the year.  The latest reading represents the third consecutive quarterly increase.

Source: Calculated by IEA using data from the Arkansas Department of Finance and Administration

Source: Calculated by the UALR Institute for Economic Advancement using data from the Arkansas Department of Finance and Administration

The improvement in Arkansas Taxable Sales growth in the second quarter contrasts with national retail sales data, which showed a slowdown in growth.  After increasing at a 2 percent rate in the first quarter, U.S. Retail Sales rose by only 1 percent in the second quarter.  As illustrated in the chart below, Arkansas Retail Sales have increased by a total of 7.6 percent over the past three quarters of growth, while U.S. Retail Sales have increased by only 6.8 percent over four quarters of growth.  The turnaround in Arkansas sales growth lagged the rest of the nation, but the most recent data on Arkansas Taxable Sales suggests that Arkansas is rebounding more quickly.

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement.

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement.

The Arkansas Taxable Sales series is calculated by IEA  to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the data is available here:  Arkansas Taxable Sales data (Excel file)

* Data are preliminary until the release of the DFA report, Arkansas Fiscal Notes for July 2010, and will be updated when information becomes available.

Metro Area Personal Income – 2009

By , August 9, 2010 7:24 PM

Statistics on personal income for the nation’s Metropolitan Statistical Areas (MSAs) in 2009 were released this morning by the Bureau of Economic Analysis (BEA).  The national economy was hitting the trough of a recession in 2009, so it is not surprising that the majority of MSAs experienced negative growth last year.  From the BEA press release:  “Personal income declined in 223 MSAs, increased in 134, and remained unchanged in 9 MSAs. On average, MSA personal income fell 1.8 percent in 2009, after rising 2.7 percent in 2008.”

The map of metro areas from BEA, displayed below, shows that income growth in Arkansas’ MSAs was mixed, but generally better-than-average.  Pine Bluff was in the highest-growth quintile, with Little Rock in the second quintile.  The remainder of the state’s MSAs ranked in the third and fourth quintiles, with none finishing among the bottom fifth.

MSA2009

Table 1 provides more detail, comparing personal incomes of Arkansas’ MSAs to the total metropolitan portion of the U.S.  Personal income declined in 5 of the state’s 7 MSAs, but increased in the Pine Bluff and Little Rock.   Income growth in each of Arkansas’ MSAs out-performed the nation’s metro areas as a whole.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Table 2 shows figures for per capita income in Arkansas MSAs.  In per capita terms, only Pine Bluff experienced positive income growth in 2009;  Its growth rate of 1.6 percent puts it in the top 25 among the nation’s metro areas.  Fayetteville’s per capita income declined slightly more than the national average, and Jonesboro’s decline was about equal to the total metropolitan portion of the U.S.  The other 5 MSAs in Arkansas experienced smaller losses than other metro areas across the nation.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

The last two columns of Table 2 show per capita income in Arkansas’ MSAs as a percent of per capita income in the metropolitan portion of the U.S.  The latest data show that Arkansas’ metro areas generally remain below-average.  Fort Smith, Jonesboro, and Pine Bluff are in the lowest quintile of MSA per capita personal income.  Fayetteville, Hot Springs, and Texarkana are in the fourth quintile.  The MSA with the highest per capita income, Little Rock, ranks in the second quintile.  Despite the fact that Arkansas’ metro areas outperformed other parts of the country in 2009, they gained little ground terms of per capita income.

The 2009 comparison of personal income in Arkansas’ MSAs to the rest of the nation’s metro areas is affected by two factors.  First, the recession in Arkansas was not generally as severe as in many parts of the country.  This accounts for the fact that all of Arkansas’ MSAs experienced above-average income growth.  On the other hand, evidence from statewide income growth and Arkansas taxable sales suggest that Arkansas reached a trough in economic activity in the third quarter of 2009 — one quarter later than the national economy.  This tends to depress measured growth rates for the year compared to those parts of the country that entered an economic recovery phase earlier than Arkansas.  As a result, the annual income statistics for Arkansas’ MSAs in 2009 reflect more weakness than do current economic conditions.

How would expiration of the “Bush-era tax cuts” affect Arkansans?

comments Comments Off on How would expiration of the “Bush-era tax cuts” affect Arkansans?
By , August 4, 2010 8:10 AM

An economic  issue that is becoming increasingly prominent in national political discourse is the expiration of the “Bush-era tax cuts.”   As a political compromise to meet budget rules, the controversial tax cuts of 2001 and 2003 were legislated to expire at the end of this year.  Congress and the President now face the prospect of allowing the cuts to expire–raising taxes in 2011 relative to taxes in 2010–or extending them.

In the spirit of the Arkansas-centric focus of the Arkansas Economist, we ask the question:  “How does this issue affect families in Arkansas?”

The Tax Foundation just issued a report that provides a state-by-state comparison of the tax implications for a “middle-income” family.   The report compares the  tax change for an average family in the middle 20% of each state’s income distribution.  The comparisons illustrate some interesting features of the tax changes that would result if the tax cuts are allowed to expire.

Table 1 shows the Tax Foundation figures for Arkansas compared to the U.S. as a whole.  For the average middle-income American family, the expiration of the tax cuts would mean a tax increase of $1540.  For a middle-income family in Arkansas the increase would be $1418–a little bit less than the national average.   In percentage terms, however, the difference is remarkable:  the national average represents an increase of 45% while the Arkansas increase is over 100%.

Source:  The Tax Foundation

Source: The Tax Foundation

Table 2 shows a 50-state comparison of the Tax Foundation data, along with some additional calculations to show percentage increases and relative state rankings.   Arkansas ranks 43rd in terms of the dollar-value impact of allowing the tax cuts to expire, but it ranks number 2 (2nd only to Mississippi) in terms of the percentage increase in taxes that it would imply.

Source:  The Tax Foundation

Source: The Tax Foundation

The state rankings reveal a clear pattern:  Those states in which middle-income families would bear the largest dollar-value increase in tax bills (e.g. Alaska, Connecticut, and New Jersey) are the same states that show the lowest percentage increases.  Those that have the smaller dollar-value changes (e.g. Mississippi, Arkansas, and West Virginia) are the states with the largest percentage changes.

This pattern is related to the structure the Bush-era tax cuts.   The tax cuts were across-the-board, but the largest cuts–in dollar terms–went to the wealthiest Americans.  In percentage terms, however, the largest reductions went to lower and middle-income Americans.   As a state with a relatively low median income, Arkansas has many families that benefited from higher exemptions, the reduction of the lowest tax rate, and larger tax-offsets like the increase in the child tax credit.  As a result, a complete expiration of these modifications to the tax code would result in large percentage increases in the tax burdens of middle-income Arkansans.

The course of legislative action on the issue is uncertain, but President Obama has proposed to extend the tax cuts for all taxpayers except married couples with incomes over $250,000 (or single people with incomes over $200,000).  Table 3 gives an indication of how many households this limited extension might affect:  It reports data from the Census Bureau’s 2008 American Community Survey (ACS) on the number of households in each state with an income greater than $200,000.  In Arkansas, over 20,000 households fall into this category– about 1.8% of the total.  This is the second-lowest percentage among the 50 states.

Source:  U.S. Census Bureau, American Community Survey

Source: U.S. Census Bureau, American Community Survey

An Excel file of the data in this post is available here.

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