Slowing growth in the median price of existing homes sold

NORFOLKWith a bloated inventory of unsold homes and slackening demand, Hampton Roads' housing market will be under pressure this year and next, an Old Dominion University economist predicted Wednesday.

"The market has an abundant supply of unsold homes" - more than four times the inventory it had at year-end 2004, said Vinod Agarwal, a member of the university's Economic Forecasting Project.

While the median price of existing homes sold in Hampton Roads last year rose almost 4 percent, prices in 2008 will be flat or will decline slightly, Agarwal told about 300 people at the Norfolk Marriott Waterside Hotel.

Nationwide, the median price of existing homes sold in 2007 fell 1.9 percent from the year earlier, according to preliminary findings by the National Association of Realtors.

Agarwal and Gilbert Yochum, the head of ODU's economic forecasting team, delivered a subdued assessment of the region's economic prospects for 2008. Growth in the output of Hampton Roads' goods and services will be dampened this year by the closing and realignment of local military bases, cutbacks in home building and the lingering effects of Ford's Norfolk truck plant closing, according to their forecast.

A 2.4 percent increase in Hampton Roads' gross regional product this year will surpass the growth rate for the U.S. gross domestic product, Agar-wal said. However, it won't match the 3.4 percent average annual growth in Hampton Roads' output of goods and services over the past 45 years, he added.

In a separate forecast of the national economy, Yochum predicted that the country overall will be able to skirt a recession this year if the price of oil remains below $100 a barrel. Some economists, such as Mark Zandi, who spoke later at the ODU Economics Club, have suggested that part of the country is already experiencing recessionlike conditions.

"If it goes to $100 a barrel, it will be the thing that pushes us over the edge," Yochum, an ODU professor of economics, said of the price of oil.

After strong job growth during 2007, Hampton Roads is likely to add only 7,000 jobs this year, an increase of slightly less than 1 percent, Agarwal said. Last year, the region created more than 12,100 civilian jobs despite the closing of the Ford truck plant in late June.

Signs of slower economic growth began showing up in the region's retail sales last fall, Agarwal noted. "In the last four months of 2007, they increased only 1.4 percent," he said.

This year, he said, the region's taxable sales will grow a modest 3.1 percent.

As in other parts of the country, Hampton Roads' retail sales have been fueled partly by the equity that homeowners took out of their homes through mortgage refinancing and home equity lines of credit. Because of a weakened housing market, those sources of additional income are much less available today, Yochum noted.

Still, the Hampton Roads' economy stands to gain this year from a 5 percent increase in defense spending in the region, continued growth in the port's cargo traffic and the stimulus package being assembled in Washington, Agarwal and Yochum said.

Cargo traffic at Hampton Roads ports will benefit this year from the increase in U.S. exports, the possibility of labor friction at West Coast ports, and the fuel surcharges for shipments of goods from the West Coast to inland destinations, Agarwal said. ODU's economic forecasters call for a 4.1 percent increase in the tonnage handled by local ports in 2008.

Growth in Hampton Roads' hotel revenues won't match the growth in 2007, partly because of the celebrations of Jamestown's 400th anniversary last year, Agarwal said. However, an increase in tourism advertising and growth in income and jobs in the home markets of Hampton Roads' visitors will generate a 2.4 percent increase in local hotel-room revenue this year, ODU's economic forecasters said.

In addition, "the number of Canadian visitors is expected to surpass the high volume of 2007 visitors" because of the appreciation of the Canadian dollar and Canada's economic growth, according to the forecast.

Hampton Roads' housing sector, however, will remain weak throughout 2008, due partly to a 24 percent drop in the value of building permits for single-family homes, Agarwal said. Builders, he noted, began to adjust to a weaker market in 2006 by scaling back the volume of building and trimming the prices of their homes.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com