Housing's a Drag

by DOUG NADVORNICK & r & & r & & lt;span class= "dropcap " & "I & lt;/span & t's an incredibly exciting time to be an economist," said an impassioned U.S. Bancorp economist John Mitchell last Thursday before several hundred businesspeople at the Spokane Convention Center.





In his annual forecast -- sponsored by Greater Spokane Incorporated, Inland Northwest Partners and The Journal of Business -- Mitchell listed several factors that he predicted would temper economic growth in the Northwest in 2008: crude oil prices approaching $100 per barrel, the falling value of the dollar, turmoil in the credit markets and uncertainty regarding global climate change. At the same time, Mitchell said, he's optimistic about a national economic growth rate that's approaching 4 percent, strong export figures for the last few quarters, low unemployment and evidence that people are still not shy about spending money.





"Most likely the economy will continue to expand," he said. "But the downside risks have increased."





The two-year contraction in the housing market will have a major effect on the economy next year, Mitchell said. Even though home values continued to increase in the Northwest in 2007, he said the slowing market will continue to put a drag on growth, though not as much as in other parts of the country.





"My daughter lives in Orange County (California). Her realtor is becoming a phlebotomist. What does that tell you?" asked Mitchell. "In some parts of the country, builders are auctioning off houses. Some are putting up fences around unfinished projects. It's less expensive to just hold them. We have a million empty homes. We have to work through that before we'll get the housing market back to normal."





The Inland Northwest economy is following many of the trends of the rest of the region, said Eastern Washington University economist Grant Forsyth at the same conference. Sales tax growth has been strong, but is slowing, Forsyth said, and non-farm employment growth is higher than the national average, but on a downward trend.





There are some encouraging signs, he said. Wheat prices are double -- about $8 a bushel -- what they were during the same time last year.





"I stopped in Colton recently for lunch after doing some fly fishing," said Forsyth. "I haven't seen farmers with smiles that big in quite a while. It's a good time for them right now, but those cycles rarely last long." Indeed, he says, wheat prices are heading back down.





Another encouraging sign, Forsyth said, is that population growth rates in the Inland Northwest are twice the national average; in Kootenai County, it's about three times the average. The growth king is Liberty Lake, whose population has increased more than 13 percent during the last year, he said.





"Population has even increased in the seven counties bordering Spokane and Kootenai Counties," reported Forsyth. "They're experiencing the spillover from urban areas." Better, he said, those rural counties are enjoying their lowest unemployment rates in more than a decade, even though those rates are still generally above the national unemployment rates.





Forsyth's forecast is like Mitchell's: steady growth, but not as robust as in 2007. "Should we be nervous?" he asked. "A little, but not terrified."