7 posts from February 2013

District houses flying off the market

The low inventory of houses is selling at a faster pace.

Every month, Campbell/Inside Mortgage Finance surveys thousands of real estate agents across the country. Its recent January survey revealed that houses are staying on the market for less time and sellers are getting closer to the asking price in Ninth District states (see table). Comments from respondents indicated that the lower end of the market has shifted from the buyer’s advantage of a few years ago to the seller’s advantage today—for example, more offers to buy.

Several real estate agents said they are seeing more people interested in buying a home, and one Minnesota respondent commented that multiple offers occur for most homes listed under $130,000. Agents are hoping this increased demand will bring more homes to the market. It also may be driving the increase in new home construction (see previous blog).

Campbell housing survey -- 2-28-13

Dusting off the construction hammers

It’s been a long road, but signs of the housing recovery continue to build.

The U.S. Census recently released annual housing data showing that last year saw significant housing growth across the Ninth District and the country (see Chart 1). While growth is good news, the data context is critical. The preceding year was one of the poorest on record. Still, five Ninth District states saw total permits rise at least 20 percent; all but Wisconsin saw permits increase more than 30 percent. Growth occurred in both single-family and multifamily categories; booming North Dakota was the only state to see a bigger increase in single-family permits.

But the show stopper was multifamily permit growth in Minnesota last year, which rose more than 200 percent over 2011. While the state’s outlier growth comes in part from a poor 2011, the 6,700 multifamily permits were the most since 2005. A dearth of new multifamily units since then has led to steadily tighter rental vacancy rates in the Twin Cities and across the state (see Chart 2), and is likely a major factor in the state’s hyper multifamily growth last year.

For more discussion about rental markets in Minnesota and the rest of the Ninth District, see the July 2012 fedgazette.

Housing permits & vacancy -- 2-27-13

An economic development idea worth patenting?

What helps economies grow? That question vexes economists, economic development professionals, policymakers and local government officials looking for something to generate faster growth in local and state economies.

Innovation is widely believed to be important for local economies because the invention and introduction of new ideas can create long-lasting effects for business. But getting your hands around that notion and turning it into pursuable policy might be another matter.

Some equate innovation with patents. A recent Brookings Institution argued that “inventions, embodied in patents, are a major driver of long-term regional economic performance.” The study mapped patents nationwide and found that U.S. patent levels have been increasing in recent decades, and an increasing concentration of patents is coming from the top 20 metropolitan statistical areas (MSAs).

But do high patent levels lead to measurably better economies? The Brookings report did not answer that question definitively, and there are enough struggling metros in the top 20—Detroit, Philadelphia, Phoenix—to suggest that it’s not a perfect correlation. California has four of the top eight MSAs in patent production, yet all of them have high unemployment rates; San Francisco took the top patent spot, but its average unemployment rate from 1990 to 2011 ranked 161st of almost 360 MSAs analyzed.

Among 24 MSAs in Ninth District states (including 10 in Wisconsin that are located outside Ninth District boundaries), there was a wide range of patents per thousand workers (see Chart 1). Rochester, Minn., lapped much of the competition several times over—it ranked third best nationwide in patents on a population basis, thanks mostly to being home to an IBM campus. Wisconsin MSAs, many of them manufacturing hubs, also tended to rank high. But patent levels at a majority of MSAs in district states were less than one per thousand workers; only one in three regional MSAs was above the national average of 0.6 patents per thousand workers.

Not surprisingly, the top ranking MSAs tended to have a larger share of technology jobs as a share of all employment, as well as a higher proportion of workers with degrees in science, technology, engineering and math (so-called “STEM” degrees; see Charts 2 and 3. In the four scatter graphs, the MSAs from Chart 1 are rank-ordered, so low-ranking Great Falls = 1, high-ranking Rochester = 24).

However, patents themselves are not a particularly good predictor of economic growth over time. As Charts 4 and 5 demonstrate, there is virtually no relationship between recent patent trends and either growth rates per worker or unemployment rates.

None of this means that patents and other innovations are not valuable to local economies. It only means that local economic activity is a complex recipe, and patents are likely only one ingredient for faster growth.

Patents -- 2-20-13

Send me your poor: Uncompensated care in Minnesota hospitals

While the nation debates and awaits the implementation of the federal Affordable Care Act, hospitals are busy going about the business of taking care of the sick and infirm. Every year Minnesota hospitals provide service to thousands of poor patients and other people who cannot pay their medical bills, forgoing hundreds of millions in revenue.

The value of this so-called uncompensated care—the sum of both charity care and bad or uncollectible debt—is a source of pride for many hospitals, but also a matter of definition, according to the most recent figures from two statewide health organizations.

Earlier this month, the Minnesota Hospital Association noted that uncompensated care topped $500 million for the first time in 2011. However, adjusted for inflation, these costs have hardly risen since 2007 (see chart, at bottom). What’s more, Minnesota Department of Health figures suggest that uncompensated care costs are about 40 percent lower than MHA figures, but increasing at a slightly faster pace.

The discrepancy comes from the charges applied to these medical services. When reporting uncompensated care, health care organizations typically apply full retail prices. However, very few patients pay retail rates; service prices for patients with public and private insurance come with negotiated discounts, and even patients paying cash can negotiate discounts.

The state Department of Health, on the other hand, adjusts uncompensated care to a cost basis that better reflects the actual cost of care that is incurred by the provider, acknowledging that the adjustment “is only an estimate,” but is similarly used by the American Hospital Association. For a more detailed discussion on health care pricing, see the fedgazette article, “The semantics of health care prices.”

Uncompensated care -- 2-14-13

Poorly endowed: Higher ed suffering from inconsistent markets

In a time of tightening budgets, higher tuition and rising student debt, many large universities are looking to their foundations to provide resources to pad institution budgets and offer some financial help to students. But volatile markets have meant many are unable to do more than they could before the recession, based on annual endowment figures from the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute.

Ninth District states, including the Upper Peninsula of Michigan, are home to more than 40 higher education endowments with over $5 million in assets, and 18 with over $100 million in assets in 2012 (and the subject of this post). The two largest endowments—by far—are those attached to the University of Minnesota and the University of Wisconsin, with $2.4 billion and $1.8 billion in assets, respectively. But a small majority of all endowments—including among this subset of larger endowments—lie with private colleges and universities.

Like anyone else invested in equity markets, the large majority of these 18 larger endowments at Ninth District higher education institutions have had a rough go of late. Among the group, two-thirds saw asset levels decrease in 2012 (see table, first data column); of the six that increased, only two saw a rise of more than 2 percent.

However, there might be more than immediately meets the eye here, because changes in endowment assets are the result of more than investment returns (which were not reported by NACUBO). Endowments are not static accounts; they regularly seek contributions from alumni and others, and are typically required to distribute up to 5 percent of their assets annually (and neither variable is reported by NACUBO).

Suffice to say that endowments are not in the business of getting smaller, and investment gains plus contributions have not been high enough to offset annual distributions at many higher education endowments. In fact, more than half of the endowments have lower asset values now than in 2007 (see second data column in table; asset values for three endowments in 2007 were not available). And it can happen to the best. Even Harvard University’s endowment—easily the nation’s largest at $30.4 billion—has struggled. Last year the fund’s assets shrank by 4 percent and stood well below the fund’s 2008 peak of $36.5 billion.

But endowment performance since 2007 among the 18 large endowments has varied wildly—from a 16 percent loss for Lawrence University, a small liberal arts college in Appleton, Wis., to a 33 percent gain for the University of South Dakota Foundation, whose success must lie outside of its investment prowess. While investment returns for the USD Foundation have consistently outperformed market benchmarks, according to foundation records, neither are they high enough to explain its outlier performance.

Endowments in higher ed -- 2-12-13

More evidence that businesses expect to grow, increase hiring

Signs are upbeat that the Ninth District economy will continue to grow, according to a recent poll of more than 300 business contacts from across the district (see methodology below).

For starters, 40 percent plan to increase employment at their firms, and nearly three-quarters of these firms cited expected high sales growth as the most important factor. Only 7 percent plan to decrease employment. In the same survey a year ago, 38 percent planned to increase employment and 10 percent planned to cut jobs.

Other important factors cited for new hiring were overworked staff, improved financial condition of firms and the need for additional skills. The majority of respondents plan to use word of mouth and advertising to get new employees. Twenty-eight percent plan to use a recruiting firm, and surprisingly few (9 percent) plan to raise starting pay.

For those respondents not planning to hire additional people this year, most expected low growth sales and a desire to keep operating costs low. Many reported difficulty finding skilled candidates. Though fiscal policy developments were not a factor for most respondents, 35 percent said they had a detrimental effect on hiring and 4 percent said they would increase hiring plans.

The survey also asked about wages and benefits; 36 percent expected wage growth of 2.5 percent or more, and a similar amount expected positive wage growth of less than 2.5 percent (see Chart 1). Respondents generally believed benefit increases would be larger than those for wages (see Chart 2).

  Ad hoc survey Ch 1-2 -- 2-5-13

Methodology: On Jan. 15, the Minneapolis Fed invited, via email, about 1,000 Beige Book contacts from across the Ninth District to answer the special question in a web-based survey. By Jan. 31, 303 contacts had filled out the survey. The respondents come from a variety of industries (see table below).

Ad hoc survey METHOD TABLE -- 2-5-13

Some oil for the kids, too

Oil has meant many things to North Dakota over the past decade. Along with reversing the state’s population decline, it has pumped new life—students, workers and revenue—into many of the state’s K-12 schools.

The state’s K-12 population has risen from 94,000 in 2007-08 to 99,000 in the current school year, according to the state Department of Public Instruction. Some of the strongest growth has occurred in the 17 western counties in or near the Bakken oil patch. The school district of Williston, the heart of the Bakken, has seen its enrollment rise from 2,100 to 2,800 students over this period.

As a result, school districts are hiring more teachers and other staff. A fedgazette survey of North Dakota school district administrators (with 65 respondents out of about 180 districts statewide) found that more than half added staff last year (see left chart). Employment gains were realized in every quadrant of the state, but were more prevalent in the west. Among 18 respondents in the northwest part of the state, 15 reported employment gains and three reported no change.

ND school administrators -- 1-25-13

School officials have more modest employment expectations for this year—about one-quarter believed they will add school workers (see right chart).

But regardless of location, the large majority are expecting higher revenues. That comes, in part, from higher enrollments, which are part of the education funding formula. But it’s also due to a state education trust that, thanks to fast-growing taxes on oil activity, has grown from $1 billion to $2 billion over the past three years. This after it took more than 100 years to earn the first billion dollars, according to a state source.

The so-called Common Schools Trust Fund distributed about $92 million to school districts in the 2011-13 biennium—about 5 percent of statewide education expenditures—and trust fund officials have said they expect that figure to go up considerably in the next biennium.

 

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