An economic forecast. Interest rates. Real estate.
All of these hot topics are analyzed in the latest economic report for the Appalachian Highlands, produced by the College of Business and Technology.
ETSU’s Dr. William Trainor, an expert in economics and finance, sat down with Fred
Sauceman to discuss these important issues on a recent episode of “Primary Sources.”
They spent considerable time discussing the regional housing market.
“In the last eight years, believe it or not, housing prices have doubled,” said Trainor.
He will be one of the many experts at the 2024 Appalachian Highlands Economic Forum, happening March 22 at ETSU. Last year’s inaugural event drew hundreds, and Stuart
C. McWhorter, Tennessee Department of Economic and Community Development commissioner,
is the headline speaker this year.
Tickets are free, but reservations are required.
Fred Sauceman
Welcome to “Primary Sources.” I'm your host, Fred Sauceman.
Economic growth, financial markets, labor and employment, and housing are among the
topics in the most recent issue of the “Appalachian Highlands Economic Update,” a
quarterly publication of the Department of Economics and Finance in the College of
Business and Technology at East Tennessee State University.
The update builds on the success of last year's inaugural Appalachian Highlands Economic
Forum.
Dr. Trainor
And we had a huge success with that.
Around 300, 400 local business leaders showed up to our economic forum.
Fred Sauceman
Dr. William Trainor is our guest on “Primary Sources.” He is director of the Center
for the Study of Finance, professor of finance and holder of the John H. Poteat, chair
of banking at East Tennessee State University.
Dr. Trainor was one of the organizers of the inaugural Appalachian Highlands Economic
Forum last year.
Dr. Trainor
So that was kind of, you know, a real big success.
So we thought we should probably outreach to the local business community little bit
more, especially bringing the information from this particular area as opposed to
most people look up information maybe from Nashville, Knoxville. We kind of have a
very separate region out here.
And so the idea was to put a newsletter out discussing kind of housing, the economic
conditions, the business conditions, the employment conditions, in the local area.
That idea turned into the “Appalachian Highlands Economic Update,” a critical analysis on the regional and state economy.
One of the issues the update deals with, of course, is the cost of housing in this
area.
Fred Sauceman
What has been the trend over the past ten years or so in the cost of residential construction
in our region?
Dr. Trainor
That's probably been the biggest drag for future growth in this area in the last eight
years, housing prices, believe it or not, have doubled.
Where we were once, approximately 60% of the national average, especially in Johnson City, we're now around 90%, even 95% at times.
Kingsport is still a little bit lower in the 85% range.
But one of the issues with that, of course, is the median income around here is approximately
two thirds of the national average, which is fine when our housing was two thirds
of the national average.
But now we have reached home prices that are equivalent to even some of the suburbs
in Atlanta, making it unaffordable for many of the local residents in the current
area.
And on top of that, when, of course, home prices go up, your commercial prices go
up, rents go up.
So it's been a real difficulty for everyone involved.
Just to kind of give you an idea of the listings that used to be over a thousand?
We are still even post-COVID in the 300, 400 range.
So listings have been cut in half have not recovered unlike the national average.
So that also is causing some issues as well.
I don't know when that's going to let up.
Obviously, the whole COVID issue, we've probably got backlogged in construction.
A lot of people have noticed and unfortunately or fortunately, depending on how you
look at it, it's good for economic growth.
But we've been in the Wall Street Journal's top ten places for two three years in
a row now, which of course draws in a lot of residents from other states California,
Texas, New York.
I believe California and Texas are one and two for residents coming into the area
where you think mostly it'd be, you know, local in terms of North Carolina, Virginia,
and then further down the list and a lot of them.
And just kind of point of fact, I've had several friends and neighbors have said the
homes next to them or across from them or even from them, if they were moving themselves,
were bought sight unseen from out-of-state residents.
So that doesn't bode well for any decline in home prices.
Fred Sauceman
What if you are a young person living in this area and looking to become a first-time
homeowner ... What are the options now?
Just wait and see? Or what do you do?
Dr. Trainor
Well, now it's kind of a double-edged sword. You're getting cut from both sides.
One, home prices haven't fallen, too, of course, due to the inflation issues prices
in general are up 20% in the last four years.
Home prices, obviously, are up a lot further.
So the double-edged sword, of course, is being at the Federal Reserve, of course,
has raised interest rates as well, and home prices have not fallen.
Usually that kind of stymies demand a little bit and it hasn't stymied demand, hasn't
increased supply, of course, at all, because we're still backlogged.
And so now, rather than paying 12 to 1,300 dollars for a typical house, which is now
about $100,000 more, you're paying over $2,000 a month just to give it back for most
an idea of how your monthly payment would change basically every 10th of a point.
That's point 0.1% interest rate change, you expect about a $25 change in your monthly
payment, roughly.
You know, if you're buying a $350,000 house and I think the median right now is 360,
approximately $25 for every 10th of a point.
And since we've gone from 3% to 6.5%, you're looking at 30 points or more.
So you're looking anywhere from $700 to $800 more per month.
Fred Sauceman
What does the update tell us about employment levels currently in the region?
Dr. Trainor
Employment levels are good.
Employment is still below 4%, so that's good.
There's been a really slow growth on the absolute employment around 2% a year after
COVID, we had a real reduction kind of in the participation rate, which has taken
a long time.
We're actually just back to the participation rate pre-COVID that for several years,
even after COVID, it kind of disappeared.
A lot of people weren't coming back to work.
That seems to no longer be the case.
So it seems to be plenty of jobs available.
Workforce slowly growing.
So I don't see any issues on the employment front per se, which is kind of good.
I think there's going to be the drag, of course, again is going to be on housing supply.
You can only bring so many people in the area and if you don't have room for them
all, that kind of is going to slow down your employment growth as well.
Fred Sauceman
I know your college, in particular here at ETSU, is interested in offering more programs
to train people for the hospitality industry.
Is that the hot area for us right now?
Two big areas that are hot and we're actually taking care of both of those.
We actually are just now starting a hospitality and tourist degree that will be starting
in the fall, believe it or not.
So an apt question.
And the other one is the supply chain. That's a new degree that's come out just a
couple of years ago. That's a huge demand.
We're also working on a fine tech degree, kind of merging the computer science and
the financial side because, you know, I'll give you a great example.
I asked my class, how many students have used a check, what you think or even know
how to write a check? No hands.
So the whole industry on how you buy things is changing, which is where kind of fintech
comes in.
So we're working on that. So we are trying to keep up with the economy. We're doing
much better now. I think about being a little more flexible about getting the degrees
and the classes that are needed for our students to do well.
On the hospitality front, just kind of an interesting fact of the employment over
the next 10 years, 25% of that is actually expected to be in the hospitality and tourist
industry.
Fred Sauceman
For the average citizen, whoever that person may be, what is the value of this recent update and its contents?
Dr. Trainor
For the probably average person, just kind of gives you an idea of how the economy
is doing. I think it would be more valuable for the business side depending on whether
you're trying to expand or thinking about expansion.
Just to kind of another critical point in terms of how the local economy is doing. Our
sales tax receipts are down about 10%.
That indicates how much people are spending. So that's not necessarily a good sign.
And towards that, towards our economy, at least locally.
But I don't expect any recession anytime soon. I think the Fed is mostly caught this
right, although time will tell. So I don't see any issues there.
Again, I think probably the bigger issue here is our growth in population.
And of course, a lot of these out-of-towners are coming post-retirement, so to speak. So
I don't think the increase in the population necessarily will increase the employment
availability. And so I think that's why we're seeing such a slow growth in our employment
of 1 to 2% a year.
Again, time will tell, but unless we fix the housing issue, all else is going to be
constrained by that.
Fred Sauceman
What does it take to put together an update or a study of this nature? I assume lots
of hands from your college are involved.
Dr. Trainor
There are lots of little hands.
It's not as bad as it appears. Some of these figures are easier to update than others.
I generally do the financial markets and of course I could update that every single
day if I really want to do this.
We've got it all online now.
So we've got you know, it's very nice in terms of reading little you take you 4 or
5 minutes to go, kind of go through each section. So we don't have a big newsletter. We
don't.
Most of the sections are maybe two paragraphs long at most. We kind of just like to
highlight kind of major points. So it's to the extent you like finance and economics,
it's almost fun reading. And the visuals I think are pretty good, too. We put most
of that on the graphs.
Even if you don't like to read, you can see at least what's going on.
Fred Sauceman
Our economy in terms of the housing, the economy, sales tax receipts, etc. What is
your take on the record levels that the Dow and the Nasdaq have hit recently?
Dr. Trainor
Well, I tell people there's about a 95% chance that you can buy into the market lower
than you can today if you want to try to buy into the market 5% lower than the day
that falls to around 60%.
If you want to buy in 10% lower the day, there's only a 30% chance of that. And the
problem is when you miss that and the market continues to go up, generally the market
so it never goes back down. So the day may very well be the day that you could never
get into the market at a lower price. The market is up 25, 30% when you never get
kind of new lows.
I also tell people is, yeah, the market's probably going to fall 20% at some point,
but does it fall 20% after it's already gone up 40% that you currently miss?
So even I guess the only negative there is if you get it, of course, today and then
it falls 20%. But more has been missed.
Trying to avoid a loss in can possibly made than it was at who have actually time
the market. Yeah, I've done. It don't time the market right, I've done it once correctly
but I've lost a ton of money trying to do it correctly again. Of course, there has
been talk in national media for months about the whole recession question.
Fred Sauceman
I know you deal with that in the update to a certain extent. Tell me about those predictions.
Dr. Trainor
All that’s based on current GDP growth, unemployment and interest rates and the fact
that they have to keep interest rates higher for longer doesn't bode well for the
recession issue. Most people have kind of discounted the recession almost completely
at this point.
And the longer they have to keep those interest rates at an elevated level, and of
course, as we've mentioned before, that kind of feeds into business borrowing the
housing market and everything else.
The more likely you're going to slow down the economy more than you want to. My guess
is we won't have a recession this year. And I don't like to say the Federal Reserve
plays politics, but it is an election year.
Recession in an election year would never be good for those currently in power. So
I don't necessarily see that happening. At the same token, these very high rates,
the expected just interest on our debt is expected to be well over $1,000,000,000,000
shortly within the next three or four months, I think, as all this debt comes due.
Keep in mind we only collect 4 to 5 trillion and tax receipts. So before where the
interest on our debt was maybe two or 3% of our tax receipts, it's going to be up
to 20% of our tax receipts, which means now you have 20% less money. All you can do
is borrow more, which you're currently doing, which is why the deficits, of course,
this is what you add on.
This isn't the debt.
The debt being around 33 trillion, the deficits of 1 to 2 trillion. That's not what we owe. That's just the additional amount we're going to owe after they again spend more than we receive. I think that's where most of the deficits are going to start occurring, is going to be tryig to just cover the interest. So the programs and the expenditures are those are going to remain the same. That additional, those additional trillion-dollar deficits.
Now, we're expecting even to drain at times most 100% of that is probably gonna be
interesting.
Fred Sauceman
If people want to read the full update that your college recently completed, where
does one find it?
Dr. Trainor
I would just Google economic update etsu.com as what I usually do.
For me to find it, it is off the Economics and Finance website as well. But because
you can't remember that, just look at the economic update ETSU and Google within the
first three searches there will be a link there.
Fred Sauceman
Our guest has been Dr. William Trainor from the College of Business and Technology
at East Tennessee State University.
For “Primary Sources,” I’m Fred Sauceman.