While the US economy struggles, ten states are doing OK
| Los Angeles
The economies of 10 states are outperforming the US economy as a whole, according to a just-released study by the Nelson A. Rockefeller Institute of Government, an independent research group in Albany, NY, which analyzes state and local government.
The two biggest reasons, say the authors of the report, are that most of these states have economies that benefited through much of 2008 from high and rising oil and natural gas prices, and their real estate markets have not suffered the bust to the extent seen elsewhere.
鈥淎s for lessons for other states, they鈥檙e not too easy to emulate,鈥� says Donald Boyd, co-author of the report. 鈥淗ave a lot of oil, and don鈥檛 run your real estate prices up into the stratosphere.鈥�
Mr. Boyd and other analysts say that the ten states (Alaska, Wyoming, Louisiana, Nebraska, Texas, Iowa, New Mexico, Utah, Oklahoma, and South Dakota) did not enjoy the real estate boom seen in places like California, Arizona, and Nevada 鈥� and therefore have not gone bust to the same degree.
That's because banks did not practice what Bob Denk of the National Association of Home Builders (NAHB) calls the 鈥済rotesque deterioration of lending standards鈥� which fueled housing demand and produced rapid price increases.
鈥淭here was a lot of wacky lending practices everywhere, and so it鈥檚 just a matter of degree how overheated any of these markets got,鈥� says Mr. Denk.
Markets on both coasts started with 鈥渢he noble goal of trying to extend home ownership to those who might not qualify under stricter rules鈥� he says. Whereas in 2001, only about one percent of the nation鈥檚 housing loans were in the sub prime category, the national average now is 5.5 percent. Nevada is now at 12.5 percent after dropping back from 13 percent. California and Arizona are in the 8 percent range, Denk says.
Less boom means less bust
鈥淚 don鈥檛 think there is a great mystery here,鈥� says David Merriman, professor of public administration at the University of Illinois at Chicago. 鈥漈hese are states that had less boom and so have less bust. They are relatively favored by industrial composition.鈥�
Where jobs are stable, housing remains more stable as well, point out other economists. A lower cost of living makes a difference too.
鈥淚nsurance, fuel, food, recreation are all examples of categories where we enjoy lower costs compared to other larger markets outside of the Midwest,鈥� says Doug Burnett of Burnett Realty in Des Moines, Iowa. 鈥淭hat is more attractive to employers that need workers, and it is a factor when someone is making decisions about staying put or moving away.鈥�
Burnett says it will not shock most people to learn that the middle of the county tends to be more conservative in everything from their investments to their clothing purchases -- and buying homes is no different.
鈥淪ince there is relatively little experience with the 鈥榖oom鈥� housing other markets have experienced there is not an expectation to have to participate in out of sight housing prices,鈥� Burnett says. 鈥淭here has been a relative run up in our market; but in our market we tend to experience and expect three to four percent appreciation per year over any reasonable time frame of, say, three to five years. Not real sexy but it is comforting.鈥�
Diversification is a key
Susan Ramsey, senior vice president for the Greater Des Moines Partnership, says the city鈥檚 and state鈥檚 decade-long quest to become more diversified has also helped. The state learned its lesson after an oil boom there from 1978 to 1986, she says, and it has been preparing for just this kind of recent economic scenario.
There are now 75 top insurance firms domiciled in Des Moines and an emerging wind and ethanol industry. A heavy investment in infrastructure has provided a kind of investment momentum that inspires consumer confidence as well, she says. Some $2.5 billion in investment has meant lots of cranes in the sky in the state capital.
鈥淚owans don鈥檛 rattle easily,鈥� Ms. Ramsey says. 鈥淧eople have pulled in their belts, but there鈥檚 not shorter lines in restaurants, or movies, or retail stores. There continues to be a basic confidence in the marketplace.鈥�
Jill Harrison of the Greater Oklahoma City Chamber of Commerce also says that Oklahoma learned its lessons after going through the oil bust of the 1980s.
鈥淓verything we have done since then has been careful and calculated,鈥� she says, 鈥渟o that we would survive in a time just like today.鈥�
Economists say that when people are employed they pay taxes and spend money on goods and services.
鈥淭hey buy houses and pay property taxes and tend to stay put and buy more goods and services to fix up their homes, all of which means more revenue for the state in sales and property taxes,鈥� says Burnett, the realtor in Des Moines.
鈥淚n this context, when we say 鈥榖uild it and they will come,鈥� we mean build jobs,鈥� he says. 鈥淐ities and states that make job creation a priority will find the partners and stakeholders that provide necessary infrastructure like housing and services. As demand for housing goes up, so go the prices.鈥�
