I submitted my testimony this week for the 2013 New Mexico Title Insurance Rate Hearing . New Mexico, like Texas, has periodic hearings on title insurance rates based on economics and actuarial performance of title agencies and underwriters. In this testimony, I look at the economy and real estate markets. I am an economist and not an actuary. So I just review and project the economy, real estate markets and related outlook for title premiums and not what title insurance rates should be. The actuaries take the economics of the market and develop rates that are fair to consumers and at the same time are non-confiscatory to the title insurers.
So how is the New Mexico economy?
New Mexico is either latent in the recovery of jobs or it will not from the 2008-2009 recession. Jobs are everything to an economy and to real estate. And job growth in New Mexico is still feeble. And that may be an overstatement.
Following is part of my testimony:
“Jobs are everything to an economy and ultimately impact the demand for all types of real estate. In the U.S., jobs peaked in January 2008 and fell 6.3 percent, reaching a low in February 2010. Since the trough, the U.S. has recovered 78 percent of the jobs lost.
“New Mexico job numbers peaked in February 2008, and declined 6.1 percent, hitting a low in September 2010. Unlike the U.S., however, New Mexico has recovered just 38 percent of the jobs lost in the recession. The following graph shows seasonally-adjusted New Mexico and U.S. employment numbers since 2002. Note the very sluggish recovery for New Mexico jobs.
New Mexico is barely moving the needle in job growth compared to the U.S. Is it a delayed recovery in New Mexico, or a deal-changing new normal? Probably a little of both.
So why? New Mexico has a significant greater rate of government jobs than the U.S. And we are talking big-time here.
Federal, state and local jobs in New Mexico make up one-out-of every four jobs versus one out of six for the U.S. Now picture the budget challenges at all levels of government paying for government employees. It is not going to get better, rather, the expectation is for declining job numbers.
The following graph shows the percentage of government jobs for the U.S. and New Mexico.
So where are these jobs at? Federal, state or local?
What I said in my testimony was:
“I believe the high proportion of government employment impedes New Mexico’s ability to recover lost jobs. State government sector employment, since the peak reached in 2008, is essentially unchanged (down a nominal 2 percent). Federal government employment in New Mexico, however, is off 18 percent, while local government employment has declined 8 percent. Federal employment, given spending and debt issues, is likely not to revive soon, and thus is partially responsible for New Mexico’s muted recovery. As a result, I would expect New Mexico to continue with a tepid, lack-luster job recovery near-term.
“Total government jobs include federal, state and local employers (but not military). The following table shows the percentage of each of these segments for New Mexico and the U.S. as of July 2013. New Mexico’s federal employment as a percent of total nonfarm jobs is 85 percent greater than the U.S. State government employment in New Mexico is double that of the U.S. (96 percent), while local government employment is 19 percent more. Total government employment as a percent of nonfarm jobs is 45 percent greater in New Mexico than the U.S. Simply stated, New Mexico’s economy, as defined by jobs, is much more dependent on government employment than the U.S.
While I look forward to being in Santa Fe for the title rate hearings beginning November 4th (a beautiful place—and I probably should buy a house there), I am very concerned about the State’s economic recovery. As government spending (focus on defense and energy) gets cut, New Mexico will not fare well, I believe.
So let’s talk the real estate impact. In the past 12 months, while the 12-month moving average of U.S. home prices has risen 11.3 percent, the Albuquerque median price (again a 12-month moving average) slugged up just 1.0 percent. Need we say more? Pretty much covers it.
Still a great time to buy in New Mexico. What a beautiful place.
But it’s all about jobs. And that is not positive.