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The Federal Reserve

2008 Annual Report pdf logo PDF version

Tough Times: The Southeastern Economy in 2008

Real estate takes a tumble

Introduction
Employment
Real Estate
Banking and Consumer Spending
Energy, Tourism, and International Trade
Manufacturing and Agriculture
Little Good News
Economic Crisis Timeline
 
A Day in the Life

Photo of Janet HamerJanet Hamer
Senior community development specialist, Jacksonville


Like the region's workers, the Southeast's housing markets were hit hard, most notably in Florida and Georgia. In several areas of the region, existing home sales and inventories of homes for sale began to stabilize later in 2008. Yet even that good news was tempered by the reality that lender-owned foreclosed houses crowded the market and depressed prices (chart 2).

During the fourth quarter, for example, existing home sales in Florida climbed 12.5 percent above a weak year-earlier period. But the average price tumbled 24 percent. Industry contacts told the Atlanta Fed that houses foreclosed by financial institutions accounted for up to half those sales.

Falling prices and scarce sales also plagued Georgia, particularly the once-booming metro Atlanta market. Over the past decade, no metro area in the country issued more single-family building permits than Atlanta. But since peaking in 2005, the number of permits issued slid 91 percent through the fourth quarter of 2008.

In Georgia, the value of new residential construction contracts plunged to $6.6 billion in 2008 from $11.8 billion in 2007 and $16.3 billion in 2006, according to McGraw-Hill Construction, a compiler of industry news and data. In Florida, new contracts fell to $13 billion from $22.3 billion in 2007. The combined value of residential and nonresidential construction projects in the Sunshine State in 2008 was roughly $34 billion, or less than half the 2005 level of $71.7 billion, according to McGraw-Hill Construction estimates.

Chart 2
Existing Home Prices
Chart 2: Existing Home Prices
Source: Federal Housing Finance Agency

As demand dried up, many home builders closed or were forced into bankruptcy. In September 2008, the Greater Atlanta Homebuilders Association reported its membership had shrunk 22 percent in two years.

The effects of foreclosures and bank-owned houses flooding the market were not contained to Florida and Georgia. In markets across the Southeast, home prices fell, and access to financing was limited.

Photo of a home for sale sign
Home sales were hard to come by in parts of the Southeast, particularly in once-booming metro Atlanta and throughout Florida.

Commercial real estate saw shrinking demand
The commercial real estate industry, another pillar of the southeastern economy, was bedeviled in 2008 by the same forces that crippled the housing market and the broader economy—job losses, thriftier consumers, and frozen capital markets.

Commercial contractors reported fewer projects in their backlogs, especially in Florida. Not surprisingly, more bidders, including some idle residential builders, chased less work, forcing prices down. By the middle of the year, more construction projects were being postponed or canceled. Worried consumers spent less, undercutting the need for new shopping centers, while demand for office space and access to financing also shrank.

Construction industry woes were bad news for workers. Construction employment in the Southeast in 2008 dipped more than 14 percent from the year before.