The fallout from the slumping housing market and an anticipated slowdown in federal procurement will mean a downturn in other sectors of the local economy in 2007, the region’s top economists said Thursday.
“[This year] will be a period of stabilization,” Stephen Fuller, director of the George Mason University Center for Regional Analysis, told the 15th annual Economic Forecast Conference Thursday in Fairfax.
Fuller and John McClain, who is also an economist and a senior fellow at the center, said that while the local economy will continue to outpace that of the nation, job growth, home sales and consumer spending will likely dip in 2007. The reason? The local economy is experiencing a significant market correction following roughly three years of unprecedented growth.
The Washington region brought in approximately $18.8 billion in federal spending between 2002 and 2004, largely from post-Sept. 11 defense contracts. Historically, the region gets about $5 billion in federal spending annually. The spending spike fueled a real estate boom with housing prices that increased at double-digit rates.
In addition, investors looking for new opportunities following the dot-com bust poured money into the housing market, pushing prices up even more.
“[The growth] was something we’ve never experienced in this region before,” said McClain.
The unprecedented increases in the number of home sales and prices over the last several years led to a “distorted economy,” Fuller said. “It was irrational exuberance. Housing became a commodity and not a place to live.”
In 2006, as housing inventory levels skyrocketed and federal procurement slowed, the economy started to come back to earth. It is expected to reaccelerate in 2008 and into 2009 — though at a much slower pace.
The region’s overall unemployment rate is currently about 3 percent, with some counties in Northern Virginia below 2 percent. That number is expected to creep up in 2007. But nationally, the number is expected to go above 5 percent.
Consumer spending is also expected to slow down, both locally and nationally.
“The good times are over,” Fuller said. “Spending is expected to be a little tepid in ’07. Consumers are worried. They’re anxious.”
