By Peter Downs, Editor – St. Louis CNR Magazine
The 350 realtors at the St. Louis Association of Realtors’ 2015
Economic Forecast breakfast heard good news about the economy tempered by
caution about future years.
William Emmons, an economist at the Federal Reserve Bank of St.
Louis, said, “Three forces have come together in 2015 to lead us to believe
this will be an outstanding year.” Those forces are low energy prices, robust
job growth, and low interest rates.
The sharp drop in prices for oil and natural gas “is a big deal,”
Emmons said. “It will put a lot of money in consumers’ pockets,” he said.
Job growth, he said, is at a 15-year high. “This is a really big
deal,” he said. It means more people are working and wages will likely start
growing, both of which also mean more money in consumers’ pockets.
This high a level of job growth probably will not be seen again
for another 10 years, he added. “Baby boomers are retiring and there are not
enough new workers coming into the economy to replace them all,” he said, adding
that the rate of growth of the workforce is shrinking to zero.
“After this year, job growth will drop substantially, because
there will not be enough people to hire,” Emmons said. He projected businesses
nationwide will add an average of 200,000 jobs a month in 2015, but the number
will drop to 150,000 a month in 2016 and drop again to an average of 100,000 a
month in 2017.
Meanwhile, interest rates will probably stay low. Emmons said that
financial markets, which look for the Federal Reserve Board to begin raising
short-term interest rates soon, expect that short-term rate will stay below
four percent over the next five years. Similarly, the interest rate on 10-year
Treasury bonds is expected to be around four percent five years from now.
“Job growth and low interest rates support housing demand,” he
said, and there is pent-up demand.
Ruth Sergenian, director of economic research and analysis at the
St. Louis Regional Chamber & Growth Association, said much of that pent-up
demand is among younger adults, who moved back in with their parents after
college. As they leave their parents’ home, their step will be to rent housing.
Sergenian said that the number of building permits issued in metro
St. Louis haven’t bounced back to pre-recession levels, “and perhaps they
won’t.” The driver to what recovery has occurred in housing construction is
“There has been a huge surge in project size, from an average of
15 units/building to 88 units/building,” she said.
Sergenian projected that the number of building permits issued
will increase this year and next year, but fall in 2017, fall more in 2018, and
fall again in 2019.