The Southeast Struggles to Recover: Economic Recovery in the Southeast in 2011 Fell Somewhere between Sluggish and Fitful. for Every Bright Spot (Florida's Long - Chilled Housing Market Is Showing Signs of Thawing), Numerous Drags on Progress Remain. in 2012, Will the Region Begin to Regain the Dynamism That Was Once Its Economic Hallmark?

The introduction to last year's outlook issue of EconSouth began with a suggestion of the bumpy road ahead for the region's economy in 2011: "From its early role as an agricultural center to its current growing significance in manufacturing, the Southeast's economy has continuously evolved in response to economic challenges and changing conditions. In 2011, the regional economy will have to surmount a number of obstacles before it can resume the growth that made it one of the nation's most dynamic economies"

Did the region surmount these obstacles? Has it resumed the growth that made the Southeast so dynamic? Unfortunately, the answer is no. Not completely, any way. While the region made some progress along the road to recovery, many impediments remain.

The challenges the region faces are similar to those faced by the nation as a whole, but many of these barriers have proven especially tough to overcome in the Southeast. A persistent decline in construction and development in particular made regaining solid economic footing difficult.

The driving force behind the region's economic growth over the years has been robust population growth, which ignited development and spurred job creation. The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic contraction, and lagging in-migration appeared to continue in 2011. For example, U.S. Census Bureau data from Florida show that from 1980 to 2007, the state averaged an annual growth rate in population of nearly 2.5 percent. From 2008 to 2010, that rate declined to less than 1 percent. Georgia's population growth declined from an average annual gain of 2 percent (1980-2007) to 1 percent by 2010. Population growth in the United States has held at a fairly consistent 1 percent for decades (see chart 1).

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Demographers at the University of Florida's Bureau of Economic and Business Research (BEBR) do not foresee a quick return to population growth in the Sunshine State, which had averaged annual gains of around 300,000 in the last three decades. According to Stanley Smith, director of population studies at the BEBR, annual population increases for the state are not projected to reattain that level until 2014 or 2015.

Real estate remains suppressed

The dynamic between population and economic growth is quite nuanced, but when real estate developers anticipate steady population gains that fail to materialize, serious imbalances can result. Construction of homes and commercial space does not stop on a dime, hence the high degree of overbuilding apparent in many parts of the region. Housing demand remained historically low in 2011, according to regional business contacts, while commercial property vacancy rates--especially for retail space--barely budged from 2010 levels. Add in continued falling home prices, and it is little wonder that the real estate sector remained a drag on the region's economy in 2011.

Data show that new home construction, as measured by permits issued for new residential buildings, remained near historic lows in 2011 for southeastern states (see chart 2).

Multifamily construction permits also remained near historic lows, although apartment vacancy rates have declined throughout 2011. Ron Johnsey, president of Axiometrics Inc., an apartment market research firm, recently discussed the multifamily market with the Atlanta. Fed's Real Estate Analytics Center in a podcast. He noted that "the multifamily real estate market is performing at the highest level I have seen in over 15 years that I've been in this business." Johnsey explained that "there is less interest in owning homes because the buyer sentiment is just not there. The renters who would move out to buy homes, they see the home prices declining, they see that they have to have higher down payments, better FICO scores, and so on, and all of this is working to create more renter demand for conventional market-rate apartments."

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Declining home prices weigh on homeowners as well as on potential homebuyers. Data from multiple sources show that the value of existing homes in the Southeast remains at or near recent lows, and prices continue to decline in several areas. …

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