November 2014 Newsletter

Jeff Fleming headshot 2012

It’s late November and Buffalo has already been “buried by a wall of snow” (ABC News).  The exhausting task of snow blowing, scraping windshields, and wearing layer upon layer of clothing has begun – and will last for months.

Isn’t it time to simplify and lighten your load?  You’re not getting any younger!  I encourage you to peruse AARC’s Seal of Approval communities and explore your options for the retirement destination that fits your lifestyle.  Four balanced seasons?  Mountains?  Beach?  Golf?  Hiking?  Find your perfect match.  Learn more by clicking here.


Jeff Fleming Chair, The AARC

3 Key Takeaways About the Economy This Week

Johnathan Smoke

Chief Economist,

The fourth quarter is off to a great start for the economic fundamentals that drive housing demand.recovery

Mortgage rates edged up, with the average 30-year fixed rate back above 4%. With the economy and the job market continuing to show momentum, it is looking more and more likely that rates will rise in 2015, potentially as early as the spring.

Manufacturing in the U.S.—very important for continued growth in jobs, especially higher-paying jobs—continues to grow. This can be seen in the ISM Manufacturing Index, which increased 4% over September. The only underlying point of weakness was slowing demand for exports. Data on new orders, inventories and employment all point to steadily growing strength, however.

Employment is also improving. October delivered another month of more than 200,000 new jobs, so the U.S. should come close to 2.3 million jobs created this year. This job growth favors the young, as employment is increasing at an even faster rate for those under 35.

The stage is set for the housing recovery to end the year with momentum, but that also means that the end is in sight for historically low mortgage rates.

Boomers and Millennials major forces for a healthy local housing economy

By Louis Leach,                                                                                                                                                
2014 NETAR President

Baby Boomers and Millennials are the focus of seemly endless discussion and speculation among real estate professional. Both are major players in the short and long-term health of the industry.

Here in the Tri-Cities Boomers get most of the attention. That makes sense. Their transition into retirement is changing the economy – and culture. That’s been a Boomers trade mark with everything they touched. They are also the focus of efforts to attract retirees to the Tri-Cities and Tennessee. That makes sense, too. All but two counties in the Tri-Cities (Washington, TN and Unicoi) have negative natural population growth. That simply means that the death rate is higher than the birth rate.

The bottom line is attracting new resident helps keep the population base growing. And according to academic studies there’s also an economic development effect. Each new resident accounts for $25,000 via local services and consumption. Multiply that by a couple hundred new retiree couples a year and you can see why recruiting is such a big deal. It’s a shot in the arm for local sales tax collections – the primary source to sustain local government services and schools.

Boomers are watched because as they near retirement many are staying put. That means they’re selling their homes to scale down or investing in major upgrades to age in place. Either way, it’s a big part of the local real estate economy.

Millennials don’t get as much attention, at least not yet. But, at some point their clout will surpass that of the Boomers.

In a recent study on where Millennials chose to live, RealtyTrac Vice President Daren Blomquist said, “The millennial generation is the key to a sustained real estate recovery and boomers who are downsizing are helping open the door for many first time homebuyers.”

Currently areas with good job prospects and low unemployment rates are the big drivers for Millennials.  That’s one reason they are not as hot topic here. Currently, our local economy is not producing an abundance of the type jobs attracting Millennials to the technology hubs and urban areas. But that doesn’t mean some of those jobs are not being created here.

For example, that futuristic glass-and-steel Eastman administration building going up in Kingsport is described as the workplace of the future and will be home to 850 employees. And many of them will be next-generation workers. Reading between the lines, and knowing that Eastman is also watching much of its labor force rapidly nearing retirement, and you see why there’s so much buzz about new homes, and building “world-class” communities.

Millennials are also current among the drivers for downtown loft apartment and high-end apartment homes. But studies also show they don’t want to be renters forever.

With those facts in place, keeping track of both generations is becoming increasingly important. And RealtyTrac’s study sets an interesting local baseline. For the study the Baby Boomer generation was defined as someone born between 1945 and 1964. In 2013, they would be between the ages of 49 to 68.  The Millennial Generation was defined as someone born between 1977 and 1992. In 2013, Millennials would be between 21 to 36.

The data show Boomers make up from 26% to 29.5% on the populations in Tri-Cities counties. That low-end is Washington County TN, and the high end is in Unicoi County. The study also shows the proportion of Boomers declined in 2013 when compared to 2007 in Sullivan and Washington counties in Tennessee and Wise County in SW Va. The biggest increase – 2.3% – was Greene County.

Millennials claim a smaller population proportion that ranges from 12.3% in Greene County to 22.4% in Washington County TN. Since 2007 every county in the region has seen a decrease in the proportion claimed by Millennials. But don’t let that lull you into the conclusion their numbers are small. Census data show that in 2013 there were an estimated 116,216 Millennials in the Tri-Cities. Now, consider that the total area population for people 16 years-old and older is just a little over 398,000.

Combine that number with the in-migration of younger technical and professional workers for the high-end jobs the region is generating and you can see why Millennials area a force that can’t be taken for granted. Their needs and wants will shape the future of the housing and mortgage industries – much like Boomers did before them.

Metrostudy Florida Markets:  All Florida markets witnessed year-over-year price growth in 2014

ArticleFlorida’s new-home market has been surprisingly resilient in coming out of the downturn.
Despite massive numbers of foreclosure homes for sale all around the state, builders have managed to find increasing numbers of buyers, and starts activity has rebounded nicely. Prices moved up rapidly in 2011, 2012, and 2013, rising at a more moderate pace in 2014.

Read the entire report – Click Here

More protections needed to make S.C. attractive to military retirees

By Jeff Wilkinson, The State

 — Maj. Gen. Lawrence Wells was stationed three times at Shaw Air Force Base in Sumter during his 35 years in the military, twice as a fighter pilot and most recently as commander of Ninth Air Force.

When it came time to retire last year, he and his wife, Kathy, had to weigh two things: Stay in South Carolina with their extensive community connections and well-established base of friends; or, move to North Carolina to be nearer their three grown children.

They listed the pros and cons. The two states came out even – except for one thing. South Carolina was going to tax his $120,000 a year military retirement pay – $8,400 annually. North Carolina wasn’t.

“That was the deciding factor,” he said from his home in Fuquay-Varina, a suburb of Raleigh. “But it wasn’t really the money. It was the principle. My view was, after 35 years of service, multiple moves and lots of combat time, it would be nice to keep all my retirement pay. One state recognized that. The other didn’t.”

Wells is not alone.

Despite its beaches, mountains, low cost of living, military-friendly communities and warm climate, South Carolina has dropped from eighth to ninth in states with the most military retirees. It was overtaken by Alabama, which hasn’t taxed military retirement since 1989.

And the state could drop farther.

With the military sharply downsizing after 13 years of war in Iraq and Afghanistan, a flood of new retirees will start their search for a place to live over the next two years. Southeastern neighbors North Carolina, Georgia, Alabama and Florida all offer better deals when it come to the retirees’ bottom line.

shaw“We’ve lost our last three (retiring) wing commanders” at the 20th Fighter Wing based at Shaw, said Stephen Creech, a former Sumter mayor who now serves on the S.C. Military Base Task Force, which was appointed by Gov. Nikki Haley to protect and expand missions at the state’s six major military installations. “They just pulled out a map and said ‘OK, which state won’t tax us.’”

To counter that, the S.C. Legislature is now considering House Bill 3112 – which would exempt military retirement from state income tax. It unanimously passed the House in the past session, but arrived too late to the Senate to come up for a vote.

It also carries a heavy price tag: The tax generates $22 million a year in revenue, according to the S.C. Board of Economic Advisors.

But advocates for the bill say those dollars and more can be recaptured as the state grows its retiree base. The revenue would be made up by additional sales taxes paid by the retirees and income taxes paid by merchants and service providers who profit from them. The retirees themselves would pay income tax if they take a second job, which many do.

“We spend a lot more in North Carolina than it would receive if they taxed us,” Wells said. “A lot more.”

Vets migrate to military towns

There are presently 57,775 military retirees in the Palmetto State, according to the U.S. Department of Defense. Retirees are different from other veterans because they served at least 20 years in the military and draw a pension.

Most of those retirees are clustered around the state’s four military communities – Columbia, Sumter, Charleston and Beaufort. There are also high concentrations of retirees in Aiken County, because of its proximity to Fort Gordon in Augusta, as well as Horry, Georgetown, York, Greenville and Spartanburg counties, according to a study by the S.C. Department of Commerce.

Of the 57,775 retirees, about half live in Columbia, Sumter, Charleston and Beaufort, the study showed. They migrate to military towns to take advantage of benefits like shopping in tax exempt commissaries and base exchange stores, having access to veteran’s services and being able to associate with other military people and institutions.

Those veterans near bases pump more than $442 million a year into the economies of those four communities, the study showed. But when the numbers are expanded to include all of the retirees in the state, the annual economic impact to South Carolina is more than $1.1 billion.

And that figure likely is low, according to the study.

A person who joins the service at age 18 can retire when he or she is 38. The vast majority of those retirees – still far from Social Security – choose to have a second career.

“Hence DOD pension payments might only represent a proportion of the linked retiree’s entire income that is spent on goods and services,” the study said.

Why the colonel stayed here

One of those retirees is Col. Bryan Hilferty.

A Boston native, Hilferty retired from U.S. Army Central at Shaw in August. He had served as its director of communications, and previously served as director of communications for the U.S. Military Academy at West Point, the U.S. Army Human Resources Command at the Pentagon and U.S. Army Europe.

At 52, Hilferty chose to stay in Sumter with his family and is presently looking for work. Why stay here?

“I’m sitting by my pool right now,” he said Wednesday. “I’ve been stationed in Alaska and the northern border of New York and we like it better here.”

For Hilferty, the choice wasn’t about the $5,600 a year in state taxes he will have to pay on his $80,000 a year colonel’s pension.

“Why should you have to pay taxes and not me?” he said. “I think sometimes people in the military have a sense of entitlement. We joined to serve.”

“But I’m a colonel,” he added. “For a sergeant at $30,000, that money is more important.”

Hilferty said the family voted to stay in South Carolina because they like the people in Sumter. The cost of living is low. And they like the short drives to the beach and the mountains.

But most importantly, his three children are all in high school at Wilson Hall and love it.

“We’ve moved them around every couple of years since they were born,” he said. “That was one of the primary motivations to stay put.”

Hilferty said that many of his comrades have chosen to move to Virginia because of the number of jobs open to ex-military in Washington, D.C. (Because of that, Virginia does not exempt state taxes.) And he had a “really good” job interview in New York.

“But we don’t want to live in Virginia or New York,” he said. “The cost of living is a big part of that. But it’s the whole package.”

S.C. strives to keep vets’ skills in state

Keeping Hilferty’s and other retiree’s skills in the state is another reason to become more attractive to veterans, said William Bethea, the Beaufort County attorney who chairs the S.C. Military Base Task force.

“It’s not just a money issue,” he said. “It’s a workforce issue. They have skills that they have developed over 20 to 30 years. And we need those kind of people to attract industry.”

One of the biggest factors that an industry like Boeing or BMW considers when they are choosing to build a plant – aside from free land, tax incentives, no unions and low regulation – is a trained workforce. For Boeing and BMW, the state’s wealth of military trained vehicle and aircraft mechanics boosted the state’s chances.

With South Carolina being a small state – less than 5 million people – building a skilled labor pool should be a priority, Gov. Nikki Haley said. While the governor said she supports tax relief for veterans and retirees, she did not throw her support behind a specific bill.

“As a military wife and someone who believes we should lower income taxes for all South Carolinians, Governor Haley would certainly support efforts that work to reduce the tax burden on our veterans, including eliminating income taxes on retirement pay. These veterans and their families sacrifice for our freedoms and our quality of life, we owe it to them to do the same,” her spokesman Doug Mayer said in a statement.

Other states already are taking action to make themselves attractive to military retirees.

For instance, Iowa – a state of 3 million people – eliminated its state income tax on military retirement pay this year.

With the military drawdown looming, the adjutant general of the Iowa National Guard went to Gov. Terry Branstad and urged him to “get ahead of the curve,” according to an article in the November issue of Military Officer Magazine.

The state formed the Home Base Iowa initiative, which, among other actions, eliminated state taxes on retirement pay.

“Each state has to make their own choices,” Bill Finch, a former naval commander and financial planner for the Military Officers Association of America told The State. “Having a larger skilled and dedicated labor workforce (in South Carolina) would offset the loss of revenue from the retirement exemption.”

‘The right thing to do’

In addition to the end of the wars and an expected wave of retirees, the military also is facing BRAC, which stands for base relocation and closing, a process used by Congress and the Pentagon to realign or eliminate missions, personnel and real estate to cut the budget and become more efficient.

With the military set to cut more than $500 billion over the next 10 years due to the Budget Control Act of 2011, commonly called the sequester, a new round of BRAC is expected in 2017. That could be a watershed moment for South Carolina, considering the military pumps $15.7 billion into the state’s economy each year, according to Commerce.

One factor the military will consider when realigning its assets will be the support a community or a state offers military members – called quality of life. The tax exemption is one of a number of state initiatives that will build a state’s quality of life score when cuts are being considered.

South Carolina already has passed six key initiatives pushed by the Department of Defense – from allowing veteran’s courts to lower property tax assessments for deployed military personnel. But enacting the tax exemption and passing other initiatives, such as allowing in-state tuition for veterans without a one-year waiting period, would help build the state’s case, advocates said.

“As BRAC discussions continue, you would be well served to address that,” the military officers association’s Finch said.

Those two pieces of legislation – the exemption and tuition bills – will be the task force’s “top priority” when the Legislature convenes in January, Bethea said.

The task force plans to offer to lawmakers a “dynamic analysis” that would show the benefits – from fiscal offsets, to workforce development, to BRAC, to patriotism – that would offset the $22 million cost.

And lobbying will start early, he said.

“What we want to do is be able to show that this is not just a negative issue” from a revenue standpoint, he said. “We have to paint a fair picture of the economic result.”

But from Maj. Gen. Wells perspective, there are things that are more important than money.

“It’s something I have worked at throughout my career, to make communities more supportive of the military,” he said. “They are people who have put their lives on the line. It’s the right thing to do.”