Can N.H. weather the Wall Street ‘hurricane’?

Amid the financial market meltdown of September, plenty of people have been asking whether the turmoil on Wall Street will be affecting the economy down here on the Main Streets of the Granite State. It’s too soon to tell, of course, but it could be that the question should be turned on its head: Is Wall Street feeling the rumblings that have been going on for quite some time at the ground level?

“It’s like a hurricane without the weatherman,” said Russ Thibeault, president of Applied Economic Research in Laconia. “It’s truly a mess, but we don’t know how big a mess, and we don’t know how long it is going to be a mess, and we don’t know if we are going to make it through it.”

In the last month, the mortgage giants Fannie Mae and Freddie Mac were bailed out and taken over by the government, as was AIG, one of the world’s largest insurance companies. One of Wall Street’s big five investment banks, Lehman Brothers, went bankrupt, and another, Merrill Lynch, found itself being sold to Bank of America. All of that followed the forced sale of investment bank Bear Stearns to JP Morgan Chase, at pennies on the dollar.

Other companies, including Washington Mutual – the nation’s largest savings and loan – were seen as teetering.

And, as the stock market was going down and up like a roller coaster, the federal government took an all-hands-on-deck approach, pledging nobody knows how many billions to prop everything up, from backing up money markets to possibly setting up a semi-public corporation to buy up all the subprime bad debt.

Down here in New Hampshire, things are much calmer, but they haven’t been exactly tidy either. The Granite State economy is doing better than much of the nation, no doubt about it. Our local banks are healthy, credit is still flowing and our unemployment – 4.2 percent in August – is almost 2 percent lower than the country as a whole.

But the August rate was nearly third of a percent more than in July, and 0.8 percent more than the previous August. New Hampshire lost more than 1,800 jobs just last month. And in the last year, it has lost 1,300 construction jobs, and 1,400 restaurant and hotel jobs.

That’s not a surprise. The housing market has been slumping, and with the price of fuel so high, not as many people can afford to eat out or drive away for that little weekend getaway. In spring, there was a decrease of 5.1 percent in out-of-state visits compared to spring 2007. There are no summer stats yet, but weekend rain only served to dampen things further. Even New Hampshire Motor Speedway in Loudon still had tickets for sale the day before the September NASCAR races.

The numbers aren’t pretty

It hasn’t just been tourist dollars. People have been reluctant to spend money in all sorts of way, as consumer confidence continues to fall in New England. That has more to do with the price of oil, the pages of foreclosure ads and the general economic situation most people see around them.

“There are energy concerns, the price of gas, home heating oil, and when they are also nervous about their job or their home, they are going to hang on to their car,” said Peter McNamara, president of the New Hampshire Auto Dealers Association. And a national slowdown in credit hasn’t helped car sales either.

It’s not just car dealers – all sorts of business are affected. Personal bankruptcies are up 30 percent from last year. And more existing businesses are seeking the help of the New Hampshire Small Businesses Development Center, reports state director Mary Collins.

“As existing businesses slow down, they are looking internally how to sustain themselves,” said Collins. “The economy, energy costs – they are driving people. They are affecting everything.”

Then, of course, there is the housing market: Home sales down close to 22 percent, the average price of a home dropping more than 8 percent, from the first half of 2008 compared to the first six months of 2007. The number of days residential homes stayed on the market only grew 5 percent over that period, but that’s because sales were lagging already. Since 2005, the average time it took to sell a house has increased 54 percent.

And then there are foreclosures: At the end of June, about 1.65 percent of the state’s home loans were in foreclosure. In other words, some 3,300 households were in the process of losing their homes. Some 5.5 percent were delinquent (some 11,000) for at least 30 days.

The percentages are even higher when it comes to the more risky subprime adjustable rate mortgages. More than 15 percent of subprime loans were in foreclosure, and nearly a quarter of them past due.

You can’t blame this on the Wall Street mess, but you can blame the mess on those foreclosures in New Hampshire and the rest of the country, where the foreclosure rate is higher.

“Foreclosures, of course, contributed to the downturn. The problem that Wall Street was so highly leveraged, it was not able to absorb declining home values and foreclosures,” said Thibeault.

The result has been a Wall Street credit crisis that has affected everything from initial public offerings to the underpinnings of financial institutions.

But thus far, businesses in New Hampshire are still getting a relatively warm feeling when they head in for a loan. That’s because local banks have money to lend, said Jerry Little, president of the New Hampshire Bankers Association.

“There are no lack of sources of funds for community banks to lend. It may be a little harder to get credit because underwriters are being appropriately circumspect, but not because they don’t have the capacity or desire to lend.”

Indeed, the amount of lending to small businesses that use the SBDC’s services has actually tripled since last year, said Collins, and the number of loans was also up, though she wasn’t sure whether that was because banks were lending freely, or more troubled businesses were seeking out the organization’s help in the first place.

Larger businesses also seem to be getting the money they need, according to several sources that NHBR talked to. Those that need angel funding are getting it, according to Jim Cook, a Manchester attorney who specializes in high-tech companies.

They might need more of such supplemental financing. Commercial banks might want a lower debt-to-equity ratio – 50-50 as opposed to allowing as much as 70 percent debt and 30 percent equity.

Companies who haven’t found angels might have to go to private equity firms to fill that gap. Thus far, most of Cook’s clients have been able to do it, but he is worried about the future. Private equity firms make their money from reselling a company or taking it public, but it’s harder to launch an IPO these days.

‘Buying opportunities’

Nobody is sure what is going to happen in the future. Businesses are more hesitant when it comes to expanding, said Jim Roche, president of the New Hampshire Business and Industry Association.

“There is a growing unease among business executives about the economy, and that concern has been elevated during the past week,” said Roche.

“So many shoes have dropped,” said Little. “It’s all in the investment banking world, the high-end realm, but it has to ripple throughout the economy. You’ve got to believe it will affect things here.”

But how exactly?

The most obvious and immediate effect, though it changes from day to day, is in the value of someone’s stock portfolio, which took a drastic hit the days following Lehman’s collapse, and bounced back after news of government intervention. These losses may only be on paper, but they represent real losses if people panic and pull out of the stock market.

And that also means real losses to brokers.

“The press is scaring the bejesus out of people by sending doom-and-gloom stories every day,” said Jim Knee, principal of Sterling Financial Services LLC in Concord. “There are some real buying opportunities.”

And that, in a nutshell, might be how New Hampshire businesses could benefit. Because those opportunities don’t just exist on the stock market, but throughout the whole economy. And they may be particularly obvious in the housing market, where prices are low and there’s a glut of homes.

In fact, it’s in the housing market, where the whole mess started, that what happened on Wall Street could actually help New Hampshire.

After the federal government shored up Fannie Mae and Freddie Mac, interest rates dropped. And while the Fed didn’t lower the prime rate, higher bond rates also caused the price of 30-year mortgages to go down. Add a new retroactive $7,500 tax break for new home buyers, and the long slumbering housing market is starting to stir again.

“A few more first-time home buyers are coming out of the woodwork,” said Jon Wentworth, president of Profile Mortgage in Nashua. “Yes, it has been slow, but it’s starting to pick up.”

Paul Sargeant, group manger of the Masiello Real Estate’s Bedford office and president-elect of the New Hampshire Association of Realtors, sees the same thing.

“There has been more interest over the last two or three weeks. Prices are down, interest rates are go down, our phones are busy. Things are coming around. Some people in this business are having their best year ever,” Sargeant said.

“This is a good time to buy,” echoed economist Dennis Delay. “Housing values are lower than a year ago. If you still have equity in your house, you can refinance. An increase of refinancing can put more money in people’s pockets and help stimulate the economy.”

But Delay, who is deputy director of the New Hampshire Center for Public Policy Studies, is not exactly optimistic that we can see light at the end of the tunnel. He expects the housing slump to continue for at least another year, and maybe more, depending on what happens.

“Nobody knows what is going to happen,” Delay said. But one thing is certain. “We are still in for a pretty bumpy ride.”

Bob Sanders can be reached at