Posted by: Josh Lehner | November 21, 2014

South Central, Southeast Oregon, Nov 2014 Edition

This post continues with our regular series on the regions within Oregon. For more, see the regional tab at the top of the page.

SEOregonMap

The region varies considerably in both climate and industries as one heads east from the Cascades to the Idaho border in this southern swath of the state. To the west lies the majority of the population and nonfarm employment in Klamath. A large timber and related industries concentration in addition to tourism-related sectors play an important role and the county is home to the state’s only national park, Crater Lake. To the east the landscape opens up and the population becomes more sparse, until you hit the eastern edge of the state where another population base is located in Ontario in the Treasure Valley. Overall these four counties contain just under 3 percent of the state’s population, 35 percent of its landmass and nearly 15 percent of all agricultural sales and 8 percent of agricultural employment.SEOregon_Shares1214

SEOregon_LQ2013

The region has undergone deeper recessions and/or taken a bit longer to recover than the state overall for each business cycle in the past 35 years. Today, the job losses from the Great Recession are now worse than at the same point point following the early 80s recession. This pattern over each business cycle is similar to those seen in Southern Oregon and the South Coast, as discussed previously. The one except being the severity of the 2001 recession due to large losses in Klamath — and related to the drought at that time as well. The only two regions to suffer tough economic times in 2001 in the state were the Portland Metro with its concentration in high-tech and Southeast Oregon. All other regions only experienced a minor hiccup in economic growth.SEOregon_Recessions1214

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For more information on Southeast Oregon please see the great work the Employment Department does, including monthly analysis. Specifically see Region 11 and Region 14 for more details on their website.

Posted by: Josh Lehner | November 20, 2014

Northeast Oregon, Nov 2014 Edition

This post continues with our regular series on the regions within Oregon. For more, see the regional tab at the top of the page.

NEOregonMap

Forests, agriculture and formidable terrain cover much of this region that stretches east of the Cascades to the Idaho border and the Columbia River and Washington to the north. Covering nearly 20 percent of the state’s landmass, yet home to 3.7 percent of its population, the majority which live near or along I-84 in Hermiston, Pendleton, La Grande and Baker City. The region’s dominant industries are highlighted by animal and agricultural related employment, in addition to key transportation sectors.

NEOregon_Share1214

NEOregon_LQ2013

The region as a whole experienced a less severe Great Recession than the state with job losses of approximately 4 percent compared with 8.5 percent statewide. The unemployment rate spiked as job losses mounted, but not quite to the same degree as the state. However the labor market recovery that began in 2010 stalled and the region has seen no net job gains in recent years.

NEOregon_Unemp1214

Northeast Oregon experienced a severe early 80s recession that took 10 years to fully regain the jobs, however the 1990 and 2001 recessions had only minor impacts on local employment. The region took a hit during the Great Recession, however only about half as large as the state overall, but has yet to really gain momentum so far in recovery. NEOregon_Recession1214

For more information on Northeast Oregon please see the great work the Employment Department does, including monthly analysis. Specifically see Region 12 and Region 13 for more details on their website.

Posted by: Josh Lehner | November 18, 2014

Oregon Employment, An Update

In light of today’s preliminary employment figure for October — it’s quite large — I thought it may be useful to step back here and look at the recovery. First, given the data flow, in particular withholdings out of Oregonian paychecks, our office has been skeptical of the summer slowdown in the preliminary employment reports. Not that we dismiss them entirely, but as we discuss in our forecast documents, we use them much like the other economic indicators available to us. The reason being is these initial estimates are volatile and can be subject to substantial revisions. As such, when you combine the relatively weak months of employment growth since the start of the summer with this big October, it brings the Oregon economy largely back to where our office thought it was to begin with. Oregon is now one-third of one percent away from reaching pre-recession peak employment, or 5,700 jobs.

Of course, reaching pre-recession levels is not an end goal, but it is an important milestone. Many other social and economic factors have changed in the past seven years, including population growth which has continued. As we have discussed before, the employment-population ratio for Millennials and Gen X is about 40-50 percent recovered, even if total employment has for the U.S. and nearly has here in Oregon.

OREmpRecComp1014

In terms of how this slow recovery has impacted our office’s primary duties of forecasting the economy and revenues, it has actually been on track for the most part in recent years. The graph below shows our office’s return to peak date for each forecast over the six years since I’ve been here. By the summer of 2010, our office had a slower than usual recovery built into the outlook, with a return to peak in 2014 or 2015. The specific timing shifts somewhat based on the quarterly forecast, but overall it has been pretty stable. More importantly for policymakers, the revenue outlook, absent law changes, has been pretty stable as well.

None of this is to boast, as the economics profession did not exactly wrap itself in glory in advance of the crisis. However, as we did learn about the nature of financial crises, and the important implications that housing and government have on smaller and rural areas, it does help inform our outlook on the economy. For the past 4-5 years, the recovery we have seen has largely been the recovery expected. Slow, disappointing and lackluster relative to previous expansions, however neither our office nor the economic consensus was forecasting anything stronger either.

OREmpForecasts1214

In terms of the outlook from here, our office is expecting more of the same for the next couple of years. Job growth in Oregon of 2.5-3.0 percent per year, which is about one percentage point faster than the typical state, or maybe three-quarters of a percentage point faster. Given the slowdown in employment data over the summer, we built in a near-term acceleration into the outlook to get the state back to the growth seen about 9 months ago. The reason being is that while the jobs data slowed down, other indicators did not. This preliminary October employment figure is another indication that the expansion certainly continues and likely did not slow, at least very much. Oregon’s recovery continues ahead at about three-quarters throttle.

Our office does not have fundamentally stronger growth in the baseline. To get to the typical Oregon expansion of 3-4 percent job growth, we would need to see a return to normal labor market dynamics of stronger job growth leading to higher wage gains and more Oregonians looking for work as well. This would also help drive stronger population growth overall, boosting economic growth as well. We’re actually starting to see some of these dynamics return to more normal patterns, however it is still too early to tell whether or not the economy will get all the way back to these historical cycles. Expectations are that we will not, however it is encouraging to see some of these underlying changes occurring, and for the better of the regional economy.

Posted by: Josh Lehner | November 13, 2014

Economic and Revenue Forecast, December 2014

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

On the eve of the Great Recession’s seventh anniversary, the U.S. economy has regained all of its recessionary losses across a host of top-line economic indicators. Employment, personal income, stock prices and GDP are all at or near record levels. However, below the surface, not all is well with the economy.

Although aggregate measures of economic activity have bounced back, the U.S. economic recovery is not yet complete. In particular, there is still slack in the labor market, with many workers unable to land the type of job that they are aiming for given their individual skill-sets. Other workers have become discouraged and have left the labor force altogether.

In Oregon, the overall number of jobs has yet to return to its pre-recession peak, but will no doubt do so before the 2015-17 biennium begins. As has historically been the case, Oregon’s recession and recovery have shown more of a boom-bust cycle than what has been seen in other states. After suffering relatively severe job losses during the recession, Oregon is now experiencing above-average job growth. Employment growth in Oregon accelerated in 2013, and has outstripped growth in the typical state ever since.

In general, Oregon’s largest population centers have fared the best during the recovery. The Portland area was the first to start adding jobs in 2010, and has grown steadily ever since. There are now 15,000 more jobs in the Portland area than there were before the recession began. Oregon’s smaller metropolitan areas did not begin to expand until the second half of 2012, but many have been adding jobs at a rapid pace since. Leading the way has been the Bend metropolitan area along with other areas that were the hardest hit by the housing downturn. Oregon’s rural communities have yet to see much of a recovery to date. With public sector payrolls stabilizing, the typical rural area finally started netting a few jobs over the past year. Despite recent improvement, most rural areas have just begun to repair the damage done by the recession.

The outlook calls for recent job gains to persist for two to three years before longer-run demographic trends weigh on growth rates. The character of the forecast remains the same as three months ago, with employment growth rates relatively unchanged through 2016 and some upward revisions to the out years.

OregonPop2014

The outlook for General Fund revenues in Oregon remains on track for now, with collections closely matching the Close of Session forecast that was used by the legislature when crafting the 2013-15 state budget. Although revenues have mirrored the Close of Session forecast to date, an increasingly strong outlook for April 2015 tax payments, combined with revenue increases enacted during the 2013 Special Session, together suggest that biennial tax collections will approach the 2% personal income tax kicker threshold.

An improved job market is fueling growth in tax revenues. In recent months, growth in personal taxes withheld from paychecks has returned to rates similar to those seen during the peak of the housing boom.   In addition to gains in taxable labor income, corporate tax collections grew rapidly through much of the year, prior to running out of steam in the fall.

Somewhat offsetting this strength in the labor market, weakness in taxable investment income is holding back tax collections. Wealthy taxpayers submitted their amended and extended tax returns this fall, exposing the fact that the 2013 tax year was even weaker than it appeared in April. The April 2014 tax filing season was not a good one for states like Oregon that depend heavily upon personal income tax revenues. Year-end personal income tax payments tied to investment income fell sharply in response to higher federal tax rates put in place during 2013. Many Oregonians cashed out capital gains and other investments in 2012 in anticipation of upcoming federal tax rate increases, leaving fewer gains to be realized for tax purposes going forward.

The 2013-15 biennium is far from over, and therefore significant uncertainty remains. One more income tax filing season remains between now and the end of the biennium. As such, many risks to the outlook remain.

The primary downside risk facing the near-term revenue forecast is the uncertain future of the nationwide economic expansion. Should contractionary monetary policy or economic weakness among our trading partners derail the U.S. economy, the strong expected growth in Oregon’s tax collections will not be realized.

Revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon. As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past.

General Fund revenues have closely matched expectations thus far during the 2013-15 biennium. For fiscal year 2014, actual revenues exceeded the Close of Session forecast by less than $10 million (0.1%). However the combination of a somewhat stronger outlook, plus the legislative actions taken during the 2013 Special Session, result in General Fund forecast for 2013-15 of $15,912 million. This represents an increase of $11 million (+0.1%) from the September 2014 forecast. The December 2014 forecast for the 2013-15 biennium is $270 million (1.7%) above the Close of Session forecast.

 

201315BN

For the full document, slides and forecast data please see our main website or view our presentation to the Legislature below.

Posted by: Josh Lehner | November 10, 2014

Graph of the Week: Transition Probabilities

Just a quick update on the probability of unemployed Americans finding a job, ahead of our next quarterly economic and revenue forecast release on Thursday. According to the latest data from BLS, these transition probabilities really have improved quite a bit in the past year. Even surprisingly so, given that much of the headline data flows suggest a continuation of the slow growth recovery seen to date. Gains are seen even among the long-term unemployed as well. However, as Conor Sen detailed the other day, a lot of progress is being made below the surface in terms of slack and the like. Should this progress continue, eventually it should show up in higher real wages (we think), although we’re not quite there yet. Do read Mr. Sen’s work for a good summary of the stronger improvements seen in the past year or two.

While there remains those two economic narratives out there that progress is being made in aggregate but not for the typical worker or household, examining some of these more recent data points suggest that fundamental improvements are being made. Top line numbers suggest the economy has fully regained its recessionary losses in terms of jobs, real personal income and the like, however, fundamentally the data suggest that we’re about 40-50 percent back in terms of the employment-population ratio for prime working age adults and items like these transition probabilities. The economy is not fully healthy, but the trajectory of these improvements is better today than at any point since the onset of the Great Recession and stronger than the conventional wisdom may have you believe. It’s been seven years next month since the onset of the Great Recession, but we’re starting to get there, we truly are. I think.

UnempTransProb1014

Along similar lines, this is what our office has been discussing quite a bit this year in terms of the labor force dynamics. Stronger job growth here in Oregon has and is providing more opportunities for the unemployed. As the labor market begins to tighten, wages are picking up, at least back to housing boom era rates (which themselves were not the greatest) and we are now seeing the growth in the labor force. The combination of higher population growth, household formation, the Millennials aging into their prime working ages and those previously not looking for work rejoining the labor force, are reversing much of the losses seen in recent years, at least here in Oregon.

Note that the percentages on the right indicate the share of recessionary losses regained as of October 2014. For example the transition probability for those unemployed 5 weeks or less peaked at 38 percent in May 2007 and fell to 29 percent in November 2009. Today’s rate of 35 percent is 71 percent of the way back from the bottom to the pre-recession peak rate.

Posted by: Josh Lehner | November 6, 2014

Portland Housing Pt 4: Outlook

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a multi-post series focusing primarily on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and by neighborhood in Part 1. Part 2 covered underlying trends in construction and demographics. Part 3 went over housing affordability in Portland, while today Part 4 provides an outlook.


The linchpin in the housing outlook for the region is population growth. It is no secret that Oregon, and Portland in particular, receive in influx of migrants each and every year. The magnitude of these flows are impacted by the economy and relative home prices, however even in bad times, people choose to live here. Moving forward, our office’s population growth rate forecast, much like our overall economic outlook, is lower than in past expansions, but that does not mean growth will stop. In fact, the number of new inhabitants in the Portland MSA is expected to be 30,000-35,000 each year for the next decade. Every one of these new residents will need a place to live.

HousingPopForecast

With population growth picking up, and more importantly household formation, the outlook for new construction is stronger as well. Based purely on the population forecast, the number of new housing units needed annually in the Portland area is about 13,000. This is based on the assumption of 2.5 persons per household, whereas historically the ratio of new construction to population growth has been lower at about 2.3 persons per household. That level of building would add approximately 1,000 more units per year, however that is not the baseline outlook.

HousingStartForecast
It does remain an open question as to the type of housing needed, or preferred. Economists and real estate experts agree that a larger share of multifamily is to be expected, certainly relative to the single family boom of the 1990s and 2000s. With credit availability still tight and a changed perspective on ownership following the bubble, expectations are that the higher share of the population in rental units will continue. Even so, there are some indications or warnings that the multifamily, rental apartment market in Portland may be overbuilt in a few years. From a population growth perspective, the region needs those units, however from a developer’s position, more units may eventually result in higher vacancy rates and/or lower rents. It will be important to closely monitor these developments and how the market adjusts.

One key aspect here for ownership, particularly among the Millennials, is job tenure. Owning a home can be a good financial decision but it also anchors one to a specific location and involves large transaction costs to buy or sell. Should changing jobs more frequently, or the so-called gig economy, become more prevalent moving forward, then owning a home makes less financial sense as it does not provide the same flexibility as renting.

Finally, our office’s outlook for prices is moderation. Historically home prices have increased slightly faster than the rate of inflation. Of course the housing bubble was a giant exception. Nevertheless prices today are, more or less, back to historical trends if you were to cut through the boom and bust nature of the past decade.

HousingPriceForecast

As the economy continues to recover, with more employed individuals, household formation will likewise continue to pick up, along with overall population growth. Home prices are set to rise further, however the very strong appreciation rates are likely behind us. This does not rule out a near-term price correction in some markets, where prices may have risen a little too fast, too quickly. All of these dynamics are good indicators that the market is working, and getting more healthy. Overall, just as the economy is getting there, so too is the housing market.

Part 1 covered the housing bubble’s impact on ownership. Part 2 covered underlying trends in construction and demographics. Part 3 went over housing affordability.

Below are the full set of slides from our office’s housing work, including many additional graphs and figures.

Posted by: Josh Lehner | November 4, 2014

Portland Housing Pt 3: Affordability

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a multi-post series focusing primarily on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and neighborhood in Part 1. Part 2 covered underlying trends in construction and demographics. Today, Part 3 will go over housing affordability in Portland, while Part 4 provides an outlook.


In terms of home ownership affordability, our office’s metric shows that affordability is back to the relatively stable levels seen in the 1990s for the typical family in Portland. The strong rebound in home prices, even with relatively low interest rates, clearly show that the record level of affordability is gone and unlikely to return.

One other important aspect when it comes to affordability is the size of the down payment. If one is able to afford to put 20 percent down, by and large, the costs of owning a home are generally below the standard affordability thresholds. Ownership costs rise approximately 25 percent if one moves from 20 percent down to 5 percent down. The increased size of the loan balance, plus mortgage insurance, raises costs considerably. By our office’s rough metric, those only able to put down 5 percent are typically right on the cusp of affordability. This is one reason why the old home ownership pattern typically saw households buy starter homes, then move up to a more expensive, usually larger, home when their income increased and family needs changed as well. While this pattern of ownership very well may return again moving forward, it certainly came undone during and after the housing bubble.

HousingAffOwner

One other issue with affordability at today’s prices are the types of households that can afford the median home sold today or, conversely, the price each type of household can afford. Here there is both good and less good news. If one looks at the distribution of homes currently for sale, via our friends over at RMLS, the current inventory closely matches the income distribution of families in Portland. This was actually a bit of a surprise to me because it indicates that there is not a large mismatch between the supply of homes for sale and the ability of local households to afford those homes. See slide 15 below for more. The less good news is that the 20 percent down versus 5 percent down affordability issues rear their head again. This indicates at least a bit of a mismatch in the market of would-be sellers and would-be buyers. Add on top of this tighter underwriting standards (largely a good thing), plus large transactions costs, plus the fact that homes in most zip codes in Portland are not all the way back to peak, and the like, and it is not hard to tell a convincing story for why the ownership side of the housing market has not fully healed.

On the rental side of the market, demand and prices are at all-time highs, and housing costs as a share of income are back to pre-recession levels. More and more individuals are renting today than ever before. The outright number of Oregonians in owner-occupied housing is actually down from their housing bubble peaks, while the rental population has surged. Some of this switch is by choice — consumer preferences, Millennials living downtown or in town centers, etc — but some is by necessity — foreclosures, tighter underwriting standards, etc.HousingRentPop

Given the low levels of new construction in recent years, this increased demand has resulted in a very low vacancy rate that is among the lowest in the country. As such, rents are rising quickly.HousingAffRent

With these trends and market shifts, it is no surprise to see new multifamily construction really accelerate in recent years. Slightly less than half of all new construction permits in the Portland Metro over the past three years have been multifamily. This is the largest share since the late 1980s.

One interesting and possibly troubling issue is that almost all of the new construction is coming at the top end of the market. Examining rents across the MSA from Multifamily NW reveals that average rents for all types of apartments are in-line with the median incomes for nonfamily households (usually roommates). That’s good news and furthermore, the graph above shows rents in the 25-30 percent of income range, which is not exceptionally high for most households. Of course these are region wide averages and some locations are much higher than others.

However, the new apartments, which are largely located in close-in and sought-after neighborhoods, are coming in at twice the average price per square foot. Overall these units require incomes that are 2-3 times the median nonfamily income to keep at an affordable share of income. Such incomes are in the $60,000 to $90,000 range. See slide 16 below. Even so, these new developments are filling up.

One key question moving forward is how, exactly, these new units will impact the broader market. The academic literature is somewhat mixed in terms of how new construction filters through the existing housing stock (or doesn’t as the case may be). However many of these papers assume new construction is built at the price point needed in the market. In today’s environment, these high rents are needed to obtain financing for building the apartments in the first place. It will be important to continue to monitor these trends to see how rents, and the various sub-markets (by price or by location) respond in terms of overall affordability.

Part 1 discussed the housing bubble’s impact on ownership. Part 2 covered underlying trends in construction and demographics. Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

Posted by: Josh Lehner | October 29, 2014

Portland Housing Pt 2: Construction and Demographics

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a 4 part series focusing on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and by neighborhood in Part 1. Today, Part 2 covers underlying trends in housing supply and demand. Part 3 will go over housing affordability in Portland, while Part 4 will provide an outlook.


Beyond the housing bubble’s impact on prices and ownership in the past decade, it has tremendous impact on the level of new construction. However, unlike the U.S. as a whole, the Portland MSA actually did not overbuild very much during the boom, relative to underlying population gains. The graph below shows the number of housing permits per population change. The average over the 1980-2004 period was one housing permit for every 2.3 person increase in population. This is somewhat lower than the number of people per household as reported in the 2000 Census (2.51 statewide, 2.56 in Portland). Even so the ratio did not increase much during the housing boom. This indicates that the level of new construction in the region was not far out of line with historical patterns, relative to the fact that more and more individuals continued to move to the region.

HousingPermitsPop

While there was not much overbuilding during the bubble in Portland, the housing bust has clearly been disproportionate to the boom. Relative to the population gains to the metro area, a rough accounting from 2000 through 2013 finds that the number of new housing units built is about 2/3 to 1 year behind historical patterns. 2014 is so far on pace to be similar to 2013. While this under building relative to population growth is certainly manageable with a few years of stronger housing starts, it does indicate the housing market today is likely supply constrained, helping to drive prices higher for both ownership and rental units.

Furthermore, indications of housing demand, if anything, are accelerating. Even as household formation has slowed nationally, it appears to be picking up in Oregon. As the economy continues to improve — even faster than the typical state — the old, strong flows of in-migration to Oregon, and Portland in particular, are beginning to reappear.

HousingHHFormationNow, the types of housing needed to meet this new influx of demand may be different. The Portland MSA continues to be a magnet for young, and mostly educated migrants. See here and here for more. As such, the region has a very large Millennial cohort, relative to the rest of Oregon and the nation. Ages 25-34 are very important in terms of setting down roots as this range is when most individuals, get married, buy a house, start a family, begin their careers in earnest and the like. However, at first, many are renters and not owners. As such, about half of all housing units built in Portland in recent years have been multifamily and even with high rents in these new buildings, vacancies are low. Economists and housing experts are in agreement that moving forward, a relatively larger share of new construction will be multifamily instead of single family, however, as will be discussed in the outlook section next week, the exact details are unknown.

HousingPopAge

It is important to point out that Millennials (and Generation Xers) in Portland and Oregon are just as likely to be employed as elsewhere in the country. Portland is not (just) a place where young people go to retire. As these cohorts age, and the economy continues to improve, it should be expected that many transition into ownership over the coming decade, although it may be a higher share of condos and not purely detached, single family as in the 1990s and 2000s.

Part 1 covered the housing bubble’s impact on ownership. Part 3 goes over housing affordability and Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

Posted by: Josh Lehner | October 29, 2014

Portland Housing Pt 1: The Bubble Impact on Ownership

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a 4 post series focusing primarily on the Portland Metro, our office’s new housing work covers the bubble’s impact on ownership by year and by neighborhood today. On Friday, Part 2 covers underlying trends in construction and demographics. Part 3 will go over housing affordability in Portland, while Part 4 will provide an outlook.


Some economists point to the swings in home prices as the defining feature of the housing bubble era, and with good reason. However I would argue that it’s more than just the price swings, but how they actually impacted the pattern of homeownership is more important and I don’t mean the overall homeownership rate.

As shown below, the share of homes in Multnomah County last sold during the boom is disproportionately high relative to what one would have expected ahead of time, if sales had been relatively steady each year. Some owners sell their homes after 5 years, or 8 years, with the median homeowner being in the same home 15 years. Using these ownership duration figures, based on work from the National Home Builders Association, one is able to construct what a typical ownership pattern would or should look like. That’s the dashed, dark blue line below. In actuality, ownership patterns in Multnomah County are in the solid, light blue line. The differences here are immense. It works out to 1/3 more homes last sold during 2003-2007 and still owner-occupied, or at least not resold, then if the sales pattern had been more stable. So it is not just the price swings themselves, but the fact that more households bought during the boom and have yet to resell or move. Some by choice, some by necessity or being underwater. In fact, while most areas within the Portland MSA have seen strong price appreciation in recent years, nearly back to peak levels, only about 20 percent of individual zip codes are actually all the way back, per data from Zillow. The price swings have a big impact on the incentive on when/if current homeowners sell. This overall pattern has big implications for the housing market in terms of existing homes for sale, neighborhood effects and remodel work, among others.

HousingMultOwn

In terms of the existing stock of homes, which types are most impacted by the housing bubble? Examining the current value of each home in Multnomah County reveals that those homes last sold during the boom and have yet to be sold again, are disproportionately in the starter home ($150,000 – $250,000) and McMansion ($450,000 – $600,000) price range. This makes intuitive sense as well. During the boom, there was strong competition for each type of home, with many households trying (and succeeding, at least at first, based on the lack of underwriting standards) to obtain their own piece of the American Dream. Homes in the lower price tier experienced the largest boom and bust pattern based on S&P/Case-Shiller home price data, which reflects the strong demand and competition for entry level homes, even by those who traditionally may have been unable to afford or meet underwriting standards. McMansions also experienced strong demand as middle income families sought to move up into a higher priced home, and many higher-end subdivisions or communities were built throughout the region in these price ranges.

Besides prices and types of homes, the bubble’s impact on ownership has had disproportionate impacts on neighborhoods and geographic regions within the Portland Metro. As discussed previously, the graph below shows the share of homes in each neighborhood that last sold during the boom on the vertical axis and the pace of home sales on the horizontal axis. Here one can see which neighborhoods have a relatively large share of these bubble era home sales, and also which ones are currently seeing sales either above or below average pace. Many of Portland’s close-in neighborhoods, where recent demand has been strongest, have seen strong sales in the past year or two and/or have a lower share of homes last sold during the bubble. Many of the outlying regions are seeing the opposite pattern. As demand continues to be strong in both the central city and in town centers across the region, the pattern makes sense. The hardest hit suburbs and exurbs are generally the last to share in the housing recovery, if at all yet.MultnomahTurnover0314

Another way the bubble’s impact on ownership works through the housing market is remodeling. If an owner remains in the home for a longer period of time than they may have expected when they bought, they turn to making the best of the situation. If one cannot move, maybe by choice (the owners do not see another/better option in their desired neighborhood) or by necessity (underwater), they concentrate on improving the existing home the best they can, or afford. In other words, instead of upgrading their homes via moving up into a better one (see: expensive), owners upgrade the quality of the existing housing stock.

Examining housing permit data from the City of Portland reveals that projects that can broadly be considered remodel work, are nearly all the way back to peak levels, at least in nominal dollar terms. New home construction is about half-way back, but remodeling has been much stronger. At the national level, the NAHB Remodel Index is at an all-time high and in terms of U.S. GDP, home improvements have been larger than actual new construction for much of the economic expansion.

HousingPDXRemodel

On Friday, Part 2 will cover underlying trends in construction and demographics. Part 3 goes over housing affordability and Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

Posted by: Josh Lehner | October 24, 2014

That 80′s Feeling, Housing Edition

I have been asked to speak at the Home Builders Association 2015 Housing Forecast in two weeks at the Oregon Convention Center. I have lots of new and hopefully interesting housing analysis that I will be publishing on the blog over the next two weeks, however I am updating some of our standard housing graphs and thought I would share.

As discussed before, Oregon’s economy today is very similar to where it was back in the mid-1980s. Namely, we are digging out from a severe recession and while activity and growth has returned — even at above average rates relative to the nation — we’re still not back to where we once were. The same applies to housing starts. Both the late 1970s and the mid-2000s were housing booms (and bubbles) in Oregon, followed by sharp corrections. Back then, it took nearly 9 years before starts returned to their long-run average. Today we are in year 7 of a similar bust.

Housing80s

As hard as it may be to believe, Oregon today is actually in a relatively better position in terms of construction jobs than back in the 1980s.

Housing80sEmp

Stay tuned in the coming weeks for some of the new research ahead of the presentation.

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