Posted by: Josh Lehner | April 27, 2010

Housing and Construction Update

Standard & Poor’s released the February 2010 Case-Shiller Home Price Indices today. As S&P reports, “The 10-City Composite is up 1.4% from where it was in February 2009, and the 20-City Composite is up 0.6% versus the same time last year. However, 11 of 20 cities saw year-over-year declines.” The seven county Portland MSA is one of the cities which continues to see price declines on a year-over year basis, however the percentage declines in recent months are less severe than much of 2008 and 2009. The graph below illustrates the Case-Shiller Index for Portland since January 1987. Home prices in the Portland region, as well as most markets, have been moving sideways for much of the past year. This relative stability is at least partially due to the First-Time Homebuyer Credit which has added some buyer demand to the market, helping to support prices. However, the credit is set to expire for the second time and expectations for the near-term are weak. The fact that the number of foreclosures is expected to rise in the coming months (both new foreclosures and failed trial modifications), the expiration of the tax credit, an oversupply of existing homes already on the market, plus relatively low levels of buyer demand are all projected to keep downward pressure on prices.

The year-over-year percentage change is shown below. For February 2010, Portland MSA prices declined 4.8 percent compared to February 2009. January (-4.2 percent) and February’s declines mark the best showings of the index since early 2008, just following the peak of the market in the Portland MSA (July 2007).

Given the current state of the housing market, it is no surprise to see builders have cut new construction over the past few years to such low levels given the existing inventory on the market. One measure to gauge the level of new construction is to look at new housing permits issued. Permit data for March was released yesterday by the U.S. Census Bureau and is available at the state, county and city level. Through the first three months of 2010, total housing permits issued in Oregon have fallen 12.8 percent. This decline is a bit of an aberration as over 700 multi-family permits were issued in January 2009 making year ago comparisons tough. Single family permits have increased 49 percent for the first quarter of 2010 compared to 2009 figures. The graph below shows the level of housing permits from 1990 to March 2010. While the increase in single family permits over the past year is certainly good news – reflecting a bit more optimism from home builders – the number of permits issued (and subsequently the number of new homes built) remain over 50 percent below their stable 1990s and early 2000s levels. As shown on the graph, multi-family permits have nearly evaporated completely given the fact that the market is over saturated with supply, especially in Portland, and lending conditions remain tight for developers.

Most states have seen similar improvement in single family permits and housing starts. Given the broad-based gains, it appears that the bottom for new single family construction has passed and the recent improvement represent a legitimate rebound from the depths of recession back in early 2009; however, much more ground is needed to be covered before construction is anywhere close to its pre-bubble levels of activity.


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