I will be giving a presentation to a group of Willamette Valley realtors next week, which provides an opportunity to update some of our real estate and construction related slides. Below is a summary of the housing related portion of the presentation.
The good news is that housing permit activity is up at both the national and state level. The Oregon series bounces around a lot more due largely to fluctuations in multi-family permits and construction, however the state certainly follows the nation.
However this pickup in permits is from a very low base of activity. Single family permits are holding relatively steady and multi-family is driving the growth.
At the current level of construction, the state is seeing an underbuilding of single family homes relative to historical norms. While this gap between current levels and normal/historical levels will shrink in the coming years, this shortfall can create supply bottlenecks in the future. See this older post for more information on the composition of this graph.
In terms of the outlook for new construction, our office’s forecast has remained relatively unchanged for the past two or three years . The growth is expected to remain modest in 2012 and 2013 with the real return of new home construction coming in 2014 and 2015. The light at the end of the tunnel is getting brighter, however it still remains basically two years away. Furthermore, a return to the state’s long run average of new construction is not expected until late 2015 or early 2016.
Unfortunately the state has seen this before: a massive decline in new construction, a deep recession and a slow housing recovery.
In terms of very good news, housing is no longer a drag on the recovery. While the industry is not giving the economy a strong boost at the moment, at least not yet, it is no longer providing headwinds. The same is also true in Oregon as employment in housing related industries (construction, real estate, home improvement stores, mortgage brokers) has increased since early 2011. All told, employment in these sectors declined 31 percent during the recession (compared to total statewide employment falling “just” 8.5 percent), however over 4,000 jobs have been added since early 2011 (+3.8 percent). Current levels of job gains are still below the past two expansions, however the switch from a large negative to neutral or a slight positive is a more than welcomed development.
Summary: The housing market fundamentals are getting back in line. The level of activity has likely reached bottom, or is expected to do so soon. The industry is poised for growth, however that growth is projected to be modest for another two years. Prices will bottom after activity and according to our latest forecast, prices are expected to decline a couple more percentage points in Oregon on a statewide basis. Moving forward, prices are not expected to increase faster than inflation until 2014 and even after then expectations are for real appreciation to be only a few percent per year.