Posted by: Josh Lehner | May 6, 2020

The Kids were Finally Leaving the Basement…

Oregon’s economy is more volatile than the U.S. for two primary reasons: our industrial structure and migration. Both of these are pro-cyclical meaning they decline or slow further in recessions but grow faster in expansions. Over the entire business cycle, Oregon grows faster than the typical state. A few weeks ago I was originally supposed to be part of a real estate event that was understandably canceled. What follows is some of the research I had been doing that presentation in recent months that touches on young adults, recessions, migration patterns, housing demand and the like.

One socio-economic trend that emerged from the Great Recession was the big increase in young adults living at home. With few job opportunities available they had no choice. Many enrolled in higher education as well. Then once the labor market heated up by the mid-2010s, they were able to find jobs at higher rates, but housing costs were skyrocketing due to the lack of supply. The result was that for the better part of a decade, the share of young adults living at home remained stubbornly high.

However, that was finally starting to change in the past year. It took a lot longer than I expected, but it was happening. The combination of a strong labor market delivering better income gains, plus the increase in new apartment construction beginning to hold down rents meant that young adults could better afford to live on their own again.

Now all of this is up in the air, or rather locked in place I suppose. It’s hard to know exactly how the 2020 recession will impact these trends moving forward. A large part of it will be the duration of the recession and recovery. We know it is very severe at the moment, but that longer trajectory of recovery will be the key factor at play.

Complicating the picture are all the things John Tapogna, President of ECONorthwest, mentioned on Willamette Week’s Distant Voices series the other day. John touched on slower migration, household’s incomes are down and their ability to pay is worse in a recession, households may double up to save money, and the like. All of this puts downward pressure on prices in the near term, at least until the trends reverse once the expansion picks up.

The key here for the medium and long-run outlook is the slowdown in migration. Our office is still working on updating our forecast, but in the past year or two I had already been doing some rough recession modeling and its impact on migration and household formation, at least for Eugene and Portland. What follows is a rift off of that work.

Right now, given the shelter in place style policies all around the country, nobody is moving. This is happening during the spring listing season. Should these policies remain in place — either officially or enforced via social norms — through the entire summer moving months, then migration for 2020 will likely be the smallest we have seen since Oregon lost population during the early 1980s.

Even so, we know migration slows in recessions. Oregon will see fewer people move here this year and next than we thought prior to the recession. This will have knock-on effects in terms of labor supply in the years ahead and lower levels of consumer demand for restaurants, housing and the like. Some rough projections indicate that we may lose the equivalent of 1-2 years of population growth as a result of the recession, not all of which will be made up when the expansion hits full swing further down the line.

Note: Our office will have an updated population forecast in two weeks, these figures are back of the envelope work I had been doing. Also the chart below includes ALL 20-34 year olds in the Portland region, it is labeled apartment demographics given the vast majority of people in this age range are renters.

Finally, I updated our look at migration patterns across the country among young college grads. See our office’s previous report and state comparison for more background. This topic is extremely important when it comes to future economic growth. Oregon’s ability to attract and retain young, working-age households is a huge economic advantage. Coming out the other side of this, following migration patterns will be a key thing to watch. That said, given how much the world has changed in recent weeks, I won’t dig into the details here given we are dealing with dated data. I will just note two things.

Among large metros across the country, Portland remained a top migration destination for young college graduates. This goes for all types of graduates including those with scientific, technical, or medical degrees. In fact, migration has been a bit stronger in Portland in recent years among this latter group. This continues to be good news when it comes to the technical skills of Oregon’s workforce, and for those with such concerns, however overblown they may be.

On the other hand, Portland’s relative position has fallen somewhat in recent years. No longer were migration patterns to Portland significantly outpacing the rest of the country, they were merely leading the pack in the latest Census data. This is still an enviable position. It still indicates stronger long-run growth. But it is certainly worth monitoring moving forward largely because people move for two primary reasons: jobs and housing. If workers cannot find a suitable job opportunity nor afford to move here, then longer-run growth would be lowered as a result.

Bottom Line: In the very near term, shelter in place style policies mean hardly any migration. This goes for both long distance moves into or out of the region but also moving, buying, or selling withing the state as well. Over the medium term, migration slows in recessions but then picks up in expansions. Household formation rates and housing demand follow suit. Over the long run, our office believes Oregon’s ability to attract and retain households in their root-setting years will remain intact, until proven otherwise. The keys to watch will be job opportunities and housing availability and affordability, all of which will show up in these migration patterns of 20- and 30-somethings in the years ahead.


Responses

  1. […] Source: The Kids were Finally Leaving the Basement… | Oregon Office of Economic Analysis […]

  2. […] people move here this year and next than we thought prior to the recession,” Lehner wrote in a post. “This will have knock-on effects in terms of labor supply in the years ahead and lower levels of […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: