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Taking The Economy's Temperature

Housing sales are warming up. Is that good?



Like predicting the weather in Central Oregon during the finicky spring months, economic forecasts are tricky; sunny afternoons do not necessarily promise warm and dry evenings.

Likewise, in the mid-2000s, thousands in Central Oregon were basking in a booming housing market. By 2006, construction and real estate employment was effortlessly adding jobs, and quickly had expanded to nearly 20 percent of the local job market. More generally, soaring house prices seemingly were filling up portfolios with riches. But, although commonly considered a primary economic indicator, one that measures both personal wealth as well as overall optimism, taking the economy's temperature just by measuring housing sales and prices did not account for other, stormy forces that were gathering.

With both promise and portent, over the past two years housing sales—both in terms of volume and prices—have rebounded in Central Oregon. Although not at the dizzying highs of 2006 and 2007, home prices in Bend from the fourth quarter in 2013 to December 2014 grew more than 11 percent, putting Bend in the top 10 fastest growing markets in the country.

But what do those numbers mean? Is that good or bad? Is it a sign that the local economy is back on its feet? Or, is this another roller coaster ride, an exhilarating climb before another stomach churning fall?

According to observers of the local economy and housing market, the answers to these questions are complicated, but ultimately promising.

Over the past few weeks, there has been some hubbub that, nationwide, construction and sales of new homes has slowed—and, indeed, in Bend, housing sales did dip last year, but ever so slightly, from 2,262 in 2013 to 2,242 in 2014; less than one percent. Standing side-by-side with sales from just two or three years ago, though, recent numbers are considerably encouraging: In 2011, only 1,684 residential homes were sold in Bend and, in 2012, only 1,980; on average, sales last year added up to a promising 20 percent bump in the current volume of housing sales, an indicator that confidence has returned to the economy, and that individuals and families have solvency again.

What is most impressive about these current sales is the number that are not short sales or bank-owned transactions. From 2006 to 2008, housing prices and valuations plummeted, while unemployment doubled; a lethal combination that translated to hundreds of homeowners in the region no longer able to afford payments for their homes.

In 2010, 577 sales were bank-owned homes and another 385 were short sales, a troubling indicator that more than half of housing sales that year were because homeowners could no longer afford to maintain their mortgages.

But in the past two years, that trend has been curbed: By 2013, the percentage of bank-owned and short sales dropped to 10 percent of sales—a more reasonable level—and, last year, to 6 percent, a strong showing that hundreds of local families have regained stability and even sustainability in their personal finances.

Moreover, in neighboring cities, those numbers are even more dramatic. In Redmond, housing sales have stayed relatively consistent over the past five years (726 in 2010; 766 in 2014), but the percentage of short sales or bank-owned sales has plummeted from a staggering 70 percent in 2010 to a reasonable 9 percent in 2014.

Diversifying The Work Force

But gauging the economy by housing sales and prices—and corresponding job creation—can be like measuring the durability of a car by clocking how fast it drives laps on a racetrack.

"Economic development typically views construction jobs as somewhat transitory," explains Roger Lee, the executive director for Economic Development for Central Oregon (EDCO). "They ebb and flow with the demand for new homes, businesses, schools, hospitals and other structures. There is a start and finish to construction projects that makes those jobs quite different from manufacturing, high technology and, increasingly, professional service jobs."

Currently, about six percent of regional jobs are in construction—3,800 out of 63,000. During the housing and building boom in the mid-2000s, that percentage was closer to 11 percent, a segment that was particularly vulnerable to economic vagaries; by 2010, construction jobs had largely vanished, and their loss contributed greatly to high unemployment numbers in the region.

"One of the most interesting facts about the recovery and the growth we're now seeing is that it is not necessarily in the sectors that fueled the boom and subsequent bust last time," says Lee. "Construction, professionals services (real estate) and financial services (banks, mortgage lenders) have all had modest gains (except financial, which has continued to contract). In the past three years," he continues, "manufacturing has emerged among the stronger slices of the employment pie, but have been outpaced in growth by health and educational services, professional services, and leisure and hospitality."

Lee points out that EDCO is working with about 170 companies to relocate to the region, or to start their business here. "We are much better balanced than, say in 2007," he offers.

But so much about economic analysis is about measuring trade-offs—and, at the center of the debate is what and who economic development benefits, and who it leaves behind. No one seems to be denying that the current employment trends—although overall good for economic wherewithal in the region—will essentially trade off blue collar jobs for white collar jobs, but in the process potentially gain more work force diversity and stability.

Steady And Sane Growth

It is not just that Central Oregon's economy seems to be growing again, but it is how it is growing.

"We are at a healthy level right now," says Andy High, vice president of government affairs for Central Oregon Builders Association. "If we can maintain 900 to 1,200 single family permits in Bend that will allow us to keep up with growth. Single families homes in Bend aren't even half way to what we were in 2006 at roughly 2,400 single family permits," he adds, indicating that controlled growth is a measured difference from the frenzy a decade ago.

"The industry has learned from the past," asserts High. "Builders and developers are in different positions now—they haven't forgot what it was like when the industry went from roughly 2, 400 building permits to 147 in 2010. Builders are not over extending themselves."

Upcoming economic and housing events:

On Thursday, March 26, Economic Development for Central Oregon (EDCO) sponsors its monthly pub talk, 5–7:30 pm; keynote speaker, Dale Partridge, CEO from Sevenly. Old St Francis, $30.

On Friday, April 3, Bend 2030 and the American Institute of Architects present the Housing Solution Showcase, a collection of blueprints for affordable housing solutions in Bend. 5–8 pm. St Claire Place, 920 NW Bond.

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