AUGUST 2008: STATE WE'RE IN, TOM POTIOWSKY
Will we crash as badly as the rest?
BY TOM
POTIOWSKY
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Let’s say you hit a stretch of bad luck a year ago. You
lost your job. Your spouse took the kids and left. Your
driver’s license was revoked for driving under the
influence. Creditors were constantly calling and unpaid bills
piled up on your desk. The grand jury was investigating you for
identify theft. Your life was in shambles — but you could
still get a mortgage.
The get-rich-fast days of the housing boom are over. The pain
and adjustment going on in the housing market is occurring
throughout the country. Oregon is feeling this pain but not as
badly as other “hot housing markets.”
Of course, “hot housing markets” is a term no
longer in use. But from 2002 to 2006, some geographic areas of
our country were building and selling homes at amazing rates.
California, Florida, Nevada and Arizona partied hard. Oregon
also joined this party but in a more subdued manner. Oh, we
definitely partied, but were a bit more reserved.
A common impression in Oregon is that our housing market has
not suffered as badly as other former “hot housing
markets.” Some prophets are waiting for the other shoe to
fall. Is it just a matter of time before we crash as badly as
the rest? I don’t think so.
By just about every price-appreciation measure out there,
Oregon’s run-up in housing prices was late and not as
dramatic. The S&P’s Case/Shiller Home Price Index
shows Portland tied with Denver for third-best performing home
price appreciation out of the 20 metro areas covered by this
index. “Best” is a relative term; Portland home
prices are down 4.7% for April 2008 compared to a year ago. But
this is a far cry from the 25% and greater price declines in
Phoenix, Miami, and Las Vegas.
Another sign of distress from the housing market is the degree
of delinquent loans. The Mortgage Bankers Association places
the state of Oregon at 46th out of 51 for seriously delinquent
subprime ARMs (90 days past due or foreclosure) for the first
quarter of 2008.
Other indicators point to a slowed Oregon housing market, with
closed and pending sales both down, and months of inventory on
the market up. Building permits for single-family homes for the
year through May are down close to 50% compared to the same
period a year ago. Any building overhang we had is being
adjusted at a rapid rate. So the party ended for us at the same
time as for the nation. Oregon will not overshoot the end of
the housing downturn; our adjustment is well under way.
The 2001 recession was more punishing to us than to the rest
of the country. Oregon had the highest unemployment rate in the
nation. By the time we were climbing out of the abyss, other
parts of the country were already seeing the first signs of the
explosive housing market.
Urban growth boundaries have a way of slowing the growth of
home building in the places where demand tends to be strongest,
in metro areas. Our housing oversupply would be much worse
today without these restrictions. This helps maintain the price
of homes, which in turn relates to lower loan delinquencies. If
you have a mortgage that is worth more than the market value of
your home, the chances are greater that you will default rather
than keep paying on an asset that is greatly declining in
value. The higher the default rate, the more homes are thrown
back on the market, and the more pressure on home prices to
fall. This pressure is more subdued for the Oregon housing
market.
The housing downturn is not over in Oregon. Prices will
continue to drop and sales will be subdued. But we should not
see the type of bloodletting occurring in Nevada and Florida.
This time around, Oregon will not be the last one to turn out
the lights.
Tom Potiowsky is
Oregon’s state economist.
