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|Wednesday, November 01, 2006|
Slump? Or just a bump in the road?
The housing downturn has sparked recession fears. Where is the economy really headed?
By Oakley Brooks
The rumors seemed plausible enough at first. This past summer, the housing market was stalling, and in some of the state’s building hot spots — Bend, Medford, the Coast — the gossip was spreading about the industry’s dive. The grapevine said some companies were laying off workers, and others hadn’t pulled any permits for more than a month. Dennis Murphy, president of Hayden Homes in Bend, believed most of what he heard. In sub-divisions around town, he could see that crews were pouring foundations at a slower pace. Then the rumor mill said his company was laying off 60 people at his Portland-area office.
But Hayden doesn’t have a Portland office, and since the company only has 65 people total, that layoff would have amounted to a virtual shutdown. “That’s when I thought, ‘There’s something wrong here,’” says Murphy. Maybe the industry wasn’t in an all-out tailspin after all.
But what many local economists and industry leaders will say is that much of the despair about the housing market and the economy is overwrought. And while there are some important economic weaknesses in Oregon and across the country, the experts are cautiously, if surprisingly, optimistic.
Housing and timber are cooling, but it’s not a disaster.
These two sectors, which are closely related, have hit the brakes after a roaring 2005. Nationally, home prices sank for the first time in 11 years. Residential building permits dropped 21% in August compared to the same month in 2005. In Oregon, the number of existing homes sold fell 12% in the second quarter compared to the same time period in 2005, and building permits took a dive in August, with 2,194 issued versus 2,959 issued the previous August. In places such as Bend, investment dollars that drove up prices and accelerated sales cycles left town. “The investors and speculation that created the 2005 bubble are gone,” says Trish Phillips, principal broker at Bend Style real estate in Bend.
A sustained slowdown into next year in housing and timber would sting, but not cut deeply.
Like Barbee, those across the real estate, construction and timber industries are predicting a dip in growth and production in 2007. Jeremy Starr, president of the Oregon Association of Realtors, says he expects home price appreciation growth to be in the 4%-6% range across the state, with sales of homes off their 2005 high but still “strong.” The Western Wood Products Association predicts a 7% decline in production next year in Western states, after a projected 3% decline this year.
The bottom line: It’s not déjà 2002.
“You could call it a growth recession,” says Dae Baek, the acting state economist, predicting what 2007 will look like. “We’re going to be growing but not as fast as before.” Baek notes that manufacturing in the state in areas such as transportation equipment and semiconductors is still going strong and looks like it will continue into the first half of next year.
If a national recession were to hit now, the scenario would probably be different. Nationally, says Conerly, the big risk is that consumers will be scared by uncertainty surrounding their biggest investments — their homes. If the equity on people’s homes stops rising, they’ll have less to borrow new money against and be less inclined to go out and buy snowmobiles and new cars this winter. But because of our business investment-dependent economy, Oregon leans less on that consumer spending than do other parts of the country. “The biggest driver here is business investment,” Conerly says. “If a recession hits, it probably won’t be as bad for us as a place like Michigan, which is heavily dependent on consumer spending.”
Oregon has another positive engine of growth: the immigrants who continue to pour into the state. As PGE’s Nguyen points out, Oregon’s population has grown at roughly double the rate of the rest of the country. All those new people keep the service and retail sector humming with their demand for lattes, new shoes and health care. “People will continue to move in and that’s creating jobs,” says Nguyen.
Still, the clouds over the national economy aren’t good for anyone.
Even if a lot of the signs in Oregon still look good, the overall slowness of growth both here and across the nation has increased the chances that some shock to the economy could push it quickly into negative growth. Conerly puts the chances of a consumer-led recession at one in four.
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Produced by the Oregon Business marketing department
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Produced by the Oregon Business marketing department
Boly:Welch was founded in 1986 based on a close connection between Diane Boly and Pat Welch. The two had worked together at another recruitment firm and shared certain core values: passion for their work, a sense of humor, a commitment to their community and a desire to create a healthy, nurturing work environment.
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