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State economist thinks economy will sour less in Oregon

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Archives - August 2008
Friday, August 01, 2008


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 Your driver’s license was revoked for driving under the influence.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.


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