Oregon Economist: Real Estate Won't Spark Next Recession
Current growth fueled by jobs
By Kathleen McLaughlin, The Bulletin
Published Oct 24, 2016 at 05:40PM / Updated Oct 24, 2016 at 05:54PM
Central Oregonians who lived through the last housing-market crash might wonder whether the region is setting up for another big collapse.
After all, median home prices are near prerecession levels, and, said Damon Runberg, regional economist for the Oregon Employment Department, it seems as if there’s a house going up on every corner in Bend.
“I don’t think our next recession will be housing-related at all,” Runberg said, speaking Monday at the Oregon Economic Development Association’s annual conference in Sunriver.
To be sure, Runberg thinks another recession is coming, but he said it’s important to dispel the notion that it will be a repeat of the Great Recession. If anything, he said Central Oregon and the Portland metro area need to build faster in order to remedy the current housing shortage.
The current market is largely driven by in-migration with the Portland area and Bend among the fastest-growing metros in the West, Runberg said. “We’re not seeing the same level of speculative growth,” as in the prior run-up, he said.
The Bend median single-family home price reached $385,000 in September, according to Beacon Appraisal Group in Redmond. The previous peak was $396,000 in May 2007, and the trough came in November 2011 at $166,000, according to Beacon.
Building permits have also risen quickly since 2011, Runberg said, but they’re still lower than levels of the 1990s and early 2000s.
The housing bubble that triggered the Great Recession was the result of consumers over-loaded with mortgage debt, and much of it was high-risk, Runberg said. Since then, lending practices have changed, and U.S. household debt remains at historically low levels, less than 10 percent of income. “Behaviors are different today,” he said.
The current expansion is driven by job growth, Runberg said. “People are finding jobs, slowly.”
The recovery is playing out unevenly across Oregon, he said. “We have a tale of two states going on.”
Employment levels in the Bend, Portland, Eugene and Medford metro areas are, on average, 6 percent above the most recent peak in 2007, he said.
But in rural areas, employment is still more than 3 percent below that peak, Runberg said. Rural areas were hit harder by the decline in manufacturing and construction sectors, and they haven’t benefited from diversification and growth in healthcare and business services, which includes technology.
If the next recession results in public-sector job losses, that could disproportionately affect rural areas with a concentration of public lands, Runberg said.
Oregon government agencies are worried about a looming spike in pension-fund contributions, which could lead to spending cutbacks or layoffs. “The public sector issues are real,” Runberg said.
Public-sector employment in Central Oregon is higher than the state average. In Crook County, for example, 22.6 percent of employment is public-sector, compared with the Oregon average of 16.8 percent, a figure that includes employment in public universities.
As in manufacturing and construction, public-sector jobs pay middle-class wages, so losses there would eventually lower consumer spending, including the housing market, Runberg said.
He said he believes it’s more important to pay attention to potential causes of the next downturn than the timing. He urged his audience to look out for “loose threads” such as student debt.
Student debt is a concern for many economists, though they’re not sure how a default crisis would play out.
“We don’t know yet,” he said. “No one’s called it in yet.”
—Reporter: 541-617-7860 kmclaughlin@bendbulletin.com
