Portland, Oregon — An Award Winning Rose of an Economy

This week I had the opportunity to speak to the Oregon Mortgage Bankers Association in Portland, Oregon. It was a fun trip to catch up with colleagues, friends, customers and for the first time, see a new granddaughter as my daughter, son-in-law and children live there.

The Portland-Vancouver-Hillsboro Metropolitan Statistical Area (MSA) created 28,900 net new jobs in the past 12 months, ranking 64th best percentage job growth (growing at a 2.80 percent annual rate) out of the 513 MSAs and Divisions in the U.S.

Jobs are everything, and the Portland MSA is doing well on that front.

Portland now has more jobs than at any time in history. With 28,900 net new jobs, the Portland MSA ranks 22nd best among all MSAs and Divisions in total new jobs in the prior 12 months.

Jobs, on a seasonally-adjusted basis, are shown in the following graph commencing January 2007.

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Oregon benefits economic-wise by having a comparatively business-friendly tax environment, and is ranked as the 12th best state by the Tax Foundation. They compare five taxes in their analysis including individual income taxes, corporate income taxes, sales taxes, unemployment taxes and property taxes. See the Tax Foundation details in a prior blog at http://blog.stewart.com/stewart/2013/11/27/best-state-business-tax-climates-in-2014/

So goes jobs, so goes the demand for housing, and that has picked up nicely in Portland. Sales of existing homes, as tallied by RMLS.com™ are shown in the following two graphs.

The first shows the raw sales numbers reported monthly, which vividly illustrates the significant seasonality of home sales. The second graph uses the 12-month moving average of sales, which removes the seasonality effect and better illustrates trends. Using 12-month moving average sales data, sales were up 8.5 percent in May 2014 when compared to May 2013. It does appear, however, that sales in the past one-half year have remained relatively constant.

Much like other cities, Portland may be back in the New Normal level of home sales given the three headwinds of Qualified Mortgages (QM), increased loan qualifying and underwriting practices and the impact of student debt on individuals that would otherwise be participating as first-time homebuyers today. In both graphs, current sales are less than the unsustainable level seen in 2006 when subprime lending allowed buyers who, otherwise, would not have qualified to participate in the homeownership segment.

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Median prices are shown in the following two graphs (with the underlying data also from RMLS.com). As before, the first is the raw monthly data while the second is based on the 12-month moving average of median prices.

Given the variability and seasonality, I believe the 12-month moving average is more appropriate. That series indicates that:

  • Median home prices have risen 11.4 percent in the prior 12 months 
  • Median home prices today are just 2.8 percent shy of the all-time high reached at the pinnacle of the housing bubble

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Residential building levels for both rental and owner-occupied dwellings, however, have failed to maintain the pace of increased demand arising from job creation.

The following graph shows the annual total number of residential building permits issued in the Portland MSA. The 2014 data are based on the 12-months from June 2013 through May 2014. In that 12-month period, a total 10,751 dwelling units were permitted while job growth created 28,900 net new jobs. That equates to 2.69 net new jobs per new dwelling. Given the normal range of from 1.25 to 1.5 net new jobs per new dwelling, the Portland MSA is systematically under building demand today.

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As a result of this under building, buyers and renters are paying more than they otherwise would if supply kept pace with demand. To illustrate the impact on home prices, the following graph is based on quarterly median home prices for homes in the Portland-Vancouver-Beaverton region as reported by the National Association of Realtors®. I have added a line that tracks home price appreciation rates prior to the bubble. It would indicate that homes are currently selling at a premium greater than expected given the assumed longer-term appreciation growth level. With a current 2.8 months inventory of homes available for sale (six-months inventory of existing homes is considered normal), a price premium is logical. As long as job growth outpaces supply, expect this premium to continue.

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Commercial business is likewise demonstrating a robust recovery. The following graph shows the trailing 12-months of sales of commercial properties statewide for transactions from $2.5 million and up, as reported by Real Capital Analytics. Note the impressive 64.5 percent increase from Q1 2013 to Q1 2014 in total commercial sales.

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All said, the Portland MSA economy and real estate markets are showing a robust recovery and sustained strength.

A Rose is a Rose is a Rose, but in economics and real estate, jobs are everything.

And jobs are blooming in the Portland MSA.


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