Déjà Vu? Comparing Deschutes County’s Current Expansion to the Boom YearsMarch 31, 2016 A common question that I am asked is whether or not Deschutes County is in a new "boom" period? The rapid recovery has given many that sense of déjà vu, a sense that these economic conditions are similar to those years of rapid growth during the housing boom. When describing the Bend-Redmond economy over the past decade, it is best to envision a roller coaster ride with wild peaks and valleys. The housing boom from 2004 to 2007 brought with it jobs, increased home prices, and rapid population growth. The bubble burst in late 2007, which decimated the local economy. Home values dropped by just under 50 percent. Nearly 14,000 jobs were shed from the local economy, a decline of more than 20 percent. During the depths of the recession over 16 percent of the labor force was unemployed. Seemingly out of nowhere we turned a corner and the rollercoaster started taking us back up. The past three years have produced some of the fastest job growth, home value appreciation, and population growth ever seen in the Bend-Redmond metropolitan area. Is this growth sustainable?
During the previous economic expansion, the hot housing market was the trigger that jump started rapid job growth. Much of the growth was concentrated in construction and financial activities, which included mortgage lenders and real estate agents. Home prices rose by 73 percent from the beginning of 2004 through the end of 2006. The rapid rise in home prices led to a buying binge. Consumers bought homes for investment purposes, they bought second homes, and they bought future retirement homes. Homes were purchased that the buyer could not afford, but the myth that home prices would increase in perpetuity led many to take on risky loans. As housing demand increased, developers responded by building homes, many of which were speculative developments. New building permits averaged more than 150 a month for the Bend area in 2005. These permits turned into homes, which led to construction, real estate, and banking jobs. The construction and financial sectors accounted for more than one-third of all jobs added in Deschutes County from 2004 to 2006, 3,180 new jobs in a two-year period.
A local shock, such as the collapse of an industry that is critically important to the local economy, is much more devastating than global or national shocks. The Bend area experienced two significant local shocks over the past several decades. The first was the decline of the timber industry and the more recent was the bursting of the housing bubble. These locally isolated shocks are more significant than global or national shocks as workers often move out of the area looking for opportunities in less effected economies. A workforce exodus produces a ripple effect across the non-traded sector of the economy. Fewer workers results in less demand for groceries, retail, or restaurants.
Today, areas of the country that are struggling the most to recover from the Great Recession experienced a local shock in tandem with the crash of the global financial system in 2008. But not Bend. Although our recovery was delayed, we are in a new period of economic expansion. You can thank our quality of life and tourism industry for preventing a significant workforce exodus. In many ways, our current expansion would not have been possible without our ability to attract young, skilled, and educated workers.
The current expansion is impressive. The Bend-Redmond MSA added more than 12,000 new jobs in the past three years. Home prices, although shy of the previous peak, are up by 52 percent from the end of 2012. Wages are up, building permits are trending up, and gross domestic product likely exceeded pre-recession levels in 2015. A quick glance at the major economic indicators available reveals many similarities to those boom years. Does that mean we are in another boom?
The answer is likely no. Home prices, employment, GDP, and wages all grew at a very similar pace over the last three years. Population is growing rapidly, although rates were still nearly half of the level of growth seen during the period from 2005 to 2007. Most of the economic indicators either grew at a similar pace or moved in the same direction, except building permits. That is the major difference. The previous boom was fueled by the housing market and job growth was concentrated in housing related industries. Today, our economic expansion is much more diverse. Construction, manufacturing, and financial activities all make up a smaller share of our economy, while health care,
the professional sector, and tourism account for a larger share. The structure of our economy is beginning to resemble larger metropolitan areas; however the tourism component of the local economy will always be larger than comparable metropolitan areas. Recent growth in home values and home building is based on sound supply and demand economics. Supply of housing is low and the demand is high with continued population growth. Developers are building at a much more conservative pace. If another national or global shock occurs in the next several years, Deschutes County will be more resilient than it was in 2008.
Are you interested in hearing more about how our recent economic expansion compares with the growth seen during the boom years? If so, consider attending the Bend Chamber of Commerce Real Estate Forecast Breakfast on April 20th where I will dig deeper into the differences between the previous 2005 to 2007 housing boom and today's economic expansion. Afterward, I will moderate a panel discussion of local real estate experts to hear their perspective on the local housing market.