Windermere Real Estate is proud to partner with Gardner Economics on this analysis of the Oregon and Southwest Washington real estate market. This report is designed to offer insight into the realities of the housing market. Numbers alone do not always give an accurate picture of local economic conditions; therefore our goal is to provide an explanation of what the statistics mean and how they impact the Oregon and Southwest Washington housing economy. We hope that this information may assist you with making an informed real estate decision. For further information about the real estate market in your area, please contact your Windermere agent.

Regional Economics

On a year-over-year basis, the Oregon counties covered by this report increased employment by 0.8%, or approximately 14,000 jobs—a modest improvement from the 0.75% annual growth that was discussed in our last report. On a year-over-year basis, 16 counties saw their employment base expand and just eight saw employment contract.

The greatest increases in employment came in Jackson County (+4.1%). This was followed by Lane (+2.8%), Benton (+2.1%), and Klamath (+1.8%) Counties. On an absolute basis, Multnomah County maintained the largest increase with 5,500 additional jobs. This was followed by Lane County (3,900) and Jackson County, where employment grew by 3,080 positions.

On the negative side, job losses totaled 6,376 jobs spread across nine counties. By far the greatest losses were seen in Marion County, down 3,814 jobs. This was followed by Polk (-962) and Linn (-760) Counties. Losses in other counties measured less than 230 jobs each.

When we compare the data to that seen at the end of the third quarter, it is apparent that the state is stuck in somewhat of a rut, with both the third and fourth quarters showing job losses in 12 counties. That said, the market did add just under 8,000 payroll jobs in the fourth quarter of the year.

Inasmuch as the unemployment rate at the end of 2012 was better across the board from that seen at the end of 2011, the last quarter of the year saw a drastic turnabout in the unemployment rate in all but one of the counties surveyed. In every county but Benton, the unemployment rate rose between September and the end of the year.

This is concerning as the labor force contracted in all counties other than Lane. It is one thing to see the unemployment rate rise as more people start to look for work, but to see it increase with fewer people looking for jobs is a worrying situation. I hope that it is temporary, but I will be keeping a close eye on these figures as we enter the spring.

It appears to me as if the Oregon economy is stuck in low gear. It is expanding, but at a rate that is well below its potential. As such, I am maintaining the “C-” grade this quarter that I gave it in the third quarter. At some point the job market has to gather steam, I am just not convinced that now is the time.

Regional Real Estate

In the fourth quarter of 2012, the region sold 9,758 units of resale housing. Total 2012 sales amounted to 39,745 units, 13% more than were sold in 2011.

In 2012, the greatest growth in transactions was seen in Skamania County (+46%), Hood River County (+35%), Clatsop County (+27%), and Lincoln County (+22%). It was very pleasing to see that no markets saw sales volumes drop between 2011 and 2012.

Home sales continued to perform well in the fourth quarter, but quarterly sales shrank by 16% from the level seen in Q3. This is not a surprise, as seasonal fluctuations influence the figures. Additionally, I would contend that the worryingly low levels of homes for sale also contributed to the drop in sales.

When we look at home prices, 15 of the markets analyzed registered year-over-year price increases (down from 16 in the third quarter) with just eight showing declines in values from a year ago. In aggregate, the markets surveyed saw values increase by 11.2% over the same period in 2011.

Other than the substantial 63% growth in the small Klickitat County market, ten other counties registered double-digit gains from December, 2011. When compared to prices seen in the third quarter of the year, 13 counties are higher, one was unchanged, and nine declined in value.

I was happy to see that there are 14 counties where prices are now higher than we saw two years ago. This is quite an achievement, as 2010 saw the market artificially buoyed by the Homebuyer Tax Credit. More surprising is that three counties saw home prices higher than at the end of 2007.

A “C” grade is appropriate here. It has remained static for three quarters now, but the lack of inventory appears to be having a negative effect on values. I want to see more homes for sale before I consider giving a better grade.

Conclusions

There are plenty of metaphors that I could use to describe the Oregon job market, such as “weak,” “sluggish,” or “slow” but, in all honesty, a better word is actually “average.” Certainly, the job growth that was seen in 2012 has hardly put a major dent in the number of jobs lost through the recession, but the economy has been improving.

I believe that the lackluster growth that has been seen is a function of two distinct, but related, issues. The first is that the Federal government is starting to realize that it cannot expand in the manner that it has been. Because of this, employment in government services has not been positive. This is particularly interesting as, from a historic perspective, job growth following recessions has traditionally been led by government hiring. As such, it has fallen on the private sector to pick up the slack and add to their payrolls.

Private industry has, so far, been doing its best to answer the call to arms, but industry looks to the government for some kind of assurances that we will not fall back into recession. The current issues revolving around fiscal cliffs, debt ceilings, and sequesters are not giving businesses the assurance that they so badly need. Until the outlook on a national basis is clearer, we cannot expect private firms to increase their hiring and, as such, improvement in the employment situation in Oregon, and in most of the rest of the country, is likely to be lackluster.

The housing market in the state remains on a more solid footing with steady improvement seen pretty much across the board. Interest rates remain at or near historic lows which, when viewed in concert with the stability in home values, has acted as a catalyst and allowed many would-be buyers to get off the fence.

This is, indeed, positive but I fear that the lack of homes for sale—unless we see a dramatic turnaround in the spring—will leave buyers disenchanted. Along with many others, my fingers are crossed that we will see improvement in listing activity soon. It is sorely needed.

About Matthew Gardner

Mr. Gardner is a land use economist and principal with Gardner Economics and is considered by many to be one of the foremost real estate analysts in the Pacific Northwest.

In addition to managing his consulting practice, Mr. Gardner is a member of the Pacific Real Estate Institute; chairs the Board of Trustees for the Washington State Center for Real Estate Research; the Urban Land Institutes Technical Assistance Panel; and represents the Master Builders Association as an in-house economist.

He has appeared on CNN, NBC and NPR news services to discuss real estate issues, and is regularly cited in the Wall Street Journal and all local media.

Windermere Real Estate is proud to partner with Gardner Economics on this analysis of the Western Washington real estate market. This report is designed to offer insight into the realities of the housing market. Numbers alone do not always give an accurate picture of local economic conditions; therefore our goal is to provide an explanation of what the statistics mean and how they impact the Western Washington housing economy. We hope that this information may assist you with making an informed real estate decision. For further information about the real estate market in your area, please contact your Windermere agent.

Regional economics

One of the best-known lines in George Orwell’s famous book Animal Farm was the statement that, “All animals are equal, but some animals are more equal than others.” The same can pretty much be said about the counties contained within this report when it comes to economic growth.

With the exception of just three counties, all of the areas considered within this report showed job growth in 2012. In aggregate, the 16 counties added a total of 45,420 new jobs, measuring at a healthy 2.1%.

On an annual basis, the figures look quite good. The drop in employment that was seen between the second and third quarters has since turned around, with the market adding 5,290 new jobs.

However, when looking closely at the data, it is clear there are some counties that are experiencing a majority of the job growth and others that, although still expanding, are not faring as well as I would have hoped.

Year-over-year, San Juan County (+14.2%) grew at the greatest rate—it is a small county but its service industry appears to be reviving quite nicely. This was followed by Skagit (3.9%), Snohomish (+3.3%), Mason (+2.7%), and King (+2.4%) Counties. Job losses were modest, and included Kitsap (-1.1%), Jefferson (-0.3%), and Kittitas (-0.2%) Counties. Total employment in these three counties contracted by just 950 jobs.

Unsurprisingly, the majority of jobs gained in the market occurred in the central Puget Sound region that encompasses King, Snohomish, and Pierce Counties. Between them, they accounted for 89% of total job gains.

When we look at the unemployment rate across the region, all the counties reviewed saw rates drop from a year ago. Several counties did see their unemployment rates rise between the third and fourth quarters, but this was mainly due to increases in the labor force and not a cause for concern.

The latest data is positive and a turnaround from the third quarter, when I suggested that employment growth appeared to be losing some steam. As a result, I am going to give the economy a “B+” grade—up from the “B” I gave it in the third quarter.

Inasmuch as the economy appears to be on a stable footing, there are still headwinds. Many, including myself, had hoped that the confirmation of a new president would be enough to stimulate the economy and signal a faster expansion in jobs. Unfortunately however, fiscal cliffs, debt ceilings, and sequesters continue to act as anchors on our economic potential. I remain hopeful that we will get through these issues, but until we do, our economic vitality may well be muted.

Regional real estate

The market registered 40,270 transactions of resale housing units in 2012— an impressive increase of 15.7% over the number of transactions seen in 2011. In the fourth quarter, there were close to 13,740 transactions completed, which is also a very impressive figure.

With a clear level of optimism in the market, all but one county exhibited improved home sales in 2012 when compared to the previous year.

The solitary county where there were fewer sales recorded, Grays Harbor, remains an anomaly; the area is small and the decline in sales was measured at just five units.

Of the fifteen counties that saw higher sales, a full 80% reported doubledigit improvements in transactional volumes in 2012 when compared to 2011. The greatest increases were seen in the notoriously volatile San Juan County, where the market sold 106 more units in 2012 than in the prior year.

The area did see a slowdown in sales in the fourth quarter, but that is not surprising as we always see a seasonal slowdown at this time of year. That said, a contraction of just 11% in total sales between the third and fourth quarters is not bad at all.

Regular readers will be aware that through 2012 I have been waiting for an increase in the number of homes for sale. Unfortunately, my wishes have not been granted. There have also been many who have been waiting for a veritable tidal wave of foreclosed homes to flood the market and that, too, has not occurred.

I believe that we will see more bank-owned units come to market in 2013, but not at a level that is likely to negatively impact home prices in our area. In fact, I welcome any additions to the available stock as it is clear to me that there are more buyers than sellers in our region.

As is shown in the chart, 14 counties saw the average sales prices at levels above that seen a year ago—up one from my last report. In aggregate, the average price of homes sold in the counties analyzed was 19% higher at the end of 2012 than in December of 2011. I should note that the area saw home values reduce by 1.4% between the end of the September and the end of the year, likely due to seasonality as well as the lack of inventory in the marketplace.

Of the counties that saw appreciation, the most pronounced gains were seen in Kittitas (+56.9%), San Juan (+39.7%), Jefferson (+35.2), and Lewis (+23.7%). I am not surprised by this, as they are all markets that are fairly modest in size and, therefore, subject to some wild fluctuations. The declines that were seen were limited to Clallam (12.2%) and Thurston (-2.3%) Counties. The fairly substantial drop in values in Clallam County was again a function of small market size.

I continue to be pleased to see that several counties are now exhibiting sales prices that are above those seen two years ago. As was discussed in my last report, this is important, as the early summer of 2010 represented the end of the First Time Homebuyer Tax Credit that functioned to artificially (but temporarily) increase home prices. While we’re not close to seeing the prices that were achieved during the peak of the market five years ago, it is clear to me that the trend is clearly upward and I anticipate this to continue as we enter 2013.

As stated previously, I do worry about the lack of homes for sale. If we do not see a fairly dramatic increase in inventory, I fear that the market will be forced to give some of its recent gains back— albeit temporarily. Because of this fact, and regardless of the solid price growth that we are witnessing, I am still unable to raise my grade above the “C” that I gave it last quarter.

Conclusions

I remain in somewhat befuddled awe when I think of the resiliency of the United States economy and how we, as a nation, are emerging from this recession bruised but, for the better part, intact. Inasmuch as the government has tried, hopefully unwittingly, to hinder our growth with various budgetary issues and the like, we are doing our best to adapt to our environment and grow the economy.

I started out this piece with a quote from George Orwell which inferred that our job recovery, although occurring across the geographic board, will be unequal. I certainly expect that the power centers that accommodate a majority of our businesses in the state will expand at a faster rate than counties that are more removed. That said, the overall picture is a positive one and I expect that 2013 will be another year in which our regional economy outperforms the nation as a whole.

From a real estate standpoint, it is clear that we are now well removed from the days when home prices were hemorrhaging. Home values have stabilized and a recovery in values is underway. The credit markets have thawed and getting a mortgage is easier now than it has been since the housing “bubble” exploded. Interest rates remain at historic lows, and although I believe that they will rise in 2013, the increase should be modest.

The outlook is getting clearer. Home values will appreciate in 2013, but not all markets are created equal and some will fare better than others.

About Matthew Gardner

Mr. Gardner is a land use economist and principal with Gardner Economics and is considered by many to be one of the foremost real estate analysts in the Pacific Northwest.

In addition to managing his consulting practice, Mr. Gardner is a member of the Pacific Real Estate Institute; chairs the Board of Trustees for the Washington State Center for Real Estate Research; the Urban Land Institutes Technical Assistance Panel; and represents the Master Builders Association as an in-house economist.

He has appeared on CNN, NBC and NPR news services to discuss real estate issues, and is regularly cited in the Wall Street Journal and all local media.