With employment and consumer confidence picking up, the past few years have been the time when, in a typical economic cycle, housing might have started to drive a recovery. Not this time.
In many ways, housing got us into this mess. And until very recently, it hasn't done much to get us out. When other industries were hiring back workers lost in the recession, housing was still losing jobs. That meant fewer jobs manufacturing and transporting construction materials, too. "Housing has been a missing component of the recovery," said Jerald Johnson, a Portland land-use economist with the Johnson Reid consulting agency. "One of the reasons the recovery is so slow is housing is typically a large driver of that, and it certainly hasn't shown up."
Now housing is starting to turn around. Sales are improving, home prices are rising and builders are expressing more confidence than they have in years.
There's still a general hangover from back when the housing bubble burst, leaving many builders with half-built subdivisions and no one able or willing to buy the homes. Builders had weathered previous downturns. But prices had never risen so fast, then fallen so far. On the way up, credit flowed freely and homes were built in anticipation of continued strong demand. On the way down, those homes lost large chunks of their value, wiping out some builders entirely and leaving brand-new homes vacant and unsold.
"We overbuild housing all the time," Johnson said. "But we usually don't get this overbuilt." Those builders with cash could weather the storm, though some underestimated just how long they would have to hold on. Those that survived cut their production - and the jobs construction creates - dramatically.
Even after the recession technically ended in June 2009, the housing industry continued to shed jobs. "Construction provides relatively high-paying jobs," said Amy Vander Vliet, a regional economist with the Oregon Employment Department. "And when you're building houses, you're not only building the houses, but you're buying the materials."
After a typical downturn, she said, housing would account for at least 15 percent of growth in the nation's gross domestic product. So far, it's accounted for only 4 percent. Complicating matters is the dramatic collapse of housing prices, which has left 11 million Americans and 30 percent of Oregon homeowners underwater. Because their home is worth less than they owe on their mortgage, they would take a loss in a sale and will likely stay put.
Many of those underwater borrowers have fallen into foreclosure because they can't sell their home to pay off the debt. Damaged credit will keep those borrowers off the housing market for years. Oregon's homeownership rate has fallen from 69 percent to 65 percent.
"Some of that's probably never coming back," Johnson said. "After all the damage that's come through with retrenchment in prices and losing equity ... we're going to have a more normalized split between ownership and rental."
That has led to one of housing's bright spots. Construction of new apartment buildings in the metro area has surged, with nearly 2,000 apartments in 80 buildings granted permits in 2011. That's below a historical average of 4,000 new apartments per year, but it has propped up the construction industry while single-family home construction remained low.
The housing industry started adding jobs in early 2011, Vander Vliet said, though not at the rate as in previous recoveries. And home builders have expressed growing confidence. The National Association of Home Builders and Wells Fargo said in June that builder confidence reached its highest point in five years. Permits for new homes in the Portland area are on the rise compared with a year ago. And most importantly, the inventory of homes for sale has fallen to pre-recession lows. Prices in some areas have started to creep higher.
"The ownership housing market has finally gotten rid of the excess supply," Johnson said. "Now pricing needs to start moving up again before we can justify much new supply."
There are signs of improvement in sale prices, but no one expects a sudden, robust reversal of the past five years of declines. Ritz said she wouldn't be surprised if more builders close up shop before the housing recovery begins in earnest. "When it comes back, it's not going to come back gangbusters," Ritz said. "I'd love it if it did, but I don't think it will."
By Elliot Njus, The Oregonian Wednesday, July 25, 2012