By Cliff Hockley, President of Bluestone and Hockley Real Estate Services
Executive Director, SVN | Bluestone and Hockley
Lest anyone be confused, COVID 19 is driving our current regional and national economy. The national election is over, and we have a new president and new legislators filling both national and statewide positions. Without overwhelming majorities in the House or Senate, President Biden will be trying to thread the political needle to save lives and the economy, at the same time. This is a critical time for all politicians and government agencies to cooperate with each other and deliver critical services to the American people.
Economic risks are driven by the pandemic:
- The Pandemic is still raging.
- New virus strain adds more stress to an already challenged economic picture.
- Most vaccines will not be available until mid to late 2021.
- Many businesses are stalled or in a go-slow mode.
- Economy will slow noticeably this winter.
- As vaccines are distributed, the Oregon Governor is trying to get teachers immunized so students can go back to school. Unfortunately, the return to in person learning may not occur until the fall of 2021.
- Once schools are in session, growth will accelerate resulting in a faster overall recovery. Parents need to get back to work.
- The key is minimizing permanent economic damage and dislocation.
- Air travel and leisure will come back once the majority of Americans and travelers from outside of the United States are immunized. Vaccination and negative test results as part of travel documents may become common.
Portland Has Not Recovered
- Lack of business and holiday travel is one of many reasons that Portland is struggling to recover.
- In the Portland Metro area, most people are working from home that lessens foot traffic downtown, crippling retailers.
- Downtown protests, civil unrest and the resulting national publicity have made Portland a less desirable destination for businesses.
- Increased city taxes and additional rental regulations/restrictions have not helped.
- Rural employment is down 5.5% while Portland MSA employment is down 1.1 % from the same time frame last year.
- The state expects labor and productivity to grow over the long run.
- Job losses are predominantly focused in lower wage jobs, food, hospitality, etc.
- Workers do not face good job prospects until the pandemic is over.
- State and federal funding for unemployment benefits is critical.
- Federal pandemic related (such as CARES Act and PPP) funding are positive for the state.
Cares Act Is Doing Its Job
- Individual incomes are growing.
- We are spending as much as we can.
- Spending less on health, dentist and travel.
- Excess savings in accounts exceed $2 trillion across the United States.
- People are ready to spend when it is safe for us to do so.
- People are chomping at the bit; cabin fever is real.
- Asset growth and home equity growth is growing.
- Further stimulus will help Oregon and all of its inhabitants.
People Are Spending Money Because of Low Interest Rates
- It is estimated 4%-7% of home equity is being spent in some of the following areas:
- Home improvements.
- General spending.
- Business capital.
- Baby boomers are paying off homes and planning on using savings for retirement.
- Retirements/long term care (Baby boomers).
- Lots of remodeling activity (especially for those working at home).
- Furniture purchases are at a very high level.
- Hard to track.
- According to KGW 10% of the restaurants in Oregon have closed due to COVID. PPP and outdoor dining have helped the rest limp by.
- Liquor licenses for restaurants are at about 98% renewal rate to 92% renewal of liquor licenses through the fall.
- New start-ups show strong business formation activity. https://sos.oregon.gov/business/Documents/business-reports-current/1220.pdf
- People move for jobs, with Covid, we have fewer job opportunities and see less in-migration.
- Oregon’s ability to attract and retain working-age households is expected to remain intact.
- Home sales data is very strong.
- 2020’s will be a strong decade for home ownership due to changing demographics.
- Millennials are growing into home ownership; Generation Z will be moving into apartments.
- Not a lot of growth in apartment demand in the next 10 years because the Gen Z demographics are similar to Millennials who are moving into homes.
- Fewer apartments will be built in PDX due to tighter COVID related lending standards and city regulations.
- Interest rates may increase in 2022 vs 2023 due to inflation fears, and the expectation for a strong rebound of the economy.
Low Birthrate Forecast
- The working cadre between the ages of 25 – 64 show demographic slowdowns
- After the pandemic there will be a severe shortage of workers in Oregon.
- We will see higher wage growth as the $15 minimum wage takes hold and as the employee shortages grow.
Remote Work is Here to Stay
- About 7% of the work force worked from home before the pandemic, that jumped to 25% during the pandemic. This is forecasted to adjust closer to 10% after the pandemic and slowly grow to 15% over the next five years.
- We are the number 2 state in the union for the ability to work from home. That gives strength to the Oregon economy.
- Hood River and Bend have some of the highest number of people working from home in the nation.
- After the Pandemic we can expect employees to be working from at the office 1 – 2 days a week, with a focus on remote work.
- Some employees may choose to work out of local co-working spaces rather than commuting to the office.
Oregon Construction Outlook
- Rise in single family construction will offset the loss in multifamily construction for 2021 – 2022.
- Tight budgets for government agencies will limit public building construction.
- Demand is for Industrial buildings, but not for office or retail. This may slow down the construction demand cycle.
- Fewer businesses going under bodes well for Oregon business stability.
Interest Rate Expectations
- The Federal Reserve will keep rates at near zero till the end of 2021.
- Interest rates may go up in 2022, and a little more in 2023 because of the economic stimulation and the expected inflation caused by government borrowing needs.
Forecasted State Revenues
- According to the Oregon Office of Economic Analysis, tax revenues are higher than expected, and there is no longer a huge revenue hole.
- There is no recessionary hole in the budget from a revenue perspective, but five years of revenue being forecasted as flat.
- Lodging taxes in Portland are down 80% while in Bend only 10%.
- Vice revenue is doing well; alcohol and marijuana taxes are up.
- Lottery revenue has stayed stable in this COVID-19 driven recession.
Bottom line, there is light at the end of the tunnel, we just have to get to the end of the tunnel!
- Josh Lehner, Economist, State of Oregon
- Bill Conerly, Economist