Economic Edge: Notes, Musings and Links

Not many days ago, Erickson Air-Crane was a darling in the small-cap investment world.
The heavy-lift helicopter company’s acquisitions of Evergreen Helicopter in McMinnville and a South American energy company’s flight wing attracted 15 minutes of fame when CNBC “Mad Money” host Jim Cramer interviewed CEO and President Udo Rieder.
Now comes word from those who spend hours sifting through Securities and Exchange Commission filings that the company’s chief investor New York-based ZM Private Equity Fund is withdrawing 100 percent of its participation.
What that means for hundreds of people who work at Erickson’s primary maintenance and manufacturing plant on Willow Springs Road outside Central Point is unknown.
But if the associated debt is any indicator, it won’t be good.

Ever get tired of the endless drivel repeating the same three or four tidbits, hour upon hour on sports radio stations?
Instead of hearing live play-by-play, it’s more of the same, day after day. Even when one would surely expect an ESPN of a Major League Baseball game or national college football feed, all you hear in Medford are endless, meaningless, recycled gibberish, with two or three promotional spots, touting games that won’t be aired locally.
A study by GfK MRI and Research Director Inc., available at the Inside Radio website, suggests sports play-by-play delivers some of the industry’s largest audiences and that listeners to live sporting events are highly desirable to advertisers based on their income, education, activities and purchases.

Mortgage applications dropped last week for one primary reason: Interest rates Here’s a report from HousingWire.

Melissa Brandao has launched a new electric vehicle enterprise in the Columbia Gorge.
Brandao operated Barefoot Motors in Ashland, the first electric vehicle venture founded by a woman, before the Great Recession forced her to sell her stake in the company. Less than two years later, the Barefoot Motors’s Model One four-wheel all-terrain vehicle designed for agricultural use, was gone.
Now Brandao created Rogue Rovers, albeit far from the Rogue Valley. (Rogue Ale, of course, is now a Newport firm.)
The self-described “Electric Lady” plans to introduce her new line this fall.

With hydro- and coal-powered energy sources declining, there are obvious alternatives on the horizon. Here’s a look at a proposal to generate electricity from wind in southern Wyoming. But as The Wall Street Journal reports, the plan is facing its own political headwinds.

J.K. Wilson, lobbyist for Associated Oregon Industries, points out a group of bills awaiting attention by the Legislature that would boost employment in job-hungry state.

For those keeping tabs on what Santa Rosa, Calif.-based Amy’s Kitchen is doing about the massive systems development charges as it looks to expand its operations in Sonoma County, here’s a report from the North Bay Business Journal.

Trucking remains the dominant form of cargo shipment, moving more than two-thirds of the nation’s freight during 2012.

Sticking with residential real estate and the housing theme of the week.
“Builders are selling fewer cheap, starter homes, and more of what are called first- and second-move up homes, which are typically a little more expensive, and often bought by people with growing families and bigger space needs,” writes Wall Street Journal reporter Robbie Whelan.

CoreLogic reports foreclosure rates in Medford decreased in March compared to a year earlier.
The rate of Medford area foreclosures among outstanding mortgage loans was 3.77 percent in, a decrease of 0.61 percentage points from March 2012′s 4.38 percent rate.
However, foreclosure activity in Medford was higher than the national foreclosure rate, which was 2.84 percent for March 2013.
CoreLogic also noted Medford’s 6.45 percent delinquency rate on mortgage loans — 90 days or more — was down from 7.58 percent a year earlier.

Perhaps this story in the Boston Business Journal will temper over zealous investment in real estate.

If you’re driving to British Columbia, or even Bellingham, Wash., in the near future, take note.

Here is a useful discussion of inflation, as it plays out in Oregon, by economist Josh Lehner, who spoke at Thursday’s Economic Summit at the Craterian.

I track this thinking it gives a view of what our pump supply will look like in coming months. Perhaps I’m mistaken, but sustained declines can’t be good for motorists or the economy:
Baker Hughes Inc.’s Weekly Rig Count reports to its Investor Relations website. The number of U.S. rigs fell by seven to 1,762, with oil rigs down six to 1,402, gas rigs unchanged at 354, and miscellaneous rigs down one at six.
During the past year the rig count has fallen by 221 from 1,983. Oil rigs are up 19, and rigs down 240, and miscellaneous rigs unchanged. The U.S. Offshore rig count is 51, down one from last week, and up three year over year.

Moderated by Scott Lewis:
David Crowe: Cost of building a house depends on materials costs. Prices are below the path we were on in the 1980s and 1990s. We’re a long ways a way from a bubble.
Where did the jobs go?
Josh Lehner: Lost 30-40% of construction jobs,number of licensed real estate agents has stabilized. Some of the laborers have shifted to oil and natural gas fields.
Tax rates and law enforcement
Cheryl Walker: It’s another milestone, not going to stop because lost one vote by 539 votes. Our private sector in Josephine County is making same slow recovery. Josephine Co. spending will go down for another year. We’ve had to rely on in migration and have seen class size shrink and closing another school. Some 17-18 percent of property owners live out of the area and that tells me they will still come to county. Growth of industries, live here work elsewhere, active seniors. She sees smaller footprint for new houses. First new subdivision filed in the past month, first in years.
Doug Breidenthal: Lot of the revenue problem we’ve seen is directly related to timber — the loss of tens of millions of ONC funds. Providing same level of service as 2006 with less revenue. Short term solution, no ifs, and or buts, is timber.
Don Skundrick: Thought the 1980s were going to be the blackest days would see. This second, Great Recession, was so much longer. In the 1980s all my customers went to Texas, where the oil money and jobs were. Now they are going to North Dakota and eastern Montana. On one hand, as we try to bring in young folks, they have to be able to afford a home. County average wage is $34,000. Why so many dual-income households trying to make ends meet.
What are Chamber members seeing need to be done for growth?
Brad Hicks: The economist validated what are members are saying, access to capital and confidence are big factors.
I like the positive trend. When there is money available, state and federal governments spend the money rather than look for savings.
Lawrence Yun: The Economist magazine said the US housing market is 10-15 percent underdeveloped.
Serious delinquent mortgages not as big a factor yet. Banks say only holding property back if there is a paperwork issue.
David Crowe: Said only empty houses are threat to supply. Shadow inventory not nearly as dangerous here than other places. As prices rise, less reason for shadow inventory issue and that it’s not a danger as prices go up.
Josh Lehner: Prices rise just a little faster than inflation. Lack of supply is boosting prices way above inflation, long-term they will fall back.
David Crowe: Regional bubbles, in every case declines in house prices and then in home ownership rates. Every time it’s comeback and exceeded previous levels. Mortgage is a forced savings program. That’s a primary reason why renters will want to buy houses.
Lawrence Yun: Mortgage interest deduction needs to be preserved. Solid majority of homeowners leads to societal stability.
David Crowe: May not get to 70 percent level of homeownership of peak, but will get close to that. Dodd Frank will remain, despite efforts to overthrow it. A lot was left to regulators, so it went way beyond tweaks. Regulations can be very onerous or difficult, but not impossible.

Josh Lehner, senior economist with the Oregon Office of Economic Analysis, is up next.

State of Oregon is in expansion, outlook starting to improve.
Weights have been housing and government.
Housing last two years picked up, supporting growth. Cutbacks starting to stabilize and K-12 appears to be through laying off children.
Starting to see job growth across state, but slower than what have seen. 3% percent job growth is what used to see, it’s been closer to 2%

Leading indicators showing expansion. We remain state that produces items, chips up north and mills down in Southern Oregon are humming. Unemployment moving slowly in the proper direction.

Household balance sheets are improving: Debt for auto, credit card and mortgages is declining. The silver lining of losing house is that you lose the debt. Still higher ratio vs. the nation.

Jackson County mirrors the state, Southern Oregon has improved during recent years.
As population grows so does government hiring.

During 2010-11, Portland had job growth, rest of state didn’t. Now the rest is showing some growth. Portland had 90 percent of the job growth during that period; now it’s about two-thirds.
Two years ago the biannual forecast showed recovery, but not down here. Now it’s spreading south and east.
Long-term joblessness continues to be an issue in Oregon. There are 90,000 Oregonians who have been out of work six months or longer. Less than six weeks, the level is about 100,000.
State of Oregon has benefited from inward migration. Across the country there has been a mild return to employment; it’s one of the main channels of risk, Lehner said.
If there is labor force participation then we can get down to 3-4 percent unemployment.
Private sector growth is expected to climb rapidly through 2015. We think we can get 2.6 percent growth, relatively to what we’ve seen.
Nobody is raising expectation for economy, but share of risk is weighted to the upside, involving building activity.
If consumer is more confident in personal situation, they will spend a little more money.
Southern Oregon outperformed state of Oregon in employment in much of the past 35 years. But when the housing bubble burst, the region fell behind the north of the state.
Recession is worst since the Great Depression. In the early 1980s high mortgage rates coupled with older mills finishing their life cycle. Southern Pine and Canadian logs also challenged Oregon wood products companies.

Southern Oregon much stronger gains than shown in the monthly from the state employment releases.
Since early 2012 job growth picked up. We lost 14 percent of our jobs, and have regained many of those jobs.
Single-family residence permits are up 40 percent here and the rest of the state.
Jackson County’s population growth and housing permit growth are closely connected.

Historically in migration has accounted for two-thirds of Oregon population growth and that figure is growing.
In Jackson County, growth without in migration will be negative.
On West Coast we have northern migration, Californians to Oregon and Oregonians to Washington.
In Jackson County, we’re dependent on California migration. We lose just a little of population here to other states. Intel and Nike drive job growth and attract population growth.
The flows are down, but the patterns have stayed the same because of the lackluster economic environment.
State of Oregon used to have 80,000 timber workers, providing 13% of GPD and paid way behind state median level. Now we’re down to 20,000-25,000. Maybe a little more, but automation remains pronounced. Not going to get back to 80,000, but would add jobs if logged at previous levels.

No job gains within the past decade in Jackson and Josephine counties. Professional services and health care are primary job developers.
Southern Oregon has done a better job of redeveloping jobs than some places.
Return of migration will be good for the Southern Oregon economy. Housing and manufacturing are picking up. The service sector is going to be where most of growth is.
On the flip side, the labor force is aging and participation will create a drag. Local governments will have a hard time replacing timber receipts.
It’s a big challenge and will restrain growth, at least in the short term.

Lawrence Yun is chief economist and vp of research for the National Association of Realtors.
Recovery appears to be genuine and will last four or five years.

Real estate sales is highly entrepreneurial, relationship building is very important and the number of hours worked.
Pending sales are at a five-year high. Homebuyer tax credit created two spikes during the recession. Natural forces of lowe interest rates, job creation, household formation has boosted pending sales.
Actual closing figures don’t match 1 to 1, but things are moving in the right direction, Yun said.
We won’t reach peak levels for another six years.
New home sales have been down and only scratching surface of recovery — 28 percent of peak levels.
It’s a supply constraint, but not a lack of demand.
2008-2011 existing home sales was difficult for the industry. In the past two years, investment sales have picked up.
Institutional investors went into places like Phoenix and Detroit, bought 2,000 properties at a shot and are doing well.
Accidental landlords: Homeowners who need to move for whatever reason. They are underwater and don’t want to do a shortsale. They rent out their old homes and buy elsewhere.
Vacation home sales have been lagging. It will see a good recovery in 2013 and 2014, Yun said. That’s because stock market has been at all-time high and money will be available to buy those vacation homes.
Lower end of economy still in recession, no exposure to the stock market. Younger people trying to scrape together money to save.
Buyes are more active than sellers when it comes to traffic. We’re finding buyer interest is almost off the charts, going to open houses. There is a gap with too many buyers, chasing too few homes.
90 percent of agents think prices will rise, market trends tend to follow what Realtors expect.
NAR reports double-digit price gains for a 5-straight months.
Medford vs. Houston. Medford grew much faster during boom, collapsed below in 2009 and is now growing closer to Texas. Yun says state should consider limiting home equity loans to where homeowners always have 20 percent equity.
In Oregon, the price expectation is for between 4.13 and 8.75% during the next 12 months.
New homes carry premium over existing home prices, but Yun said the gap should be narrower. The cost of materials boosts new home prices.
WSJ analysts forecast 5.3 percent hike in prices 5.3% and 5.1% in 2014, Yun says it will be higher because of low inventories. Builders will sell what they build.
Builders are dragging their feet: They say they want to build more homes, and can’t get construction loans because of regulatory issues.
Dodd Frank appears to be an over-reaction. Only half of Dodd Frank rules have been implemented, community banks are frozen, they don’t know what the rules are yet. They don’t have the legal staff to review the rules.
Builders who don’t have to rely on construction homes, the Wall Street funded builders.
The big boys are bigger and the small boys have been shut out.
In aggregate the small builders have built more homes than big builders, but that’s not the case now. As a result, the housing shortage will persist.
Closed sales are down 16% and inventory is down locally.
Household formation will boost sales.
There will be no fresh recession. There is more oil produced in North Dakota than Alaska.
In 20 years we may be exporting oil, rather than importing.
In Northern California employment is at 95 percent of prior peak, and 104% of of 2000.
There are more renting households than ever, but fewer homeowners than 8 years ago.

Net worth among home owners is close to $200,000, while renters are remaining with virtually nothing. Good renters can’t get a loan. The banking sector is sitting on piles of cash that they can’t loan.
Home sales could be 15 percent higher and more renters could get into homes if standards weren’t overly tight.
The choke point is about home building, Yun said.
Mortgage rates will go up, but not that much
A 3% cap on fees would hurt title companies.
Eminent domain for foreclosures will lead mortgage firms to close and go into other sectors.
Medford is lagging, but Northern California is read hot and that will spill over. Yun see values here rising 13% over next two years.

David Crowe: Starts with macroeconomics, shows GCP growth 2000-2013. Continued softness, Washington: raises taxes, pulling back spending. That creates a drag.
We have resolved a lot of things that caught deep, recession. 2014 will see return of better growth rates.Recovery has been erratic. Housing recovery didn’t happen, economy was a lot sicker than people thought. Now housing is growing stronger, relative to rest of economy 3-4-5 times faster than other sectors and it helping the rest of the economy.
He says 100 new homes creates 300 jobs.
Housing is usally nearly 6 percent of the economy, it’s only 3 percent right now.
The echo boom has been larger than baby boom. People 25-34 in prime household formation. In some cases it is a rental. Household growth, growing 1.4 million in mid-2000s. That figure collapsed to 500,000 “If you didn’t have a job, you didn’t move out of mom’s basement.” Back up to 800,000 annually, should be 1.2 million, so we have pent up demand.
2007-2010 fewer home owners and a lot more renters — a lot of defaults. In 2011-2013 Renters still lead way, but we are seeing a net addition of total owner-occupied houses.Combination of people losing home through home-owner distress and younger people not getting into homes has slowed growth rate of people buying homes.
General migration has been back to South and West.
However, North Dakota, Colorado, Utah and Texas are far ahead of the pace — so is Washington, D.C.
There is a jump in the number of people saying they plan to buy in next 6 months.
National index showed house prices dumped from late 2006 to Jan. 2011 It was flat until early 2012.It’s been rising for 15 months.
House price to income to ratio. People used to spend 3 times income for houses, it reached 4.7 during the boom. That’s not good, says Crowe. It was 6.4 percent in Jackson County.
ousing prices: Medford had much higher growth in prices — nationally it was 150 percent at one point.

Improving markets index, started with 12 out of 360. Didn’t mean it was well, but was getting better. We said it was going to be one by one market, and eventually see more There are now 260 out of 360. Medford made the list in January
of 2013.

Delinquencies nationally are still higher than should be. Still somewhat of a problem, but much better and concentrated in five states; Oregon is better than national average.
New homes starts continue, but aren’t dramatic. Existing OK.
How do volumes compare? The country will be at 71 percent, Oregon should see 76 percent of historic housing starts.
Energy state have shown solid recovery and will be back at normal levels in 2014.
Illinois, Kentucky lead states lagging.

What do you build?
Currently 1,906 square feet, desire is 2,226 and reality of 2012 builds is closer to 2,500. That’s because of who can qualify for loans. Most buyers want 3 or 4 bedrooms, and 2 1/2 bathrooms.
Living space and number of rooms is a guiding characteristic 65 percent of time; energy efficiency is growing.
What is most wanted by buyers: Energy-star rated appliances; big spaces for eating in kitchens; closets and bath shower and tub stalls are desired in the bathroom.
Unfinished spaces are — basements, attics — one trade off people want. They are also willing to drive to shop and work.
High-energy homes with low utility bills is most desirable followed by size of master bedroom.
People want environmental efficiency without paying more.
If can save $1,000 annually on energy cost, how much more would you pay for house. The median response was $7,000.
Some 56% of people don’t want to live in high-density areas.
Tight credit, appraisals, labor, material prices and federal policies remain major issues for home builders and buyers.
Trouble borrowing hasn’t completely gone away. Appraisals left over from the crash. Workers had to find jobs somewhere else and it’s hard to get them back. Materials hard to come by because plants were closed, the limited supplies are being bid up. Those costs are lost in the appraisal process.
Crowe’s blog site: eyeonhousing.wordpress.com

Southern Oregon Economic Summit “Riding the Wave of Recovery”will start shortly.
First up today, David Crowe, chief economist for the National Association of Home Builders

As visible as Erickson Air-Crane’s heavy-lift Siskorsky helicopters have been from the cinema to the nation’s capital, not to mention fighting fires around the globe, the company remains an enigma to many.
CNBC stocks guru Jim Cramer interviewed CEO and President Udo Rieder during a segment of “Mad Money” aired Friday.
There wasn’t much new presented to those who know Erickson, but Rieder was gracious enough to refer to Erickson as a “Southern Oregon” company even though he was instrumental in moving the firm’s headquarters to Portland four years ago.
Doubtlessly, there are plenty of small investors who follow the cable business channel wishing they might have known about the small company with big orange helicopters a few months ago.
Despite a slew of contracts and many possibilities Erickson had whale of a time getting its initial public offering off the ground early last year before launching at $8. The company had hoped to sell those early shares for about $14. Weeks after the April debut, shares dipped to $5.35.
Apparently the investment world didn’t get it.
Since then, Erickson has announced the acquisition of Evergreen Helicopters, gaining the McMinnville company’s extensive medium-lift portfolio, and is putting the finishing touches on an earlier buy in South America, where Erickson will work the fossil fuel fields.
Those moves must have piqued investor attention — just when they were looking for value buys during a rapidly rising market.
Shares have spiked as high as $29.42 before closing the week at $28.33. The simple math is that early investors have tripled their money and the ones that bought about this time a year ago could cash in for close to a five-fold return.