Editor’s note: The Bulletin has partnered with the University of Oregon’s College of Arts and Sciences and Department of Economics to produce the Central Oregon Business Index. The index provides a regular snapshot of the region’s economy using economic models consistent with national standards. The index, exclusive to The Bulletin, appears quarterly in the Sunday Business section.

Central Oregon’s economy continued to recover at the start of 2013, according to an economic index released today.

An uptick in Deschutes County’s total payroll, a decline in new unemployment claims and higher lodging tax revenue in the city of Bend drove a modest increase in the Central Oregon Business Index.

The index, compiled by University of Oregon economist Timothy Duy, tracks nine indicators of economic activity in Central Oregon each quarter, measuring changes to Deschutes County unemployment claims and payroll, building permits and lodging tax revenue, Redmond Airport activity, as well as home sales and tons of garbage delivered to the Deschutes County Solid Waste Department.

Those indicators give a snapshot of the housing and job markets, tourism climate and per-capita output.

In the first quarter, seven of the nine indicators moved in a positive direction. The other two, Central Oregon home sales and Deschutes County building permits, declined compared with the fourth quarter, but are still near four-year highs.

“We’re seeing more consistent evidence that we’ve turned a corner in the last six months,” Duy said. “I’m not going to say it’s runaway growth, but certainly more of a robust pace of activity than we’ve seen in the past few years.”

More than 62,300 Deschutes County residents were employed in nonfarm jobs in the first quarter, the highest level since the first quarter of 2009, according to the index.

Average monthly unemployment claims dropped to 2,255 in Deschutes County for the first quarter. That’s the lowest monthly average since the second quarter of 2006, and down from a recession peak of 4,042 at the end of 2008.

“The private sector has apparently been on a bit of an upswing,” Duy said.

In Deschutes County, a monthly average of 52,280 residents were employed in private-sector jobs in the first quarter, up from 49,763 to start 2010, according to Oregon Employment Department data.

In Bend, meanwhile, the rush of tourists seems to be back. Adjusted for inflation, the $1.48 million in first quarter lodging tax revenue is the highest first-quarter figure in the seven years of the index, just beating the start of 2007.

That figure bodes well for tourism and retail sales numbers throughout the year, Duy said, especially during peak travel months in the summer, when room tax collections increase.

The two indicators that dipped — home sales and Deschutes County building permits — have still climbed considerably from their late 2008 and early 2009 troughs. A slight drop from the fourth quarter of 2012 isn’t much of a concern, Duy said.

“Compare the (first-quarter) monthly average of 82 building permits with 46 in the first quarter last year, and it’s quite an improvement,” he said.

Except for tourism, the growth hasn’t yet made up for the huge losses when the economy tanked in 2008. But the modest gains come as a growing number of national surveys show an uptick in consumer confidence and spending.

A U.S. Commerce Department report last month showed increased sales of clothes, electronics and cars by consumers. The national economy grew at a 2.5 percent rate in the first quarter, compared with 0.4 percent from October to December 2012.

Heightened consumer activity seems to be canceling out some of the negative effects brought on by sequestration, the automatic $82 billion in federal spending cuts triggered in March, after Congress failed to reach an agreement on more comprehensive cuts at the start of the year.

The sequester’s impact has been limited in Oregon, Duy said. States with a larger national defense presence and more federal government workers were likely to see bigger slowdowns.

“I think national growth is being constrained” by sequestration, Duy said. “But the impact is no more than had been expected, if not a little less, given what seems to be an improving job market.”

Overall, the last four quarters have shown modest but stable growth in Central Oregon, Duy said. He expects the numbers to keep moving in positive territory, with home sales and new building activity centered around Bend driving new job growth.

“When we think that the housing bubble took off in 2003, that means we’re a decade past it. We’ve had some time to move through the negative cycles, and the healing process is moving along,” he said.

An Idaho development company is moving ahead with its plan to purchase the Pilot Butte 6 movie theater site in east Bend, converting it into a Walgreens pharmacy and retail shopping center.

Officials with Boise-based Hawkins Cos. are set to meet Thursday with Bend Community Development Department staff before submitting a formal project application, said Brandon Whallon, a pre-development project manager with the company.

Hawkins has been eyeing the theater site for a shopping center since last fall. Last week, the company submitted a completeness check application with the city, requesting a meeting to discuss the proposal and make sure the developers have addressed any planning or construction issues.

Regal Entertainment Group put the building up for sale in mid-2011, according to The Bulletin’s archives, with a listing price of $2.9 million.

Regal operates the Pilot Butte 6 theater, as well as the Old Mill Stadium 16 & IMAX theater.

Because of a deed restriction laid out by Regal Entertainment Group, a new owner can’t operate a movie theater on the site because it would compete with Regal’s Old Mill 16 theater.

Regal still owns the 5.7-acre property at U.S. Highway 20 and Northeast 27th Street, Deschutes County property records show.

But Regal would sell it to Hawkins Cos. if the city approves the plan, according to planning documents on file with the city of Bend.

“We think we have a complete application, but we’re going to verify with the city that it is complete,” Whallon said, referring to the Thursday meeting.

Hawkins Cos. seems confident the project will get approved. In an online real estate brochure on its website, the company is already listing the theater building as available for new tenants. Planning documents show Hawkins plans to partition the theater into three smaller storefronts that could accommodate retail tenants.

The company also plans to build a 14,500-square-foot Walgreens pharmacy in the Pilot Butte 6 parking lot. Construction on the pharmacy could start later this summer, Whallon said. The city has up to 120 days to review the proposal. Whallon said he wasn’t sure when the theater building would be converted into retail stores.

“We’re still looking for tenants,” he said. “Our timeline has been pushed back a bit, just going through the development process.”

Hawkins first filed planning documents in January, outlining its intent to purchase the theater. The developers held a public meeting in March to discuss the proposal.

Pilot Butte 6 opened in 1994. It has been known to show alternative and independent films, while Old Mill 16 typically shows more mainstream films.

Bend seems to be back in growth mode. The city’s population grew by an estimated 2,470 residents between 2010 and 2012, according to estimates released today, putting its population at 79,109.

After ballooning by more than 20,000 residents from 2000 to 2007 — but adding just 1,183 between 2008 and 2010 — Bend’s 3.2 percent growth rate from 2010 to 2012 trailed only Hillsboro, Portland and Beaverton among Oregon’s largest cities, and just barely.

Redmond added more than 700 people over that time, growing to 26,924 residents as of July 1, according to city population estimates released by the U.S. Census Bureau.

But for Central Oregon, population growth starts and ends in Deschutes County, the estimates show.

Madras grew by 65 residents between 2010 and 2012, according to the estimates. Prineville lost 80.

The census figures show more than half of Central Oregon’s population growth taking place in Bend, which saw massive growth between the 1990s and the 2008 housing market crash, then flattened.

But the housing market may have turned a corner last year.

Construction in subdivisions across Bend, quiet for four years, started springing to life. And a modest uptick in the job market could lead to a new influx of residents, said Bend Mayor Jim Clinton.

“Judging from building-permit activity, growth seems to be coming back,” Clinton said.

The city issued more permits for single family homes last year than in 2010 and 2011 combined.

The uptick comes as the number of out-of-state residents moving to Oregon seems to be on the rise. More than 14,000 people moved into Oregon in 2012, up from 7,000 in 2010 and 7,500 in 2011, according to figures from the Portland State University Population Research Center.Deschutes County had the fifth-highest influx of people into Oregon over that time, following the three Portland-area counties and Lane County.

“It’s a mixed blessing,” Clinton said. “A certain amount of growth is good for the community. But too much growth puts the population way ahead of infrastructure.”

More homebuilding and population growth in Bend also increases the urgency for city leaders to expand the urban growth boundary, the area where a city can build residential, industrial and commercial properties. The state must approve the expansion, which city leaders hope to wrap up in 2017.

But if growth continues on its upward trend, Clinton said, “There’s going to be pressure to go more quickly than 2017.”

Crook County and Prineville leaders, meanwhile, are grappling with the opposite problem: They’re searching for ways to bring more residents back to the area.

The county has struggled with an unemployment rate 4 to 6 percentage points higher than the state average since the start of the recession, and an overall population loss since 2010, with residents leaving to find work elsewhere.

“We have lost some major industry, some large employers,” said Crook County Commissioner Ken Fahlgren.

Les Schwab Tire Centers moved its headquarters from Prineville to Bend in 2008. The state closed the Mt. Bachelor Academy near Prineville a year later, and a number of mill and secondary wood-product manufacturing closures have combined to slash hundreds of jobs from the area.

“We lost a lot of young families with those losses,” Fahlgren said. “It’s going to be a stretch to get them back, though I think recently we’ve started moving in the right direction.” The 2012 projections for Crook County and Prineville are up slightly from 2011 projections.

The Census Bureau counts the population every 10 years in every city, county and state in the country. But each year between the official counts, the bureau releases estimates based on demographic data like birth rates, death rates and migration trends.

A community’s population determines how much federal money it gets for housing, child nutrition, medical assistance and other programs.

The federal government delivered more than $630 billion in aid to state and local governments in the 2010 fiscal year, according to a 2011 U.S. Census Bureau report. Oregon received about $7.8 billion of that, based on its population count.

An increasing population is “a two-sided equation,” Deschutes County Commissioner Alan Unger said. More people coming to the county increases the tax base.

“But we also recognize that it’s going to require more services,” Unger said. “In the big picture, we have to figure just how much we’re growing and then plug those things into our budgets, knowing we’ll need to provide more services.”

The developers of the Riverhouse Convention Center and River’s Edge golf course plan to convert the golf course’s former driving range site into 43 lots for new homes.

River’s Edge Property Development LLC filed a preliminary application with the city of Bend last month to develop lots on the 7.5-acre site. The proposal calls for building in two phases, one with 15 homes and the other with 28.

There are no immediate plans to build homes, said Gary Cox, a partner with the property development company. But that could change next year, if Bend home prices keep climbing, he said. They want homes with values in the roughly $300,000 to $450,000 range built on the site.

Planning documents show the lots would be platted just west of Northwest Clubhouse Drive, near its intersection with Mount Washington Drive and adjacent to the Deschutes River Trail.

Developers would also create two new streets, Northwest River Trail Place and Northwest Sawyer Trail Place, dividing the lots into several sections.

“We’re just trying to get (the proposal) through the process,” Cox said, referring to the city of Bend application process for new development projects. “The way the market is going, we think the demand will be there soon.”

The median Bend home price was $270,000 in March, according to figures from Bratton Appraisal Group. It was the highest median since late 2008. Sales of homes between $300,000 and $450,000 have increased about 11 percent over the last year, Bratton data show. But they still trail significantly the $100,000 to $300,000 market, which drove nearly two-thirds of the home-sales activity across Bend in the last 12 months.

The site hasn’t been a driving range for about two decades, Cox said. The range was pushed further west in the early 1990s, as the golf course expanded from nine holes to 18 holes.

New homes on the site would mark the first homebuilding activity for the development since before the real estate crash in 2008. It also follows a July settlement between the city of Bend and River’s Edge Investments, LLC, which resolved a 2007 lawsuit filed by River’s Edge Manager Wayne Purcell over development rights and city sewage capacity.

City officials feared River’s Edge’s initial proposal for 349 homes along the entire property would critically strain an already tight sewage capacity.

The new plan reached under the settlement includes 269 homes, with a deadline of 2019 to build.

Homebuilding made a comeback in Bend last year, led by a trend away from the luxury real estate typical during the bubble and toward scaled-down projects for the price-conscious buyer. The 452 single-family home permits issued by the city in 2012 outpaced the 406 issued in 2010 and 2011 combined, Bend permit records show.

But the homes were considerably smaller than their prerecession counterparts — about 15 percent smaller on average than those permitted in 2007.

Builders pushed the limits on size when Central Oregon home prices soared to record highs during the last decade. But some building companies found renewed success in 2012 by shifting away from the high-end properties that put Bend on the map, eyeing smaller, economical homes instead.

At the same time, an increasing number of Bend residents are looking for extra income by building small, second properties on their lots and renting them out.

A 480-square-foot home may seem like a tight squeeze. But Ryan Davies hopes it’s an investment.

Davies bought a $249,000 home on Northwest Hartford Avenue in October, and he bought with a plan: Tear down the old garage in the back of his lot and replace it with a rental property, to offset part of his mortgage payments.

“I don’t know if (buying) would have worked without the plan to have that additional income coming from the rental,” said Davies, 26, who runs a small energy efficiency consulting company in Bend.

The extra unit doesn’t leave much space to stretch out but does include a bedroom, small living room, bathroom and kitchen. And it could bring Davies $700 to $750 a month in rent, while he and his fiancee, Justine Smith, live in the main house.

“It’s on the west side, so I think it could be a pretty ideal location for a college student or someone like that,” Davies said.

Across Bend, more homeowners are looking to build second homes on lots they own.

The Bend Community Development Department received 15 applications for accessory dwelling units in the last seven months. That’s more applications than the city received between 2009 and 2011.

Part of that is due to lowered cost, said Aaron Henson, a senior planner. In 2011, the department reduced certain development fees on accessory dwelling units.

But people are also finding it to be a smart financial move.

“It’s an opportunity for people to build something that can be an income generator,” Henson said. “And these smaller units are sometimes attractive for a single renter.”

Most of the accessory-unit applications with the city have been for buildings of 700 square feet or less.

Ashley Chally and her husband, Sam, are getting ready to build a 2,700-square-foot home on Awbrey Point Circle, on a quarter-acre they bought in July 2011. They’re hoping it’ll be ready by September, when Chally expects to deliver their first child.

But they’ve applied to build a second home, measuring about 472 square feet, on the property. It could be for visiting grandparents, or for use as a rental. Ashley Chally hopes the location on the north side of Awbrey Butte could bring as much as $1,000 a month rent.

“So many people were hurt in the economic crash. And this is still Bend, so any opportunity to make some extra income seems like a smart idea,” she said.

Housing prices in the Bend area increased in all four quarters of 2012, the first full year of home-price appreciation since 2006, according to federal data released Tuesday.

Single-family home prices in the Bend Metropolitan Statistical Area, which covers all of Deschutes County, rose about 3.5 percent in the fourth quarter over the fourth quarter 2011, according to the Federal Housing Finance Agency’s all-transactions housing price index.

It marked the fourth straight quarter of price appreciation in the index, which showed home prices depreciating in the Bend MSA for the 17 previous quarters. And, over five years, the index still shows home prices down 39 percent.

Overall, however, it’s positive news, said Timothy Duy, University of Oregon economics professor and senior director of the Oregon Economic Forum.

“The housing market is moving in an upward direction rather than a downward direction,” he said.

Nationwide, seasonally adjusted home prices increased 5.5 percent in the fourth quarter compared with the fourth quarter 2011, according the Federal Housing Finance Agency report, one of several released Tuesday related to housing.

The S&P/Case-Shiller index of property values increased 6.8 percent in December over December 2011. Nineteen of 20 cities in the index showed gains, according to a report from Bloomberg News. Case Shiller does not include the Bend MSA.

And home sales nationwide increased nearly 16 percent last month over December, the Census Bureau reported.

The Federal Housing Finance Agency’s all-transactions index tracks average house-price changes in repeat sales or refinancings on the same single-family homes, with data from Fannie Mae and Freddie Mac.

The last time the Bend area saw four quarters of house-price appreciation was in 2006, when real estate prices were soaring, according to the federal index.

In the first and second quarters of 2006, home values in the Bend MSA rose 35 percent and 37 percent, respectively, over the same quarters in 2005.

Prices fell into negative territory in the fourth quarter of 2007 and remained there through the fourth quarter of 2011, the index shows.

The timeline suggests single-family home prices in the Bend MSA hit bottom around late 2010 or early 2011, said Duy, who also created the Central Oregon Business Index. They reached the level where investors could buy a house, rent it out and turn a profit, he said.

“Prices got really, really cheap,” he said. “It became a better opportunity for investors.”

Fewer distressed sales — those involving foreclosed homes or short sales — also contributed, Duy said. Last year, 35 percent of home sales in Bend were distressed, according to figures from the Central Oregon Association of Realtors. Between 2009 and 2011 distressed sales made up about 55 percent of home sales, on average.

So, while home prices increased in 2012, they rose from the depths. In November 2011, the median price for a single-family home in Bend dropped to $166,000, the lowest price in six years, according to the December 2011 report from the Bratton Appraisal Group.

The housing market could still hit some bumps as it recovers. More distressed homes could come up for sale once Oregon lawmakers and major lenders work out issues that have redirected foreclosures into state courts, rather than going through a nonjudicial process.

An increase in foreclosed homes could depress prices somewhat, but Duy said the housing market’s upward movement has given it resilience.

“It’s part and parcel of the story, where the economy is gaining strength,” he said.