How Coronavirus Will Affect Portland Real Estate - A Market Update
I haven’t written in a few weeks because, phew! It’s been a very busy January/February. One of the hottest winter markets in recent history.
Time to analyze this market!
But, I’ve also held off knowing that the only topic worth writing about would be a market update, and given the volatility and headlines of the past few weeks, anything I wrote would almost instantly be outdated.
The past few days saw a slew of things happen that hammer home how serious this novel coronavirus, referred to as COVID-19, really is.
Oregon has now banned public gatherings of 250 or more, although it wouldn’t be surprising to see even that number drop soon. Most national sports are cancelled or postponed. Particularly shocking was the NBA after two Utah Jazz players tested positive for coronavirus. The stock market had it’s worst day since 1987 on Thursday but then followed that up on Friday with the biggest jump in 11 years. That roller coaster will continue. President Trump was tested negative for coronavirus. Schools in places all over the country are shutting down for various amounts of time just as the CDC finally announced that closing schools for at least 8 weeks might be an effective way to contain the coronavirus.
While all of that is alarming, it’ll be old news by the time you read this blog. But, this type of news is what I’ve got to go on, along with mostly anecdotes, to give you a “state of the market” right now. Usually I’d have a lot more data to go off of, but not this time.
Why is that?
Making Market Predictions
Is the crystal ball broken?
To figure out where the real estate market stands for my market updates, I use lots of data. Local stats can include: months of inventory, average days on market, year over year home price gains, population growth, and sales volume, among other things. I also look at national figures such as GDP, interest rates, residential home building, stock market, etc.
A lot of these are lagging indicators. For instance, months of inventory is calculated by dividing the number of active homes on the market at the end of the month by the number of closed sales for the month (see chart in next section). It’s one of the faster statistics that we receive; for instance, I received the February figures from our local MLS 10 days into March. But, it’s still a lagging indicator, not a leading indicator.
Construction spending, on the other hand, can be a leading indicator for the residential real estate market, which is why so many economists focus on it. Unfortunately, leading indicators such as this can only do so much to help us predict what actual buyers and sellers are going to do in the future, so we still mostly rely on lagging indicators, which measure what buyers and sellers actually DID do.
The other important thing I do is keep my ear to the ground by speaking with A LOT of buyers, sellers, Realtors, appraisers, lenders, title reps, and other people in the industry such as home stagers, photographers, etc. I’m on several online real estate groups, both local and national and I follow a lot of news and blogs.
Given that our lagging indicators are pretty much useless right now since the lightning fast economic changes due to COVID-19, we have to focus on those types of anecdotes instead of hard numbers.
I don’t love anecdotal evidence, as you probably know if you’ve read my blog, but in real estate, it’s essential to understand what is REALLY going on in the market, especially when there’s been a sudden, major shift like this one. Anecdotes, both my own and others, are vitally important.
What Was Happening Until JUST Recently
Super-duper low inventory. Story of my life.
I frequently speak with buyers and sellers that aren’t at all aware that the Portland area market softened in the past ~2 years, with Portland condo prices (especially downtown) taking a pretty big hit. Many other micro-markets around town either flattened or stayed super-hot depending on lots of factors.
Even if they were aware of the slow down from last summer, very few people are aware that the pendulum swung the other way, this winter buyers have gone BERSERK. Nearly every new listing I viewed from September 2019 through February this year was getting multiple offers, as long as it was priced properly and super clean/move-in ready. More affordable price ranges in the suburbs along with just about any price point for detached homes located east of Hwy 217 on the west side, and close-in SE/NE Portland, have been crazy, super, ridiculously HOT.
(Mid-range price points and locations further out from Portland are pretty good but not as high-demand; a lot of buyers want to live in more convenient locations).
We are undoubtedly in an inventory crisis (still/again/will-it-ever-end/I-feel-like-a-broken-record). I’ve been beating this drum for a while on my blog. WE NEED MORE HOUSING. Particularly affordable housing but, yes, even in higher price points from 600K - 1M. There is simply not enough housing in the closer Portland metro areas to meet demand.
(New construction neighborhoods such as the new South Hillsboro neighborhood are nice and all, but not everyone wants to live that far from Portland and buyers have to pay a premium for these a brand new home AND accept not having much of any yard. New neighborhoods are an excellent addition to our housing inventory, but won’t solve the existing demand for close-in housing.)
So, a few weeks ago I was expecting to write a blog about how sellers should take advantage of this run on housing and inventory crunch while it continues (because eventually buyers won’t be able to handle the price increases and the market will soften again, especially if rates rise) and buyers had better get out there and find an incredible agent that KNOWS HOW TO COMPETE and can land them a great property before rising home values price them out.
Instead, here we are, coronavirus and all, and suddenly the possibility of rising rates are the least of our worries. It’s time to try to predict what in the world is going to happen next.
Word on the Street
Probably not the animal you’d equate Realtors with, but roll with me here.
It’s too early to tell how exactly social distancing, school closures, travel restrictions, and potential general quarantines are going to impact the housing market. It’s also way too early to tell how economic impacts of the coronavirus will effect the housing market.
So, what’s going on RIGHT NOW?
I went to a few open houses with buyers last weekend, March 7-8th, and they were PACKED. This was in west Portland (which has been insanely hot this past 6 months). I saw new listings priced from 450 - 800K.
It wasn’t just me, many agents all over the metro reported having anywhere from 20-50+ groups through their open houses (that’s A TON).
It’s only been a week, but it’s tough to recall that while the coronavirus was spreading all over the United States, as a country, we just weren’t taking it all that seriously.
This weekend is, I think, at least a little slower than last weekend for a few reasons:
We had a freak snow storm the morning of March 14th. Well, there went Saturday showings/open houses.
This is the very beginning of “social distancing” and everyone, including active buyers and sellers, is trying to figure out what that means.
Some sellers are choosing to postpone their listings for at least a week or two to see what happens and make sure that buyers are still out there (for the most part they are).
A few buyers are hitting the pause button, concerned that real estate might feel an impact from the stock market taking a steep dive. (Please always remember that the stock market is NOT the economy.) Some buyers and buyer/sellers have employment/income concerns. Some buyers rely on stock portfolios for down payments and took a big hit the past couple of weeks.
Mortgage rates bounded WAY UP. More on that below.
I held my own open houses on Saturday and Sunday. Saturday was pretty slow (the snowstorm didn’t help) but Sunday was sunny and had a fair amount of visitors, but I think it was less than it would have been for a close-in, under 500K home.
Realtors have been talking amongst themselves, sharing what’s going on with their clients, especially in the last few days. Some people are feeling an immediate impact, reporting that both sellers and buyers have decided to postpone, and in some cases, terminate existing contracts.
Many others say that, so far, it’s business as usual, and they’ve even picked up a few new buyers hoping that these changes mean an opportunity to nab a great home without 5-10+ offers to compete with.
The reality is somewhere in between “business as usual” and “all my clients have vanished”. I expect there will be an immediate impact both to quantity of new listings and number of showings. This will last a couple weeks before we find ourselves a new normal and the usual spring busy season comes back (but probably not like it would have been).
Today is March 15th, and there are STILL reports from many Realtors of multiple offers being received, open houses with 15+ groups, and new listings going up. The Portland market is still hopping right now, just not quite as wildly as it normally would be.
The NAR (National Association of Realtors conducted a flash survey on March 9-10 to see how current events are impacting their clients. The results boil down to… not much change. But, some of the biggest news stories landed on March 12-13th, so I expect these results will be a little different in the coming weeks.
Mortgage Rates
Completely generic cutesy-graph picture. Not intended for actual analysis.
You’re probably already aware that mortgage rates took a steep dive a couple weeks ago. Mortgage rates are tied directly to Treasury bills. When investors began to panic due to the coronavirus, they fled to “safer” investments, and Treasury bonds are considered one of the safest options. This means that the yields fell precipitously, resulting in the best mortgage rates seen, well, almost ever. Of course, a ton of people are taking advantage of it, leading to a refinance boom.
However, quickly the spread between Treasuries and the 30 year fixed rate mortgage became much larger than it typically would be, and that resulted in rates increasing this last week. That’s because the volume of refinance applications has completely overwhelmed lenders and many lenders are raising rates to deter more applications.
Also, even though Treasuries are related to mortgages, the demand for mortgage bonds can be separate. Investors were not as keen on mortgage bonds last week (refinancing into lower rates decreases potential earnings for investors), and that decrease in bidding activity for mortgage bonds also helped to increase mortgage rates.
Eventually, as we work our way through the economic effects of the coronavirus, Treasury yields will begin to climb again, and the spread between Treasury bills and mortgage rates will narrow. Unfortunately, that doesn’t mean that we’ll see those crazy, rock-bottom rates again anytime soon.
But, they’re still amazingly low, so don’t miss out if it’s the right time for you to buy! And, this market is insanely difficult to predict, so keep a close eye on rates and maybe close to 3% average 30 year rates will swing around again. If you decide to pull the trigger on the very good rates we have now, but rates swing super low again down the road, you can always refinance and re-cast the loan.
Quick Update: Right as I finished this blog I read that the Fed cut the Fed Funds rate to near 0, which will certainly be beneficial to anyone with an equity line of credit and other debt secured by the prime rate. This, however, does not directly impact first mortgage rates.
Economy
Clamping down the wallet.
All right, so here’s the toughest thing to talk about, but we have to address it. We’re all well aware that the economy is going to take a hit this year. How could it not with SO MANY people staying home, not traveling, not working, not buying things… It’s mind boggling to think about the ripple effects of shutting down schools for weeks, sweeping travel bans, and no social gatherings.
None of that directly relates to the housing market. But, how could it not be affected by people unable to work (even if some are being paid, many others will have to weather layoffs and unpaid time-off) and business owners seeing a precipitous drop in income?
The biggest question, really, is how long will all this last? We’re a big country with a big economy. We can handle staying home for a few weeks. But, the reality is that we’re likely to be dealing with 2-3+ months of severe social distancing.
It’s going to hurt. The economy is going to take a hit. There will be layoffs and higher unemployment. But, will we bounce right back as soon as people begin to go back into their offices and retail work environments?
Economists think that we’ll start to rebound sometime in late 2020, though there’s no consensus on exactly when. How could there be; we’re in uncharted territory right now. Everything is speculation.
The housing market, much like the stock market and other factors that play into the economy, are all highly influenced by fear. Right now, many people are still shopping for homes, planning on trading up or downsizing, willing to tour homes, go to open houses, etc. In other words, business as usual. BUT, already some are fearful enough to not be willing to enter a stranger’s home or allow strangers to enter their home. They’re worried about their job, their down payment, their ability to make a mortgage payment. They’re even worried about the housing market taking a nose dive (which could happen, but unlike 2008, the housing market is/was extraordinarily strong and could help the overall economy in the long run).
As COVID-19 continues to spread, that fear will increase. But, will it become a landslide that takes over the majority of buyers and sellers? That’s a good question, and it probably depends quite a bit on the government response to the pandemic.
And that’s where my speculation stops, because I don’t talk politics on this blog :)
Conclusion
Trying think of something clever and inspirational like “Weeds Will Grow Anywhere, Just Like American Consumerism…” or “We’ll Find a Way Through… These Rocks”.
I am hopeful that America as a whole is beginning to pay attention to experts in fields directly related to the pandemic. I am hopeful that as a nation we come together and use facts, history, and our collective wisdom to make smart decisions so that we keep our healthcare system from being overwhelmed and our population from a state of panic.
COVID-19 will undoubtedly affect, and has already had an effect, on the real estate industry. This will likely grow in the coming weeks, but many buyers are still excited about finding a home (and hoping maybe there is an opportunity to be found here) while many sellers still need/want to sell.
Do I think we’re headed towards a housing market downturn similar to 2008? I really don’t think so. Two main problems back then were loose lending and a surplus of housing. Lending is strong now and we are in a major inventory crunch.
However, the 10%+ of buyers/sellers that have hit the pause button right now may grow to 20-30%+ in the coming weeks, which will lower overall volume and likely keep home prices from the quick upswing we were beginning to see in January/February.
At the same time, our low volume market is unlikely to suddenly see a flush of new inventory, which will still keep more desirable houses selling at a fast pace. Less desirable homes (whether they’re in a tougher location, have difficult-to-sell features, or need pricey improvements) will likely move slower than they would have.
In other words, buyers are gonna get pickier but will still be willing to compete for great homes.
I look forward to seeing what the data reveals in the next couple of months!
