When Are House Prices in Portland Going to Go Down - Part 3: With a Vengeance
Image from the first 2017 version of this blog, which I also called “HOW I LEARNED TO STOP WORRYING ABOUT PRICES AND LOVE THE MARKET”
It’s become somewhat of a tradition this time of year for me to write a market update that focuses on the all-consuming question: When are house prices in Portland going to go down???
A RECAP:
The first time I wrote this blog, it was way back in 2017. Multiple offer situations were happening left and right and in many cases the number of offers received on a single home were in the double digits. It was so crazy that many people were getting worried and thought that we were at the peak.
I was being asked A LOT when I thought home prices were going to fall. After a lengthy bit of writing about how inflation impacts perception and low inventory, I concluded that prices weren’t going to be dropping anytime in the foreseeable future.
The second time I wrote this blog, it was a year ago. Early spring was a strong, busy market, but not quite as busy as 2017. Mortgage rates were starting to rise. Affordability was starting to erode. Inventory was still VERY low, but we Realtors with boots on the ground felt things changing.
After a lengthy bit of writing about the state of different types of buyers, I concluded that while things were likely going through a slow-down that could eventually result in a flattening of the market, it would take a few major economic events for prices to appreciably fall anytime soon.
THAT WAS YESTERDAY, WHAT’S GOING ON TODAY? ARE HOUSE PRICES FINALLY FALLING?
[Insert generic picture of condo building here]
HOUSE prices? Not really. Condo prices… that’s another story.
The slow down that I reported feeling a year ago definitely happened in the latter half of 2018. Not to the point where house prices started falling, but sellers had to be more realistic with their pricing strategy and had to work a little harder to prep their homes for sale to get top dollar.
Those that didn’t prep ended up having to weather list price drops or de-listing their homes and doing some updates before re-listing and finding a buyer. (I talked about this in more detail in my last market update from January this year.)
Long term investors (those that buy rental properties) have run for the hills, for the most part. Short term investors are focusing on trying to find off-market flips. But iBuyers are putting pressure on that market, so it’s slim pickins. (iBuyers are a whole other blog I DO intend to write…).
After rising during the latter half of 2018, inventory has already fallen back down to only 2.2 months.
So, the beginning of 2019 was interesting. We were all collectively holding our breath to see if this was finally the year that home prices at least flattened.
Reports over the winter seemed to indicate that the pace was picking up. But, sales volume is always low in the winter so you have to be careful not to read too much into it.
Now here we are in mid-Spring, and after a somewhat slow start to the year, things are really starting to hop!!! Believe it or not, I am seeing LOTS of houses on the market in multiple offer situations. Usually they’re the ones that put some extra effort into prepping the home for sale and have universal appeal. Even higher priced homes are seeing significant movement this spring.
But, there has been a shift in the market… although it’s a geographical one more than a pricing one.
The outlying areas, including places like Hillsboro, Canby, Beaverton, etc. are VERY hot for first time homebuyers and move-uppers. Most homes priced around 500K and lower are really flying off the market as long as they are in good condition and ready for sale. (Buyers this year are mostly NOT interested in taking on project homes. The fixer upper culture seems to be on the decline.)
There’s definitely a shift towards finding homes in outlying areas that are more affordable. Far southeast Portland areas, such as Lents, are seeing plenty of movement. Over there, you can find a moderately sized home around 1200 square feet that is in fair condition for 350K.
I’ve worked with a lot of parents that are focused on specific school districts. My first time homebuyers know exactly how much they want to spend and aren’t as interested in trendy areas as they are in finding a solid home so they can focus on other (fun) things. Places like Milwaukie and Oregon City are as hot as ever and there’s very little to choose from.
That’s not to say that “trendy” neighborhoods like Sellwood, Richmond, Eastmoreland, etc. are dead! These are still incredibly popular areas. It’s just tough to find a good home below 600K that doesn’t have a big downside to it (located on a very busy street, reeks of smoke, backs to an apartment complex, etc.).
YOU SAID SOMETHING ABOUT CONDOS…
[Insert 2nd generic condo building picture here]
Wow, yes, if there’s an opportunity out there to find a good deal and a market subset that is seeing price drops… that would be condos in the city of Portland.
You might think that’s because there are tons of condos being built… well, it’s true there are a few new towers going up, but not as many as all those cranes you’re seeing would suggest. And units in the new buildings aren’t selling all that fast (and have had price drops, but like most new construction homes, are still priced higher than similar existing condo towers).
Most of the activity is commercial construction and TONS of apartment buildings. I wrote about this a little in my blog about Rent Control and Development in Portland.
Even though there are very few new construction condo options (I still look on the South Waterfront towers built around 2006 as “new construction” because there’s so little else that’s newer), the condo market in Portland has slowed to a standstill. We could conceivably have 1500+ units available in Portland by fall. (That’s a lot.)
You can actually find some units that have dropped down to $400/square foot. Now, I absolutely HATE figuring real estate pricing based on dollar per square foot (it only really works for nearly identical homes situated in nearly identical places), BUT, with condos it is a little more relevant. And not all of those at that price level are bottom floor/no-view options, either.
IF CONDO PRICES ARE FALLING, WILL HOUSES BE NEXT?
[Insert the absolute most generic picture of a house you can find because your creativity level is clearly exceedingly low today]
Traditionally, condos are looked at as a leading indicator that the market is softening. If they start to fall, houses will follow (supposedly).
The thing is, this time around, I’m not sure that’s true (or at least not true in the short term).
Will house prices fall eventually? Sure they will! They always do, just like any market (that doesn’t mean there will be another recession, but you can’t avoid the basic economics of supply and demand, eventually demand will fall and supply will rise enough for home prices to drop).
But, is the current drop in condo prices an indicator that we’re going to see house prices drop soon, too?
Well, let’s think about who buys condos. We’ve got tons of apartment buildings going up left and right; won’t a portion of those people want to buy condos? Are aspiring condo buyers the same people as apartment renters?
Not necessarily. People that buy condos in urban areas generally want an easier lifestyle where they don’t have to worry about maintenance items, and are willing to pay a monthly HOA fee for that convenience. They don’t want to throw all their money away on rent and instead opt to purchase a condo in order to build equity. They want to live in walkable areas where they can have fun and accomplish routine tasks without getting in a car.
Most condo buyers don’t purchase a condo as a stepping stone to a house… They’re buying it because that’s what they want. And more than anything, they feel that it’s a still a safe bet because their income is stable enough to be able to AFFORD a condo in that type of area AND they have enough saved to weather a financial storm. Because we all know that buying a home is more risky than renting one.
Those that rent apartments don’t necessarily rent because they eventually want to buy a condo. They may like the lifestyle that renting allows them and don’t want the yoke of homeownership. They may not financially be in a position to buy… and if they were they often don’t choose a condo, even if it means waiting a few extra years to save enough money for a house. For right now, even though rents seem expensive in Portland, it’s much cheaper to rent an apartment than it is to purchase a similar condo (which in itself might explain why the condo market is suffering).
I have many buyers that chose to shift from living in an apartment to owning a detached home or townhouse. Only a few choose to move from an apartment to a condo. So… apartment renters and condo buyers are only sometimes the same people.
[Insert not-so-subtle image representative of how difficult it is to predict the housing market]
I think I can safely say that the condo buyer market has become pretty slim. It’s just not as attractive as either staying in a rental or buying a house, even if buying a house requires moving to the suburbs (which is what a lot of people seem to be doing!)
Condos in Portland aren’t cheap. If you have 550K+ to spend on a condo, you can probably find a pretty good detached home or townhouse in an equally walkable area. Portland is chock full of vibrant, cool neighborhoods surrounded by single family homes (in fact, we’ve got way TOO many single family homes, we need to increase density!). The areas that have condo towers, such as the South Waterfront, downtown Portland, and the Pearl District, certainly have some walkability (especially the Pearl), but they are no more walkable than, for instance, St. Johns, or Woodstock, or Richmond.
Remember that we still have a lot of migration going on from other states to Oregon… and the majority of those people are moving from MORE expensive places to here. So… they are more likely to opt for a detached home than a condo if they can afford it.
And, let’s briefly point out something all Portlanders are aware of… we just don’t all agree on a solution… the homeless issue. Many condo towers are located in areas that are seeing a sharp rise in homelessness, and at least a perceived increase in crime. That’s placing pressure on housing in the area, and since many of these units are owner-occupied condos and investors are in sell-mode due to the not-so-friendly-to-landlord legislation that’s been passing in Oregon lately… we’ve got a recipe for disaster with the condo market.
All of the above is to say that there are pressures on the condo market right now that are not necessarily being felt with detached homes, therefore it doesn’t mean that a concurrent down swing is going to happen to real estate in general anytime soon.
COMING BACK TO REALITY
[No caption needed]
Now that I’ve hammered on condos and pointed out that the old wisdom about how a falling condo market predicts a falling housing market isn’t necessarily true… let’s also point out that the market is a bit all over the place right now.
I hear Realtors repeating versions of this phrase all the time - “This market is hard to predict, one home will get 4 offers after the first weekend on market and go over list price and another that you would have sworn was the better value will sit at the same list price for weeks…”
This kind of unpredictable activity tells us that the market is re-balancing. Buyers understand prices are still increasing, but expect to have more power during negotiations, even in multiple offer situations. Sellers are just beginning to understand the power shift. For anyone listing a home that is outside of a desirable price range for the neighborhood, or not a universally liked floor plan, or not fully prepared for market… may or may not sit on the market for a while.
Average days on market right now is somewhere between 30 days and over 90 days, depending on the home type, neighborhood, and price point. (The average for the sweeping metro area is 68 days but that includes a whole lotta condos and luxury homes… median priced detached homes sell a lot faster than that.)
IN CONCLUSION…
Technically speaking there are some home prices in Portland that are falling if you count condos and it’s likely to get worse as condo inventory increases!
But, outside of that, most home values in the Portland metro are still going up, demand for housing is still high, inventory is still low, and we still have lots of Californians (and apparently Hawaiians) moving into town. I still don’t expect most Portland area detached homes to lose value anytime in the near future… but 2020 could be interesting with elections coming up!
