2019 Portland Housing Market Forecast and Trends
Portland real estate market has exploded in value appreciation in the last several years. It’s finally coming to a stop in 2019. The reason for this slowdown is simple. It’s just unaffordable for many. The affordability factor has two prongs for home buyers: 1) Price of a home and 2) Mortgage rates. Both have gone up beyond the growth of the average income in Portland, it’s about time for a market correction. Mainly, the increase in mortgage rates is now contributing more than ever to the slowdown in the Portland market as well as the national real estate market. 2019 Portland housing market will be very dependent on how mortgage rates play out throughout the year.
Prices won’t increase much in 2019
So far in the last quarter of 2018, home values have been rather decreasing in Portland. Compared to the median value from 12 months ago, I am seeing an actual decrease in value from last year. Arguably the winter market is generally slow and fluctuations are not uncommon, but this was the first time in a long time that the numbers are coming back lower than the year before. For example, the median sold value of a detached single family home in November 2017 in Portland was $417,000. In November 2018, it was $414,000. In October, it was $422,000 in 2017, which dropped to $416,250 in 2018. The slowdown is real and is starting to really show in numbers.
However, the housing market will bounce again as usual comes spring time in 2019. The market will be hot briefly earlier in the season from March to June. By July, expect a greater slowdown than what we witnessed after July of 2018. The hot market in the spring will be largely due to the surge of home buyers finally jumping into the market wanting to lock in interest rates before they continue to increase throughout the year. Overall, expect about 2% growth in 2019. That growth will occur from March to June. After that, the fall and winter market will probably tank again with home values similar to or lower than 2018’s winter season. Most of the growth will occur within the segment of detached single family homes under $400,000. Houses over $500,000 won’t see any appreciation.
Relax, the real estate market won’t crash
Is the housing market on the verge of crashing like it did in 2008? Absolutely not. In fact, the Federal Reserve believes that our economy is very strong as of now. When the economy is strong, it causes inflation, and the Fed increases interest rates to battle such inflation. We are not seeing any signs of a recession like we did in 2008, the great housing market meltdown. If there is a recession in the near future, it is likely caused by high interest rates causing businesses to stop borrowing and expanding. This is part of the natural cycle of the economy. I don’t think there are any signs of unusual vulnerabilities in the housing market. It’s just becoming unaffordable and the market needs to let people’s income catch up for a while. It’s likely that starting from 2020 for a few years, the housing market will be slow and steady turning into a buyer’s market.
Portland metro suburb housing market
Overall, the suburb housing market will do much better than the Portland market in 2019. Suburb markets generally come with less inflated prices compared to inner Portland neighborhoods except for certain places like Lake Oswego and Happy Valley. Many Portland metro home buyers weigh the option between living in the city versus surrounding cities like Beaverton, Hillsboro, and Gresham. Sure, there is more entertainment and culture in Portland but at what price is it still worth it? More first-time millennial home buyers are jumping into the housing market with increasingly smarter valuation of what they are willing to pay. For the most part, you can live in a better house in a safer neighborhood with decent schools in a suburb city and simply take the MAX to work. More people naturally gravitate towards the west side in Beaverton and Hillsboro with more jobs. The west side market will still be a hot market in 2019 favoring sellers. East side will be cooler but if the median price is low enough in the area, it will be hot still.
For how long will mortgage rates continue to increase?
First, the mortgage rate for a fixed 30 year home loan is different from short term interest rates. When the Fed increases rates like they have been recently, it affects short term interest rates, which directly affect adjustable-rate mortgages. For 30 year fixed mortgage rates, its increase or decrease coincide with the Treasury bond yields. Higher the yields, higher the mortgage rates. So what happens to bond yields when the Fed increases rates to keep inflation under check? Bond yields will go up. So the Fed increasing rates is linked to fixed 30 year mortgage rates after all. There have been mixed messages from the Federal Reserve on whether how much more they will increase rates and how far we are away from the neutrality. The stock market has been plunging downhill recently due to the fear of further rate hikes. It’s very difficult to say where the mortgage rates will go but for now in 2019 and 2020, we won’t see the rates dropping unless everyone flocks to the safety of the bond market lowering the Treasury yields. If the economy continues to expand, it will probably go up. Some say it won’t go up much due to how the job market and the economy have been responding to rate hikes.
Adjusting expectation for both sellers and buyers
If you are selling your home in 2019, you must understand this. You cannot over-price it hoping it will sell like it did in 2016. Homes will sell in 2019 if it’s priced right. If your house is on the top of the comp range in your neighborhood for no apparent reason, your home will likely sit through the entire spring and summer season and may not sell for the entire year. Trust me on this that you would rather sell your home in 2019 than in 2020.
If you are a buyer, you can flex your muscle a little more in 2019. You won’t see bidding wars anymore in 2019 unless a home is priced intentionally low. You will probably see more price reduction in listings and become able to buy your dream home without losing out to competitors like you did in the last few years. But it will cost you more because of higher mortgage rates.
Lock in rates during rates volatility
Even though on a long term trend, rates are supposed to go up, there seems to be some volatility with mortgage rates. As of January 2019, rates plunged to below 4.5% for 30 year mortgage from the winter stock market crash and government shutdown. This is probably a temporary occurrence. There is a lot of uncertainty in our economy as to whether it will expand further or not. Mortgage rates may go up and down from time to time in 2019. Talk to your lender and lock in rates when it’s at a low point and buy your home at that rate.
More leverage with cash than before
If you are a cash buyer, you are not affected by the mortgage rate hikes. There are still plenty of cash buyers in the Portland real estate market mainly for primary residences rather than flippers. If you are buying with cash in 2019, you can get a good deal as you leverage through the rather depressed housing market.
Supplies are still very low
One thing that is still the case in 2018 and 2019 is the short supply of home inventories. The housing market is like any other market about supply and demand. The demand for housing will not be as great in 2019 only because of unaffordability. There are still plenty of people who need to buy a home but just can’t right now. To add to the matter, our inventory level hasn’t improved much. It increased somewhat in 2018 compared to 2017 but it’s still far below what a normal housing market should look like. For detached single family homes in Portland, we still have only 2.6 months of inventories on the market whereas in a normal housing market, 6 months of inventories is considered healthy. New construction is slowing down and home sellers are once again faced a dilemma of having to buy with higher costs. Only this time the mortgage rates are higher.