Portland Real Estate Market Predictions for 2019, 2020 and 2021

Portland Real Estate Market Forecast

Increasingly people are worried that the Portland real estate market has reached the top of the value in 2018 and the market may crash in the next two to three years.  Although things are very much different from the last housing market crash in 2008, the fear is very much alive and people wonder whether the same crash may occur.  As a Portland realtor with an active housing market blog, I pay a great deal of attention to studying where our market is headed in the future.  There are some signs that make people nervous about whether we are in a bubble and this is about to crash anytime from 2019 to 2021.  Portland home values have been increasing rapidly for the last three years and we have surpassed the top home value at the height of the 2006 real estate bubble.  It has been 12 years since the last bubble and there has been a great deal of inflation not accounted for in those numbers.  Still, the way the prices have been with home bidding wars, it makes one nervous.  This year, Portland home values have not increased much but mortgage rates having been rising as we are pushing high 4% at the moment.  That is a big increase since 2016 although historically 5% is still considered low.  There has been a great amount of slowdown since the summer of 2018.  Compared to the last few years, housing inventory is also increasing and there is even a talk about a possible recession in the next two to four years.  It may seem like we are at the height of the housing market and this sluggish market does seem like the inflection point before the market comes crashing down.  But is that true?  After all, many of us still have nightmares about the real estate market crash from the last recession.  Things are much different this time and should there be a recession in the stock market, the housing market may still be strong this time around.

There is a lot of confusing and contradicting information out there at this point.  Many real estate market experts have written about where our housing market is headed.  Most of the expert opinions are based on national housing market trends and less specific to the Portland metro and the Pacific Northwest but our market is not that independent from the national trends such as rising mortgage rates, the overall economy and any political impacts that can affect us here.  Locally, we look at the local job market here in the Portland metro and determine the supply versus demand more unique to the region.  Big fundamentals, however, seem to coincide with the national trends.

As a disclaimer, neither I nor any economists or experts have a crystal ball to see what the future looks like so take everything you read with a grain of salt.  Let’s consider all the questions below to understand better what is ahead of us.

How is the Supply vs Demand in the Portland Real Estate Market?

For the last many years, we have had a very low supply of homes.  In a normal housing market, there needs to be six months of inventory.  This means that if 1,000 homes are sold every month, there needs to be 6,000 homes currently listed for sale.  We have only had around two months of home inventory.  As of this month in 2018, we have 2.7 months of inventory, which is better than 2.0 months of inventory in 2017, but still far less inventory from a normal and balanced housing market.  The demand, on the other hand, is big.  Millennials are a huge force in the housing market now as they are getting older and because of their sheer number of population.  They either already have bought or want to buy homes as many of them have solid jobs and qualify for a mortgage.  Like many residents here, many millennials have been priced out and have been waiting to buy homes due to how competitive it has been.  This is a big sleeping giant of demand in the housing market.  As soon as the affordability improves or their income improves, they are going to purchase.  Nationally, similar trends exist: low supply and high demand but the big issue is affordability.

How is the Job Market in the Portland Metro?

The job market is great in the Portland area.  3.7% is Portland’s unemployment rate as of 2018, which is extremely low.  Many of the jobs are from the service sector but overall our local economy is at its full swing.  The job and population growth have been slowing this year according to PSU’s Northwest Economic Research Center.  We are pretty much at the full level of economy with full employment with little room to expand.  The growth slowed but we seem to be maintaining our robust local economy.  Portland’s tech sector has been really expanding, comprising 16.8 percent of the local economy with $24.3 billion pumped into the Portland, Hillsboro and Vancouver metro area.

Isn’t it About Time for a Recession?

The U.S. economy enjoyed a very long expansion phase lasting nearly 10 years since the Great Recession, which by the way has been the second longest expansion phase in the history.  So statistically, a recession is overdue.  According to this article, many economists surveyed by the Wall Street Journal believe that a recession is coming around 2020 or 2021.  The reason for the recession is the Federal Reserve’s tightening monetary policy, which basically means raising interest rates to fight inflation.

What Could the Recession Look Like if Any?

Rising interest rates and global trade wars seem to be the triggering events in the next recession.  Interest rates have been rising as the Fed has been raising rates.  But this economic cycle is quite normal and one thing that is a fact is that we don’t have an oversupply of inventory and loose lending standards that led to the recession in 2008.  In fact, things are quite opposite now.  We have a very low housing supply and tight lending standards.  For this reason, we are not likely going to experience anything that comes crashing down in the housing market.  Rather, we will have a growth recession where prices plateau for a few years with the economy being stale.

The recession will probably impact other sectors.  With higher interest rates, businesses will borrow less and expansion will be put on hold.  There could be corporate debt defaults with higher interest rates.  It’s very difficult how severe its impact could be and whether it will bleed into the housing market.  Unless there is a catastrophic event triggering a mass job loss in corporate sectors, the recession may be a mild one.  If anything, the housing market should not be impacted as much.

What Will Portland Housing Market Look Like in 2019, 2020, and 2021?

Starting from 2019, the market will slow down a lot.  Mortgage rates will probably be 5% or higher in 2019 and homes prices will stay put starting from next year.  Although mortgage rates can be difficult to predict, there are some predictions that in 2020 and 2021, rates may even go up to 6%, causing a further slow down and possible price decreases for certain asset classes.  Rising mortgage rates will continue to make purchasing a home unaffordable.  By 2020, the entire Portland real estate market will probably turn into a buyer’s market.  However, the lack of housing supply will keep us out of anything crashing down.  Portland’s condo and townhouse market may be hit harder because that’s mostly what developers have been building but detached single family home market in the median range should not experience a dip unless new construction supply level increases dramatically, which I doubt.  In 2020, the presidential election may also affect the short term economy through the first two quarters in 2021 depending on who gets elected.  If the recession is mild with minimal impact in the local job market, we will likely just have a few years of a sluggish housing market where income and savings catch up to homes prices until the next expansion.

So Should I Still Buy a House in the Next Two Years?

I wouldn’t buy a house if you’re in it for a short term investment.  If you’re in it for a long term, that would be a good reason to buy before mortgage rates go any higher.  Still, buying can be cheaper than renting in the Portland metro.  With increasing inventory, you as a buyer will have more options and time to choose what you really want instead of being forced to compete with other buyers.

In conclusion, we are probably not in a “bubble” that could pop anytime.  A recession takes many forms and just because we had a housing market and credit meltdown in 2008, it doesn’t mean a future recession will look like that.  Conditions are very different this time around and a recession could be triggered by inflation fighting efforts and will likely not impact the housing market as much.

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Peter Park

I'm a realtor with attorney experience representing buyers and sellers throughout the Portland metro area.
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