Facebook
X
Pinterest
Copy Link
I don’t think the market in the Portland metropolitan area is going to get any better for buyers over the next year. Price increases over last year are 3-4% and will probably continue for the next two to three years. The reason? I see as being three fold.
Interest rates have risen significantly in the last six months as a result of the FED raising the discount rate from the anomaly of the Pandemic Panic rate of essentially 0% BUT rates are still below historic averages. Rates are still market driven, just the base rate has increased and in the past few weeks they have fluctuated as the DEMAND for loans by consumers has wained.
So, what does that mean for the Portland Regional Market?
First and foremost, Portland has a vibrant technological economy with Intel, Tektronics, and Nike (yes Nike is a technology company). The services and products they produce are essential to other businesses in the national economy, so employment and job growth will continue.
Second, there is a shortage of single family homes in the area, and is acute in the “sweet spot” of $450,000 to $650,000. That is driven by three main issues:
1. Portland has an urban growth plan that restricts construction outside of the Urban Growth Zone. The zone was adjusted out in 2020 a little, but not enough to meet demand for single family homes in the sweet spot.
2. There has been a slowdown in construction since the 2008 housing debacle. Many professional tradesmen retired or left the business, we went through about 10 years of slow growth in housing, and now there are not enough trades to meet the demand.
3. The cost of materials for construction has skyrocketed due to the pandemic. Like all industries, building material suppliers cut way back on their inventories. This forced THEIR suppliers to cut back on their production. While it is true that over the past two weeks wholesale prices have dropped they are still about twice what they were prior to the pandemic cutbacks. We are in the ramp up period for these businesses and it will take some time for material costs to return to historic levels.
Third, I do not think we will see construction of moderately priced single family homes in the near future, what you see is what we have. It takes time for production builders to ramp up, they have to have land, labor, and supply channels in place to build rapidly and economically.
Builders are going to maximize their return on investment by constructing high density developments in the moderate price range and profitable large detached single family homes. If you look at new construction you will find there is a gap between the condo/ townhome/attached home and the “executive class” home (for want of a better term).
And finally, a word about the pending inflation of the economy which seems to be all that is in the news right now. It is happening, our government is dysfunctional right now, doesn’t matter which side you’re on, that is a fact. But answer me this: what better way to ride out inflation than in an asset that is guaranteed to appreciate with inflation because the cost of making more of them will go up too?
So what to do? Buy now in this competitive market or wait it out in hopes that things will get better and there will be more choices? That is a decision you and you alone have to make but I hope this little essay gives you some food for thought and helps you with your decision.
