For the third year in a row we’re bringing you the same market forecast: “Low mortgage interest rates and low housing inventories will push the cost of [Portland residential] housing higher as opportunity-seeking buyers bid up prices for limited quantities of available homes.” Last year we called that statement a catechism; this year we’ll call it a mantra. Come fall though, maybe we’ll be calling it a prayer. Read on. But here, at the year’s onset, all the past two years’ market conditions are still in place and set to propel the first half of the year along at a breakneck pace.
Recapping on 2015, last week the highly-regarded S&P/Case-Schiller Home Price Index reported that Portland housing prices gained more than any other in its 20-city composite index, topping the list with a reported one-year 11.1% gain. Along with Portland, four other cities – San Francisco, Denver, Seattle, and Dallas – either matched or exceeded their pre-Recession all-time highs. Our own Realtors Multiple Listing Service, while less sanguine than Case-Schiller, reported that average price appreciation in the metro area last year was 6.5%. That’s on top of 2014’s 7.2% gain, which was in turn heaped on 2013’s 12.9% rise: in the aggregate we’re looking at a post-recession gain of 26.5% over three years. (As usual, last year’s market stats, including a breakdown of Portland metro appreciation by area, are tabulated in our most recent “Portland Market Update.”)
If predictions hold, 2016 market activity will show continuing, albeit slower, gains. CoreLogic, a leading provider of real estate analytics, reported in November that Oregon will see a 5.4% increase in home prices in 2016. We’ll add this to that sunny optimism: almost every one of the factors that we cited would influence the 2015 market – low interest rates; low inventories; steady in-migration; strong Boomer and Gen-Y demand; and high rents – is still in place as we move into the 2016 market.
Nothing lasts forever, and we note a few things on the horizon that could moderate growth in the housing sector later this year:
- Many more international / Chinese economic woes could undermine the US equities markets. That could lead to economic woes of our own, which may stifle housing gains.
- Wage growth needs to keep pace with rising home prices. If the gap widens, the housing market, fed from below by first-time buyers, will falter. Good news here though: last year Portland metro area job growth increased 3.3%, added 35,600 new jobs. That outperformed the state job growth of 3.1% and the national rate of 1.9%. (Source: The Oregonian, 1/27/2016)
- Short of a China-inspired recession (see #1), there’s little doubt that interest rates, which are hovering around 4.0 – 4.25% now, are going to rise this year, albeit slowly. While the rise may not appear to mean much, the slightest shiver in mortgage interest rates could rattle many marginal buyers out of the market. And again, first-time home buyers will feel it hardest.
- The uncertainty that usually surrounds a presidential election will add a note of caution to the market as the spectacle unfolds in the months leading up to the November vote. Look for a slow-down in activity starting in August and persisting into mid-November. Beyond that, bets are off for the year.
The housing market is like that old adage about the weather in Portland. If you don’t like it, stick around awhile, ‘cause it’ll change!
(Belated) Happy New Year!
Shannon and Jeanne