Notes From Shannon and Jeanne

September 29, 2016

Strong sales cap off a busy summer.  Average and median sales prices continued to rise in the Portland metro area through August, and while sales volume is starting show signs of slowing, prices are likely to hold steady through the last quarter of the year.  As we’ve noted earlier this year, Election Jitters, the persistent-but-never-realized threat that the Fed will raise rates, and the customary seasonal slowdown will put some drag on this year’s market rocket ship.  [Tip: if you’re thinking about buying, or know someone who is planning a move – the last part of the year is often the best time to buy.  Put off selling now until February or March, but if a “buy” is in the works, think to call us for advice.]

You can get all the latest statistics, including price appreciation figures, by clicking on our Portland Market Update.

Now not one, but two websites devoted to Portland’s building boom.  When we reported in June that Portland’s growing so fast that there’s a web site devoted to tracking new projects we thought to ourselves, “Holy cow!  Boom town!”  Imagine our surprise when we learned that a second website had been launched by the Portland Business Journal.  Called “Project Watch,” the interactive site covers new hotel, industrial, mixed-use, office, multi-family residential, and retail startups – and the site reports a ton of them.  Check it out here

In the mix:

  • Eleven big downtown building projects are on the books for development on properties owned by the Goodman family’s Downtown Development Group. Watch the first one, a 425-unit apartment building with a grocery store anchor, coming out of the ground now at Harrison and SW 4th.
  • The City has applications from various big developers for construction of eleven new hotels in downtown and close-in Portland.
  • Macadam Ridge, a proposed subdivision of around 46 new single-family homes in the hills above the intersection of SW Macadam Avenue and Taylors Ferry Road is working its way through the city planning process. If approved, it will be the first traditional subdivision built in Portland in many years. Neighborhood and conservationist interests are strongly opposed to the project, which will, among making other environmentally controversial changes, take out 480 trees.
  • “Freeway capping.” Former mayor Vera Katz’s 1998 idea for covering the sunken portion of I-405 that runs along the west side of Portland has been revived again.  The plan would build caps over the sunken interstate that would reconnect neighborhoods and add back 28 of the 36 blocks that were destroyed by building the freeway back between 1969 and 1973.  An example of this idea in action is Seattle’s Freeway Park over I-5.

Summer’s fading. Enjoy the rest of it in the company of your family and friends, and as much of it as you can outside.  Happy fall!

Shannon and Jeanne

In this issue: A controversial housing proposal could save neighborhoods and increase density. Also- dare we say it – signs that real estate sales are cooling?

In the News:  On June 10th, The Oregonian reported that Portland’s Bureau of Planning and Sustainability (BPS) is preparing a set of regulations to govern infill development to meet the city’s needs for more housing in the face of its recent rapid growth.   The proposal seeks to:

  • Limit the size of single-family homes and end developer’s practice of taking down small houses and replacing them with large, expensive “McMansions.”
  • Encourage more multifamily housing options. The proposal would allow developers to build more accessory dwelling units (ADU’s), duplexes, triplexes and even four-plexes on as-yet undesignated housing lots.
  • Allow more houses on some lots. The proposal would make it easier, in some cases, to re-establish historic narrow lot lines that lie under larger, consolidated parcels where there is currently only a single home.
  • Permit development without provisions for on-site parking.
  • Prohibit “snout houses” (front loaded garages).


An on-line survey of around 7,000 participants conducted by the BPS this past winter revealed that the public’s greatest concerns are housing affordability; demolition of existing viable homes and the consequential loss of neighborhood character and history; parking and congestion; and loss of tree canopy.


While the proposal to adopt more “middle housing” alternatives in Portland’s single-family residential zones may not wholly allay all the public’s concerns, we endorse a course change to Portland’s housing regulations.


The project summary and timeline are available by going to  The public is invited to a series of open houses throughout June and July.   (For a schedule, click here:


Can’t make it to a meeting?   In addition to open houses, an online open house and questionnaire will offer community members another chance to learn about the project and give staff feedback.   As of this writing the open house and questionnaire haven’t appeared on the internet.


Want a Bird’s-Eye View of How Portland is Growing?  Coolest web site ever!  Click on for an interactive aerial map of Portland – zoom into your neighborhood! – and keep tabs on all the growth that’s happening here.  “Next Portland” covers all “multi-family residential, retail, cultural buildings, educational buildings, hotels and other large projects happening in the City of Portland. [They] cover both new buildings and major alterations or additions to old buildings. [Their] blog posts are exclusively written about projects that are either still in the design phase, or are under construction.”   Take a look!  Do you want to know more about the construction at NE 7th, between Russell and Knott?  That’s going to be a 6-story, 68-unit apartment building.  And that’s a 4-story, 40-apartment complex going in at 2330 NW Raleigh, in case you were wondering.   We find ourselves referencing information off this site two or three times a week – it’s a terrific way to stay informed about growth and development in the city.  Check it out!

NextPortland tool

Seeing a Slowdown?  The current seller’s market kicked off in January 2013, which was 42 months ago.  The chart looks impressive:

Pages from PortlandMetroArea

In those 42 months the average price of home in the Metro area has risen 28%, from $287,700 back in January 2013 to $402,500 at the end of the May 2016 reporting period.  While sales remain robust, we’re seeing a decrease in the numbers of participants in bidding wars and even a slight increase in inventories in certain market segments (among more expensive, $600,000-plus homes; in outlying suburbs).  With school getting out and summer vacations cropping up in the calendar, June sales often soften, certainly, but a three-and-a-half-year old market is getting a little long in the tooth. . .  and there’s the fall election and attendant uncertainty surrounding it just ahead.  Going into the summer market we’ll simply note there’s a faint warning light on the dashboard, and leave it at that.   We remain unveeringly, cheerily optimistic about the health of the market in the long run.


The 2016 Housing Outlook

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:

  1. 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.
  2. 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)
  3. 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.
  4. 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

We wonder how we’ll look back on 2015 a few years from now

Remember?  Everybody was talking about the Really Big One.  Drought affected every county in the state.  There were big fires in Eastern Oregon.  Cannabis was legalized.  Apartment buildings were springing up everywhere.  Traffic, the traffic got bad.   Lots of people were moving up from California and other parts of the nation.  The Force Awakens was going to come out in December.

It was the year that real estate got really tight in Portland.  The Oregonian, Willamette Week and the Mercury headlined the story every week with eye-catching headlines like, “Metro Area Sees 10-Year Housing High Again,” and “Laid Low By High Rents (A wave of rent hikes and evictions grips Portland as investors swoop in to profit from a tight market),” and “A Summer of Evictions,” and  “Rental Prices Skyrocketing.”  While much of the focus was on a very tough rental market, and the City’s ongoing struggle to provide adequate affordable housing to its low-income citizens, the pinch on houses for sale attracted lots of notice as well.

A good illustration of the tight real estate market can be seen in the chart from this month’s Portland Market Update, reproduced here:

1-151117 Notes from Shannon and Jeanne for JPG_Page_2_Page_1

As a reminder to long-time readers of our Notes. . . and as an explanation for the benefit of recent arrivals to this page, Inventory in Months is a common measurement of market demand.  It’s a hypothetical model that measures housing supply vs housing demand by calculating the rate that inventories of homes are being absorbed by buyers.  Based on the rate homes were taken out of the inventory in October 2015, we only have 1.8 months’ supply of homes left to meet buyer demand.  A market is considered to be in balance between supply and demand, or sellers and buyers if you will, when there is something in the range of 5-to-8 months’ housing supply.  Remember the winters of 2009, 2010, and 2011, when the market was flooded with houses for sale, and there were hardly any buyers?  Back then there were times we had more than a year of inventory languishing on the market.

Time’s change, and we have plenty of buyers who’d like to buy a home now.  The market – and prices – are soaring past the old market highs from the 2006 / 2007 boom years.   New housing starts can’t keep pace with demand, and demand is unabated.

And Portland’s growing.  Metro’s August 2015 “Comprehensive Plan Recommended Draft” says it expects Portland’s population to increase by 260,000 residents by 2035.  (The introductory sections report are quite readable, and worth the read: The Census Bureau’s most recent (2014) estimate for the Portland Metro area was 619,360 inhabitants.  Adding 260,000 more people to the region will increase our population by 42%.  It’ll be a long time before housing can catch up.

Where are all those people going to come from?  While everyone has California in the cross hairs, the truth is a little more nuanced.  About 137,000 people moved to Oregon from outside the state in 2014.  Of those, just 57,000 came from Washington State and California.   Another 23,000 came from overseas.  The rest came from all over the country.  A couple of months ago we wrote, “In-migration is the principal reason prices have kept moving up, and it’s not likely to slow.”  That trend [in-migration] is becoming better established now and, again, according to Metro, it’ll persist for many years to come.

Bringing the light to shine on California though, can we ask if there’s any similarity between the California drought and the 1997 transfer of sovereignty of Hong Kong from Great Britain to China?   Back in 1997, in the face of distressing economic uncertainty, a tsunami of Hong Kong immigrants (and wealth) flooded Vancouver BC; the resulting prosperity made Vancouver the most expensive city in North America.  Will Californians, in the face of distressing climatic uncertainty, make an exodus from their state on par with Hong Kong’s?

Is in-migration bad for Oregon?  Just 51% of people who live in Oregon were born here. The rest have come from somewhere else – so consider that in the light of the remarkable quality of life we have here.  From coffee giants like Stumptown’s Duane Sorensen, a Tacoma-born transplant, to James Beard Award-Winning master chef Andy Ricker (Pok Pok, Pok Pok NY, Sen Yai, et al.) (North Carolina), Oregon owes a lot of “What’s Oregon” to out-of-state transplantees.

And in a September 2015 post titled “Migration (In Defense of Californians)” by Josh Lehner, a senior economist with the Oregon Office of Economic Analysis, Lehner writes that “Americans have been moving to Oregon in droves since Lewis and Clark and are likely to continue to do so.”  Lehner says migration is vital to Oregon’s economic health, stating, “It [migration] brings both skilled, young households who will set down roots . . . and a strong influx of retirees with a lifetime of experience and some wealth. . .  Our state’s ability to attract skilled, young working-age households is a huge economic benefit.”

Happy Thanksgiving Everyone, here come the Holidays!

The 2015 Housing Outlook 

Staying on Top: Nine Trends that Will Shape the 2015 Housing Market. Regular readers of our “Notes. . .” can recite the current market dynamic like a catechism: “Low mortgage interest rates and low housing inventories will push the cost of housing higher as opportunity-seeking buyers bid up prices for limited quantities of available homes.”  Amen.  We, your daring prognosticators, believe that this dynamic will persist for another 18 months, at least. Join us here for a look at the top influences that will affect the dynamic in our 2015 Portland market.

Let’s begin with a recap.  We finished 2014 on a high note – the RMLS of Oregon reported that housing prices rose another 7.2% last year, that is, we added 7.2% appreciation to 2013’s stellar 12.9% rise, moving total appreciation up 20.1% in 24 months.  And the 2015 real estate market holds the promise of sustaining the past two years’ performances.  (For last year’s market stats, including a breakdown of Portland metro appreciation by area, check out our most recent “Portland Market Update.”)

 Looking ahead Here then is a look at the strongest trends we’ll see in the 2015 Portland metro market:

  1. Appreciation will slow in 2015.  The 2015 market should bring the market into better balance, with modest appreciation – say 3% – to – 4% this year – and a return of more negotiating power to buyers.
  2. Investors are getting pushed out of the market. Starting in 2012 and 2013, ultra-fast price appreciation and the lure of foreclosures created a feeding frenzy for real estate investors willing to pay cash for bargain properties. Traditional buyers found it hard to compete against cash and many were sidelined.  2015 will be the year investors back off and we see more opportunities for buyers with regular jobs and, ideally, 20% down.  But this year there’s more room for buyers with limited cash to close too, read on.
  3. Developers will continue to compete with first-time buyers for inexpensive close-in properties. For the past two years developers have been tromping all over first-time buyers in the stampede for affordable buildable lots.  The developers’ cash wins every time, the cute rag-tag fixer-upper is “scraped,” and one or two big new homes go up in its place.  In some instances the act is justifiable: some tear-downs are simply beyond their functional lives and should be replaced.  The merits of replacing those small affordable homes with expensive McMansions are debatable however, and worth a whole issue of our “Notes. . .” that’s devoted to that question.  Let’s leave it for now with this: we applaud the efforts of some architects and developers to replace obsolete housing with affordable and architecturally pleasing alternatives.
  4. Oregon is where it’s at. Katie Lobosco, writing for the Jan. 8, 2015 issue of CNN Money, reports that “Everybody is Moving to Oregon.” Citing data from United Van Lines’ 38th annual National Movers Study, which tracks customers’ migration patterns state-to-state during the course of the past year, it found that Oregon is the top moving destination of 2014, with 66 percent of moves to and from the state being inbound.  Oh, we almost forgot:  Oregon was United Van Line’s top moving destination in 2013 as well.
  5. Baby boomers and Gen-Yers will continue to push growth in Portland. The principal destination for people moving into the state is Portland, and boomers and Gen-Yers make up a good proportion of those who plan to make Portland “home.”  Both demographics are competing for the same kind of housing now: smaller units near the urban core.  (An unanswered question: as the Gen Yers start to form families, will they follow the decades-old path back into the suburbs to raise them?)
  6. Portland’s still relatively inexpensive. Compared to its big sister Seattle to the north (which had a median sales price of $485,000 versus Portland’s $333,000 average), and the California behemoth to the south, Portland remains an affordable destination, by West Coast standards at least.
  7. Rents are sky-high. Ask anyone who’s renting around here: rentals are hard to find, and expensive.  The rent-vs-buy proposition seems easier to answer when rents rival mortgage payments.  And in December major lenders Fannie Mae and Freddie Mac announced programs that will allow first-time buyers to get a mortgage with a low, three percent down payment instead of the previously stated five percent down.  That’ll open more doors for lots of young buyers with high debt and low savings.  Welcome Home, Gen-Xers and Gen-Yers!
  8. New Frontiers. We’re putting our bets on a few up-and-coming neighborhoods.  Montavilla, Lents, Woodstock all the way east as far as 82nd, and the Foster Blvd. alignment ripe for pioneering. There are great transportation alternatives in those neighborhoods and the grocery / dining / entertainment amenities are filling in nicely.  And it’s still not too late to be part of the “St. John’s Renaissance!”
  9. Nothing last forever. Rising consumer confidence, low interest rates, low unemployment rates, and less-restrictive mortgage requirements are among the principal reasons the housing recovery has been so successful.  A change in these factors could inhibit the market’s recovery, and, frankly, it won’t be long before we’ll need to see stronger wage growth just to keep up with rising house prices.   Stand by!

Untold Secrets –A Look Inside a Real Estate Agent’s Computer!

We’re taking a break from our ordinary commentary to share the best real estate web resources that we and our Realtor colleagues have on our desktops.  Put these powerful tools to use when you’re dreaming about your next home, when you’re advising a friend who’s thinking about moving, when you’re planning a vacation (really!), or if you’re just a real estate nut and want to know more about how the pros do it. There’s no particular order to our list (but it’s no coincidence comes first)!

  • (Web only)  A Gem!  No city in the nation has a resource like  Fundamentally it’s an aggregator of information from a dozen City and Metro databases, a one-stop web site where you can get everything from crime statistics, tax information, building permit history, sewer and water connections, demographic data – you can find out if there ever was an oil tank in a property’s front yard, and how many gallons it held!  Simply said, is the most data-rich source of information for a specific property you can find on the web.  It’s nearly always the first resource we turn to when we’re studying a new property.
  • Google Earth (Web, Android, iOS)  Meet the dynamic duo: and Google Earth.  Why hop in the car to see what that great new listing on NE 24th looks like when you can “drive” on over on Google Earth and see it, and its neighbors, from right out in the street.  The biggest fuel saver in our business.
  • HomeQuest  (Web)  HomeQuest functions as a robust, easy-to-use interface between you and the Realtors Multiple Listing Service (RMLS).  Every day you’re delivered an email link to all homes currently on the market in the Metro area that meet your tailored search specifications.  You set the price criteria, you pick the neighborhoods you’re interested in, you can even specify things like number of bedrooms, baths, schools, and tons more.  The software is map-based and easy – even fun – to use.   Importantly, HomeQuest updates its site every few minutes so the data feed from the RMLS to you is super-fast and accurate.   You can set up searches, change your criteria, save properties to a “favorites” folder, and share notes between you and your real estate agent about properties that catch your fancy.  If you’re in the market to buy a home or you want to study housing trends in your own neighborhood, HomeQuest has to be in your tool kit.  HomeQuest delivers quality listing information because it can afford to: agents pay a monthly subscription fee for the service, which we pass along to our clients for free.  Sign up here from our website.
  • Zillow and Trulia. (Web, Android, iOS) are full-featured, powerful house hunting tools.  We’ve lumped them together, and actually, they’re in the process of lumping themselves together:  in July the two announced plans to merge into one online real estate resource. Zillow is the more powerful tool in our opinion, but both are good “one-stop” resources, with “pretty good” search filters and lots of extra features like mortgage calculators, school information, transportation maps, access to “hidden” inventory, property estimates, etc.  The sites are notorious for outdated / incomplete data; we’ll frequently find homes still posted on these sites which sold days, even weeks ago.  Use HomeQuest for dependable, up-to-date data.   And please, don’t depend on the “Zestimate®” for an accurate determination of property value!   Zillow’s price projections can be off as much as 40% from a home’s actual value.  Zestimates® work well in homogeneous neighborhoods – for example, newer subdivisions – but they’re woefully inaccurate at hitting the right mark in mature neighborhoods with a strong mix of housing styles, sizes, and vintages.
  • Redfin (Web , iOS, Android)  Redfin’s doing a good job, it’s doing a great job, and that’s saying something: fundamentally RedFin is a real estate sales company, and in that sense it’s one of our competitors.  It’s in 25 domestic markets now, including Portland, and many of our buyer clients favor it over Zillow and Trulia.  You can use their app to save searches, add notes to property listings, tag favorites, have new listings automatically delivered to you, and so forth.  Pretty good for a Seattle-based real estate company, if we don’t mind saying so ourselves.
  • Karl’s Mortgage Calculator (Android only)  This is the best free mortgage calculator we know about.  Do it all: Calculate mortgage payments given principal, interest and term. Reverse calculate any one variable given the other three. Enter a down payment amount or percentage and let the calculator show how large a mortgage you require.  See how the monthly payment changes when you factor in additional monthly or annual loan costs such as PMI, HOA, taxes and insurance.  Information can be represented numerically or graphically – Karl’s is a great place to visit when you want to run your “what-if” scenarios.  If you don’t have an Android device the calculators on our website are just as good, they just take a few more keystrokes.
  •  (Web) Find reviews, test scores and directions for schools across the street or across the country including public, public charter, and private schools.  Filter schools by district info, public or private, grade level, distance, enrollment size and the site’s “GreatSchools” rating.  Browse parent reviews, recent test scores, and save schools to your personal list of favorites for quick retrieval later.  This is the best initial go-to resource for schools information on the Web.
  • WalkScore/BikeScore  (Web) Use WalkScore / BikeScore to find the walk-ablity / bike-ablity of any location in the US.   While a number of sites offer WalkScore data, the WalkScore site is the only place that allows you to use their excellent Travel Time Map  to calculate how far you can travel by car, bus, bike and foot from your location.  WalkScore’s really handy for getting to know a city, and while the Travel Time Map alone is worth visiting the site, the heat map feature is very cool indeed.  Check out WalkScore, and think to use it the next time you’re making travel plans.

Do you want even more information about specific properties, market trends, mortgage resources, schools, parks, or the best place to fly a kite / get a decent bagel / buy a used bike?  Turn to us, your dependable one-stop source for “candid, informed advice!”  And have a wonderful holiday season; it’s just around the corner!

Growing Pains: One Housing Trend that is Reshaping Our City.

New apartment construction promises to change Portland, for better or for worse.   Here’s a story, reduced to a few snappy talking points you can share with your friends and colleagues the next time you feel a compulsion to “be the expert.”

But first, a little background.

Few sectors of the past years’ economic recession were harder hit than new home construction.   While new home formation grew (marriages, families, immigration), housing starts dropped dramatically.  Now that we’re climbing out of the recession, housing starts are moving up, but the nation has a long way to go to meet demand.

Building Starts

Source: US Census Bureau

The chart shows new single family home starts.  The nation was averaging 1.3 million home starts in the years leading up to the recession.  Starts fell to 27% of pre-recession levels between ’07 and ’09, and today they’re only near 45% of the pre-recession levels.  It will take years for new home construction to catch up with demand.

Meanwhile, here in Portland:

(June 2014)  “, one of the largest apartment listing services on the internet, announced Portland was No. 8 on its list of best cities for singles to live.  Twenty-four percent of Portland’s adults are single.”

“2013: Portland voted Number One City in America: the nerdiest, smartest, hardest working, most exciting, and downright best city in the country.” (Movoto blog)

“Oregon was the number one destination among people who moved from one state to another last year according to United Van Lines’ annual migration study, which tracked 129,000 moves in the United States in 2013.”

In Portland there’s more demand for housing than there are housing units to meet it.  The laws of supply and demand are grinding away at renters:  limited supply has brought the vacancy rate down among the lowest rates in the US and rent rates have soared.  Building out into the countryside is not an option.  The Urban Growth Boundary (UGB) was designed to contain urban sprawl, and it has done a good job of protecting agricultural and forest lands from unregulated growth.  But at a price: the lid is on the pressure cooker.  There’s tremendous demand for buildable land inside the UGB because the current inventory of housing stock is insufficient to meet the demands of a growing population.  We need more housing.

At first glance, new apartment construction would seem a good solution for meeting Portland’s dual aspirations to remain livable while increasing density.  And therein lies a story.

A decade ago, the City Council approved rules allowing developers to forgo onsite parking for new housing close to transit lines. The idea was to encourage more density and help developers keep costs down.  The rules didn’t meet much opposition at the time; in fact, the rules were congruent with the ethos of the bike culture which then, as now, was viewed as a key element in the makeup of Portland’s distinctive, environmentally-responsible character.   Fewer cars, more bikes.

In 2012 applications and apartment building starts began to spring up all around Portland’s close-in-‘n-cozy traditional neighborhoods.  With zoning rules that didn’t require developers to add parking places – but provide for bike parking – neighbors began to protest.  The focus of their ire was concern about increased traffic and an inability to find parking in front of their homes. And though the new apartments were designed to attract those with a bike-first mentality, not all of the new tenants had chosen a car-free existence.

Nowhere then, as now, was the effect of the apartment boom more apparent than along SE Division, where a 13-block strip was becoming home to as many as eleven new 3-and-4 story apartment buildings. That’s 224 new rental units in 13 blocks.  Seven of the 11 new buildings didn’t have provisions for on-site parking, owing to the rule that exempted developers from having to provide it.  Pressure on Division’s adjacent neighborhoods buckled tempers as more and more residents (and patrons of the streets’ booming restaurant trade) fought for a handful of parking spots.  (A Willamette Week article quoted a neighborhood resident who called the new strip of apartments “a dormitory without a college.”)  Last March a late-night fire was started in a partially completed apartment, to date no one has been held accountable.  Old-time Portland residents however were reminded of the arson fires that burned Lake Oswego developer’s Phil Morford’s Nob Hill townhouses back in the early 1980’s.

The Portland City Council responded to neighbors’ concerns last April.  They changed the rules to require that new apartment construction with more than 30 units must provide parking on a tiered basis:  buildings with 31 to 40 units will have to provide one parking stall for every five units. Buildings with 41 to 50 units will need one stall for every four units, and buildings with more than 50 units will need one stall for every three units. (Source, Elliot Njus, The Oregonian, April 10, 2013)  Applications awarded permits prior to the adoption of the new rules were exempt; as a consequence, parking remains a stubborn problem along Division.

Portland’s growing up, and with growth comes growing pains. But the long-term prospect of higher density housing looks favorable: car sharing, peer-to-peer car sharing, trollies, mass transit, biking, micro-groceries, neighborhood bakeries, wine shops, and host of other innovations and life-style choices are beneficial fallout from increasing urbanization.  We say, bring it on Portland!

That’s a little history, but the tale’s not yet told.  Meanwhile, let’s get outside and enjoy all the bounty that a Portland summer has to offer us!

The 2014 Housing Outlook – Like Déjà Vu all over again?

In many respects the 2014 real estate market holds the promise of repeating last year’s stellar performance.  Low inventories and low interest rates propelled the 2013 market recovery, and while we’ve seen a modest rise in interest rates, inventories of homes for sale are still at very low levels.  Veteran market watchers are saying – praying? – we’ll see moderate growth this year, a welcome contrast to 2013’s ballistic recovery.

Here’s the background. . . . Home prices grew at the fastest pace in seven years in 2013, pushing up home prices nearly everywhere in the US.  And the recovery was fairly uniform: home prices rose in 225 of the 276 cities tracked by Clear Capital, a provider of real estate data and analysis. Prices nationwide increased by 10.9 percent (Portland saw a 12.9% increase).  In 2013, a sense of urgency drove traditional buyers hoping to take advantage of still-affordable home prices and historically low mortgage rates, while investors were drawn into the market by the scent of opportunity.  Buyers found selection limited and were often forced into bidding wars with investors and other buyers who paid cash. Sellers reaped the rewards in terms of quick sales, often above the asking price.

Almost half of the cities tracked by Clear Capital experienced double-digit increases in home prices, led by Las Vegas, with a gain of 32 percent. Such spikes reflected a continuing “correction to the overcorrection,” says Alex Villacorta, vice-president of research and analytics for Clear Capital. Buyers and investors rushed in to snap up homes with prices that had fallen too far.

It’s early 2014 and the story hasn’t played itself all the way out:  in spite of the big 2013 run up, homes continue to be affordable.  Nationwide, prices are still 31.5 percent below their 2006 peak; Portland, while making greater strides towards recovery than many parts of the US, is still 15% below its 2007 highs.  And while buyers may be
inclined to voice their complaint, “There just aren’t any bargains out there now!” we’re as likely to respond, “No, everything’s a bargain!  That’s why we have all this competition!”

While 2014 appears poised to repeat 2013, a number of trends – some present since last year, some new – are going to influence the market.  First we’ll give you a quick look at the trends that are going to influence the market positively.  Then we’ll tabulate the trends that will affect the market negatively, and summarize with our “best bet” for the market’s direction this year.

Positive Trends:

  • The Rise of the Millennial Generation.  The Urban Land Institute issued a forecast last month drawing attention to the growing economic influence of millennial buyers, particularly in Austin, Seattle, Portland and the Twin Cities.  This generation of young people, born between the 80’s and 2000, is in a home-buying mood, and they’ve set their eyes on metropolitan areas that favor innovation, a healthy start-up culture, and relatively low housing prices.  Hello Portland.  Add millennial buyers to “new household formation,” a trend we brought to your attention last fall, and we predict strong demand for Portland’s real estate market well into the foreseeable future.
  • Getting a mortgage is going to get easier.  Banking standards have been loosening incrementally the past year, making it easier for first-time buyers – and buyers who got stung with bad credit scores during the Recession – to qualify for a loan nowadays.  And a new financing path, dubbed “Shadow Banking” has opened up recently for underqualified bank borrowers.  In ways similar to traditional bank lending, the money sources – the Shadow Banking’s hodge-podge of private funds, wealthy individuals, investor consortiums, and so forth – are not traditional banks and can therefore get around onerous banking regulations.
  • More homes will flow into the market from the Shadow Inventory.  As a corollary to news that inventories of distressed homes are shrinking (see below), this year we’ll read more news that rising home prices will bring more and more home owners out from under the shadow of overburdening debt and back into the market.  At the bottom of the recession there were 12 – 15 million homeowners underwater; now, that figure has been sliced nearly in half.
  • New housing starts are not keeping up with demand.    Reporting in RISMedia news, Lawrence Yun, chief economist of the National Association of Realtors, notes that while we’ve seen a 30% increase in new housing starts this past year, the pace is still insufficient. Yun reports for all of 2013 housing starts look to finish at 930,000 units.  Existing home inventory is at a 13-year low while newly constructed home inventory is at a 50-year low. And the long-term, 50-year annual average is 1.5 million housing starts each year.  It will take years for the new construction industry to keep up with demands from a growing American population.  Demand for new housing is going to outstrip supply for several more years.

Negative Trends (that will inhibit home sales and price appreciation):

  • Mortgage Rates will continue to rise.  Many mortgage watchers predict rates will hit 5% by the end of 2014 – well up from the 3.25% bottom of the market last winter, but still well within normal levels. New Fed Reserve chief Janet Yellen is expected to continue Ben Bernanke’s policy of keeping mortgage rates low by buying blocks of mortgage-backed securities, but the Fed began to taper back bond-buying in the fall and all signs point to a continuation of this policy.  (See our October 2013 “Notes. . . .” for a discussion of the Fed’s move.)
  • Job growth is tightly linked to housing growth.  Really, this is news?  Not really, but job creation and job growth are going to be critical elements in the market again this year.  (Tidbit: job growth will have more effect on the lower ranks of the housing market; growth in the $750,000 to $1,000,000 housing market last year was attributed more to a healthy stock market than our local jobs economy.
  • Multi-family housing development will wane.  The 2013 apartment building boom may have peaked, and in some areas (Southeast Portland anyone?) there’s concern that there’ll be a bust.  In any regard, greater apartment availability may take some buying pressure off the market as units start to come on line as early as the second quarter of the year.
  • Inventories of distressed properties will continue to shrink.  The RMLS of Oregon reported February 10 that comparing 2012 to 2013, distressed sales as a percentage of closed sales decreased from 28.2% to 13.2%.  Bank owned/REO properties comprised 3.3% of new listings and 5.2% of sales in 2013, decreasing from 10.4% and 15.9% respectively in 2012.  A reduction in distressed properties is a welcome sign of a sustainable recovery, but diminished number of distressed properties will limit opportunities for first-time buyers and investors and put more pressure on our entry-category housing stock.

What’s in store for 2014?  Let’s look back in September to February and how the interplay of all these trends has built the 2014 market.  From our perspective we believe that strong buyer demand, weak inventories and relaxed lending standards is going to outweigh the threat of higher mortgage rates and weak job growth.  We’ll report!

With one foot on the gas and the other on the brake, housing sales are slowing, and maybe that’s a good thing.

The 2013 Portland housing market has given us the most spectacular ride in nearly a decade.  We’ve seen double-digit gains across the whole spectrum, and while we’re still enjoying nice price appreciation and steady sales, there’s relief in the voices and words of experts who have become worried that unabated growth could cause another bubble to start forming under the market.   Now, moving into the fall, we see persistent demand for low inventories (the gas) being dampened by a moderate rise in interest rates (the brake).  The rise in interest rates, coupled with what a Realtor-friend called “buyer fatigue” has helped slow the pace.  The effect has been a modest decline in sales prices over the past two months – we hit the 2013 market high in July – and a very modest increase in housing inventory.    Mind you, rates are not high: we closed last week with the benchmark 30-year rate stuck between 4.125 and 4.25 percent, a figure that’s only a point higher than last winter’s record lows.  It’s just that, well, an uptick in the rate has helped moderate the market’s meteoric rise.

Where will interest rates go?  At the moment low interest rates are the beneficiary of the Fed’s quantitate easing program, which is in turn coupled to the economic recovery.  While debate rages in Washington and on Wall Street, it appears to your correspondents that quantative easing will remain in place until the Fed sees signs the protracted recovery is (finally) fully underway.  In our view, interest rates will remain attractive as long as unemployment levels remain relatively high, wages show few signs of growth, and consumers remain wary about over-extending themselves.

Two emerging trends will affect the real estate picture in 2014.  The first, a happy trend, is coupled to economic recovery: “new household formation.”  Over the five-year period during and after the 2007–09 recession, the number of households established in America plummeted by about 800,000 a year from the annual average of 1.35 million household formations from 2000 to 2006, said Andrew Paciorek, an economist at the Federal Reserve Board of Governors.   When a person establishes a residence, whether it’s an apartment or a house or another dwelling, that person is forming a household. Mainly because of high unemployment and a weak labor market that held down income, the rate of household formation collapsed nearly 60 percent during the recession and subsequent recovery.   Unemployed college graduates and families who lost their homes to foreclosure moved back in with their parents or siblings or formed co-op living arrangements with other folks forced out of the housing market.  Along with population growth, a healthier employment situation should push household formations up to about 1.5 to 1.6 million a year over the next several years, according to Paciorek’s forecast model. The numbers of formations could exceed the pre-recession trend because of pent-up demand for households from those who did not set up homes during the recessionary dip.   The impact of growing numbers of new households will put pressure on inventories, which will further stimulate price growth.

Strong demand from investors and builders in the first time home buyer market is a second, more troubling trend.  Institutional investors –defined as investors who buy more than 10 properties a year – have been buying up properties for the past two years at an impressive and growing rate.  According to RealtyTrac, which has been following the trend since 2011, intuitional investors accounted for a record-high 14 percent of all sales nationwide in September.  Lured by the promise of strong rents they’ve been out-competing first-time buyers and after minor repair are renting them, or fixing them up nicely and re-selling (flipping) them for profit.

And you’ve probably seen the new housing boom in your own neighborhood: from north Portland all the way into Lake Oswego and as far as you can see to the east and the west, builders are putting in new homes on the site of former, smaller homes and vacant lots.  With the surge in prices, and unmet demand, builders have been in direct completion with buyers all year, and most of them, like the institutional investors, are armed with cash.  The first-time-buyer housing stock has been affected to the greatest degree: builders and developers see as much potential in the smallest / least-maintained house on the street as first-time buyers, but the potential they see is conversion: turning the house into a rental, or flipping it, or tearing it down and replacing it with one or two or even three expensive new homes.  The investor / builder trend will persist through 2014 and well beyond, and while its effect on the first-time buyer market may be troublesome, we need to keep in mind that new home starts and adequate housing are important building blocks in the overall economic recovery.

The gas, the brake, and the road ahead.  Our housing hot rod works like this: it has just one pedal operating both the gas and the brake.  The harder we shove on the gas, the more we bear on the brake.  Low inventories are the gas for the housing market, and high interest rates are the brake.   New household formation and builder / investor demand – signs of economic recovery – add octane to the gas, so go ahead and let’s put the pedal to the metal.  Whoops!  Signs of economic recovery will cause the fed to pull back on quantative easing and cause interest rates to rise.  Rising interest rates will put the brakes on buyer demand and slow runaway growth, hopefully without putting our car in the ditch.  The desirable outcome of this cycle of demand – rate hike – easing – growth – demand – rate hike – easing – growth will be a gradual increase in home prices and inventories over the course of the next two or three or four years until we have full economic – and housing – recovery.

Will Rising Interest Rates Bring the Curtain Down on the Housing Recovery?

Home mortgage interest rates hit a two-year high last week, soaring from 3.93% during the week of June 17 to 4.46% last week – the biggest one-week jump in rates in 26 years.  And the rise in rates since the winter lows of 3.25% – 3.375% has had a striking effect on monthly mortgage payments: a $250,000 mortgage at 3.37% back in April would have had a payment of just $1,102/month.  The same $250,000 mortgage at 4.46% would be $1,256/month, a $154 difference.  And now, after months of exuberance, Realtors, mortgage brokers, market analysts, and housing economists are debating the question whether the rate rise is going to weaken the housing recovery, or kill it outright.

Here’s the back story, in brief.  Interest rates took a hit – and the stock market did too – when Fed Reserve Chairman Ben Bernanke said that the Fed, in light of continuing signs of the economic recovery, may begin scaling back on its bond-buying stimulus program later this year.  Mortgage rates trend along the same track as the yield on the 10-year Treasury bond, so a cut in the Fed’s buy-back will cause the yield on bonds – and mortgage interest rates – to rise.  If the Fed cuts buying, interest rates will rise.  And the consensus among bond dealers and Wall Street is that’s what the Fed’s going to do.

Here’s a look at the housing market, in brief.   Since last fall buyers seeking to take advantage of low rates have been competing among themselves for a very tight inventory of listings. Prices have been driven up by the competitive pressure and fueling the strongest housing market since 2006.  House prices in 20 U.S. cities rose 12 percent in April, the biggest year-over-year gain since March 2006, according to S&P/Case-Shiller data released this past week.  In the Portland area, Case-Schiller reported prices rose 2.1 percent in April and 12.9 percent compared with a year ago.  That trend has persisted through May and into June.  With news of the Feds’ proposal a number of market watchers switched last week from a sunny sanguine view of the housing recovery to grim predictions of the demise of the market and the end of the housing recovery.

While prospects for any drop in interest rates are dimming, there are a number of factors which will help moderate the increasing cost of buying a home, and sustain the market recovery.

Buyers have faced rising interest rates in the past and they – and the market – have survived.  From the financing view, two important trends are developing which will help support buyers’ buying power, and moderate the effect of rising interest rates:

  • Adjustable rate mortgages, long out of favor, will bounce back and give buyers a low-cost alternative to the higher rates that fixed rates impose on them.
  • Bank credit standards have been loosening for more than two years, allowing more and more buyers sidelined by low credit scores, limited income, and even bankruptcy to have a chance to qualify for a mortgage now and come into the market.

Rising inventories of homes will partially dilute buyer demand. While low interest rates have been partially responsible for the price climb, low inventories have been the rates’ accomplice.  But there are trends developing that suggest inventories will begin to accumulate in the coming months, and with that accumulation buyer demand – and prices – may move to sustainable growth levels.

  • Bank foreclosures came to a near standstill this year while the State Supreme Court debated whether the big banks’ uniform foreclosure practices were legal.  In Oregon the Mortgage Electronic Registration System (MERS) litigation was partially settled in June, and in favor of the big lenders.  The rulings will open the way for banks to resume their so-called “non-judicial” foreclosures and the effect will be an increasing number of bank-owned properties coming to the market.
  • Rising housing prices have helped home-owners who’ve been underwater for years reach the point they can finally sell.  These home owners, members of the “Shadow Inventory” that we’ve written about in the past, are ready, willing, and finally, able to sell.  There is a 5-year backlog of homeowners who have been waiting for the opportunity to sell, and as the weeks and months pass we’ll see more of their homes come into the inventory.
  • The once-moribund home-building industry has taken off for the first time since 2006 – 2007.  Look in practically any neighborhood in Portland to see new homes coming out of the ground. And while these homes typically have higher price points than re-sale homes – people will pay a premium for “new” – the overall effect of more new homes will dilute inventories.

Earlier this year we wrote that the market’s course in 2013 would be set by interest rates and inventories.  We think that a rise in interest rates will not suppress buyers’ appetites for buying a home.  For one, interest rates, we remind ourselves, are still so very very low.  And for another, as we remark here, looser credit standards and adjustable rate alternatives will help maintain buyers’ ability to buy into the market.

It’s our opinion that the markets’ direction through the end of the year will be governed by inventories, and not interest rates.  While we’ve pointed to evidence that inventories will begin to rise from their recent near-historic lows, we believe that the rise will not satisfy buyer demand for many months ahead of us.  We’re not concerned that rising interest rates will “kill” the market.  In fact we welcome both emerging moderating trends – rising interest rates, increasing inventories – in the hope they’ll bring the market back into a sustainable balance between buyers and sellers in the coming months.  Just as much as we welcome sunny summer weather, we – and the housing market – also need a little respite from the heat.