By Mick Harris
The residential real estate market across the United States has slowed and the Oregon market is no exception. However, as always—location, location, location—plays a significant factor in determining the impact of a cooling market.
Overall, pending home sales dropped for the fifth consecutive month, down 4.6% from September 2022, with year-over-year pending transactions slipping by 37%, according to a National Association of REALTORS® report. The Northeast U.S. experienced a fall of 29.5% from October 2021, the Midwest U.S. decreased 32.1%, the Southern U.S. fell 38.2% from the prior year—and the Western U.S. fell the most, sinking 46.2% from October 2021.
Will the slowdown continue in 2023?
According to Redfin CEO Glenn Kelman, the answer is yes: “Redfin expects home sales to keep falling through 2023, leaving housing companies to negotiate a ‘jungle’ of uncertainty longer than once anticipated.” To back up those expectations, Redfin laid off 13% of its workforce in early November.
A main trigger is interest rates
“October was a difficult month for home buyers as they faced 20-year-high mortgage rates. The West region, in particular, suffered from the combination of high interest rates and expensive home prices,” according to NAR Chief Economist Lawrence Yun.
Typically, a declining residential housing market has a bright side. In fact, the real estate industry routinely refers to such declines as a “buyers’ market.” Unfortunately, high mortgage interest rates increase the cost of capital, and a decrease in the price of a home does not translate to overall lower costs for mortgage-seeking homeowners.
According to Freddie Mac, on November 10, average 30-year mortgage rates reached 7.08%, but fell somewhat recently, to 6.31% as of December 15. Freddie Mac research found that “[t]he good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand. The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.”
Portland prices have declined rather rapidly
In November 2022 Redfin reported that Portland home prices were down 0.095% compared to last year, selling for a median price of $525,000 and staying on the market for an average of 27 days. However, much of this decline came in just the past few months. In June 2022, Redfin reported Portland home prices were up 7.6% compared to last year, selling for a median price of $570,000, after an average of just six days on the market.
This indicates that the Portland market is shifting rather quickly, but is unlikely to experience a collapse. While Portland is among the top-priced markets in the nation—which doesn’t bode well in a high mortgage-rate environment—it is surrounded by even higher priced metropolitan areas, such as Seattle, San Francisco, and Los Angeles. This makes Portland a relative bargain for buyers who want to live on the West Coast.
Portland also has a restricted supply due to its geography. Extensive mountains and waterways mean new construction is naturally limited. Not to mention, the onerous permitting processes for new construction continues to plague the city. As a result, demand for Portland housing is likely to remain high.
It seems that 2023 will be an interesting year for residential real estate across the nation, although the market in the Portland metropolitan area should remain steadier than in other regions.