Predicting the Next 12 Months in Real Estate
by Lee Davies
A new President, rising interest rates, 10% annual appreciation, limited new construction, and record low inventory levels in the Portland market all lead to this conclusion; this is uncharted territory.
There is only one thing everyone can agree upon when it comes to President Trump – no one knows what he is going to do next. So, how his future policy will impact our housing economy is truly an unknown.
Interest rates have been predicted to rise for years. After 4 straight years of interest rates at or below 4%, it has been well publicized that rates will now rise. This will likely slow annual appreciation on a nationwide basis, but with Portland’s record low inventory and growing diverse economy, it will be interesting to see how much homes will appreciate in 2017.
Portland has essentially been the number one market for appreciation in the entire country for 3 years. While this has been great for homeowners who have “cashed in”, in almost all cases, markets that rise the fastest, are typically the markets that make the strongest corrections. Ideally, rates will somewhat slow down appreciation, and drive more sellers to take advantage of what might be a soft peak in the marketplace. Additional fluidity in the market will provide for softer market changes rather than an abrupt change such as we had in 2008 .
The new construction market is limited. Limited in builders, lots, product selection, luxury homes, as well as homes on 7,000 square foot average sized lots. National builders now dominate our marketplace with cookie-cutter – production housing, on lots that average 4,000 square feet. For the luxury home buyer, the only homes that exist are created by smaller custom builders and are typically “one off” homes on larger “spot lots” in established communities. This lack of product, or product with private yards, is leading many buyers to purchase older homes and remodel.
The number one factor to suggest that the Portland market will continue its climb is the lack of inventory and how it compares historically. As of January 2017, our inventory was at a record low of 1.7 months of supply before we would run out based on the current rate of homes selling. While one may be concerned that we could be at an end of another boom, comparatively we had 3.3 months of supply in 2005 and 2006. In 2007, inventory levels were at 6.2 months, and in 2008 it was 12.8 months. So, all indicators are suggesting, we are at least a couple years away from a market shift.
Ideally, when that shift comes, it will come as a soft adjustment as there are new factors that will likely keep the market more stable this time around. First, our economy used to be all timber, then timber and tech, and now it is far more stable with the addition of apparel, footwear, and creative industries. Second, when the market fell flat in 2008, there was an abundant supply of new construction, as builders and lenders were “all in” on trying to hit a home run. Finally, lending guidelines have changed drastically. Buyers are not purchasing their next home before they sell their first home. Lenders are critically examining the borrower’s ability to re-pay, all of which lends itself to a far more pragmatic and stable economy over the next 12 months.
Regardless of what changes we will see in the coming months, we at ELEETE pride ourselves on staying on top of market changes. From questions about home value to contractor recommendations, your ELEETE broker is always available as a resource to you!