Recession? Not in Real Estate…
For those of us who actively bought and sold homes between 2005 and 2012, we know what it was like to “buy high” and “sell low”. Many of us experienced losses on our homes and or our investments in real estate. Those of us who walked down that path are wiser for it and “we know” what is coming next. The old English proverb comes to mind, fool me once, shame on you; fool me twice, shame on me.
None of us today want to repeat our mistakes of the past, or see our children make the same ill-advised decisions that ended up costing us thousands of dollars. With record inflation, rising interest rates, an unstable stock market, and the news headlines all predicting this upcoming or current recession, many real estate buyers are going to “sit and wait.” They believe that the market has peaked, and prices will come down.
But we are not seeing that happen in the market, not today, not in Portland, Oregon. For the past 120 days we have heard the pessimistic rhetoric in the media and even saw a bit of pause for buyers as interest rates doubled. The market was slowing down. No longer were we seeing 10 offers on a property the first weekend it hit the market. Instead, shockingly, it could take an entire two weeks to sell a property for full price with one offer. The reality is this shift, so far, simply looks like the market may be returning to “normal.” Yes, a normal market where the supply and the demand are in balance. It is a market where you need to hire a good Realtor, be a student of your micro-market, and show patience.
Interestingly, buyers have quickly adjusted to the higher interest rates, and we are seeing multiple offers again. Last week, our 18 transactions averaged 3 offers in the first weekend and there are still signs that prices are increasing. Why? The simple reason is there is still little, or no, supply of homes and the demand far exceeds the supply.
It does not appear there will be a recession in real estate this time around, at least not in our town. We just don’t have the supply and there is no relief in sight. Portland is a small city and the migration from California and even Seattle continues as prices here are still lower than our coastal neighbors. Additionally, due to urban growth boundaries and other regulations land prices are high and the approval process, infrastructure, and permitting for new construction can take well over a year. Today, being a home builder is a highly speculative process with more risk than ever. Thus, there are fewer builders with the financial ability to build homes.
Finally, we are hearing that there is an increase in “price reductions,” which is a sign that the market is coming down. But peel back the layers with your agent and take a deep dive into those homes. Typically, what you find is that those properties were just overpriced from the outset. Good and great properties that are accurately priced are still going to see multiple offers.
For those of you who are considering waiting, there is nothing to suggest that real estate will be less expensive in the coming decade. While interest rates are double what they were, they are still historically fantastic. And with record inflation, homes are flat out going to become more expensive over time. Real estate investment has consistently proven to be the best hedge against inflation and if you want to be a future homeowner, you want to be ready to seize the day.