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Key Market Drivers for Portland Metro Real Estate

One of the most frequently asked questions our team receives is “how’s the market?”. It’s a simple question to a complex matter. The Portland Metro area is currently seeing an unprecedented seller’s market with record-low inventory, but it’s also arguably never been a better time to buy with historically-low interest rates. So what’s causing these market conditions? It can be boiled down to three main drivers – inventory, interest rates/affordability, and economic factors.

Inventory

Inventory is calculated monthly by taking a count of the number of active listings and pending sales on the last day of the month. In February 2022 inventory was reported at 0.8 months, meaning if no additional homes were to go on the market, based on the average time they’re selling, there are 0.8 months of houses left. A level of 0.8 means we’re in an extreme seller’s market. For perspective, the lowest reported national average inventory level was just over 3 months in 2003. Fast forward to 2009 and inventory levels had risen back to 12 months. 

Taking a look at the graph below you’ll see how inventory has been trending down the past 3 years. The Portland Metro market in particular has a major inventory problem due to our population density and lack of housing and buildable land. 

Interest Rates

If you’re not purchasing a home with cash, chances are you’ll be taking out a home loan from a banking institution which will assign an interest rate (percent interest you’ll be charged to borrow money). Your assigned rate will be based on your loan type (i.e. USDA, FHA, VA) and credit score. Take a look at the chart below and you’ll see the dramatic drop in interest rates over the last 50 years with rates more or less plateauing the past 5 years.

Interest rates are a crucial factor for affordability. Let’s use 2006 data as a comparison to 2021 conditions (see image below). While we’ve seen a 41% increase in average home price, interest rates dropped from 6% to 3%, giving prospective 2021 home buyers a lower monthly mortgage payment. Monthly household income has also increased 55% making mortgage payments only 19% of household income. Don’t let high home prices discourage you, it’s just one value in the equation. What you want to pay attention to is overall affordability.

Economic Factors

The third major market driver is economic factors which are spread out across taxes, inflation, general economic outlook, and consumer preferences and priorities. 

As we mentioned earlier, monthly household income in 2021 was 55% higher than 2006. And with taxes staying somewhat unchanged, this gives home seekers more buying power. When it comes to inflation, we’re currently seeing the standard case of supply and demand at work. Inflation is great for homeowners as their property value tends to increase with inflation. During times of high inflation, prospective buyers will want to seek out long term investments (e.g. living in the home for at least 5 years). 

When it comes to general market outlook, many are trying to be conservative amid uncertain times. Investing in real estate allows you to diversify your portfolio and in many cases affords you additional investment opportunities for the future (e.g. short or long term rental).

The rippling social effects of COVID-19 is the perfect example of consumer preferences and priorities driving the market. During this time, renters and homeowners alike wanted to upsize for more space and others opted out of city life. We all know someone who adopted a “quarantine dog” over the past three years and many of those new pet owners have decided they need a yard for their furry friend, further fueling the suburban sprawl.

The Portland housing market is in uncharted territory and understanding key market drivers is essential for successful navigation. If you’re thinking of buying or selling, make sure you have a trusted partner to help you set and achieve your real estate goals. Want to learn more about how the market is doing? Give us a call! We’d love to chat.

Michael Green & Tori Buck

Green Buck Real Estate