I’m sure you’ve heard about what experts are calling a housing market “correction.” This post offers some explanation, reassurance and advice. In fact, it’s organized in sections under those 3 headings. Jump down with your cursor if you want to go straight to “Advice.”
The market shift has been triggered by a spike in mortgage interest rates to almost 6%, about double the rate in January. Combined with steeply rising home prices in the pandemic years, rising rates have dampened demand. Courtesy of Altos Research, here are key signs of the shift in the Portland Metro market over the past 3 months:
- Speed of sales has slowed, with median days on market doubling from 14 to 28.
- Listings seeing price reductions have almost doubled from 23 to 44%.
- A gauge of the balance between supply and demand, the Market Action Index (“MAI”) has dropped by almost one-third from 93 to 64, with 30 and below defined as a buyer’s market.
The Regional Multiple Listing Service (RMLS) reported a doubling of inventory from 0.7 months in March to 1.4 months in June, a level not seen for 2 years. RMLS also reported slight declines in median (-0.9%) and average (-2.5%) sale price from May to June.
Mind you, it’s still a strong seller’s market in the Metro area, since a balanced market is defined as 4-6 months of inventory and our current MAI is well above 30. Furthermore, slowdowns in the speed of sales and appreciation are healthy trends. When sales are lightning quick, it’s harder for buyers to make thoughtful, rational decisions. And when home prices far surpass income gains – as they have in Portland and across the country – we approach breaking points for affordability and sustainability.
That said, a more serious concern is the risk of a recession over the next year or two. Most experts predict a decline in home values if an economic downturn comes to pass. Thankfully, Portland faces less risk on that count than others metro markets. On average, says Moody Analytics, American homes are overvalued by 23%. Portland is just one point above the average at 24%. Boise takes the top spot in the country at 72%, with Austin at 66%, Phoenix at 54% and Denver at 43%. “Bubbly” markets like these will likely see the biggest price drops if the economy goes into a recession.
The advice in this section is organized by categories of real estate plans.
- If you’re in your forever home or won’t move for several years, you can ride out a possible downturn and don’t have to worry about a temporary decline in your home’s value or selling in a real estate cycle trough. Like the stock market, housing has always bounced back and averaged over 4% in annual appreciation historically.
- If you’re selling your home over the coming months, expect to see more than one offer and go over list price only if it’s in excellent condition with standout renovations and staging. You’ll likely sell at list price if your home is in fair to good condition and priced right. If your home is overpriced and in fair to good condition, expect to sell after a price cut and at or above the average for days on market in your area.
- If you plan to sell in a year or two, it’s worth seriously considering moving up your timeline or else pushing it out some years to avoid selling at or near a market low. This advice goes double if you’re a senior looking to maximize your equity cash out for retirement and/or exit the detached housing market for good.
- If you plan to buy in the near term, you’ll likely see much less competition, have more time to decide to make an offer and may pay under initial asking price if the home has been on the market for more than a couple of weeks. Though sale prices may come down after you buy, the ongoing climb in inflation suggests that we may also see a continuing rise in interest and mortgage rates, which have a greater impact on your monthly payment than sale price.
On a final note, no one has a crystal ball – not the experts and certainly not me. But I’ll continue to track the market closely and post updates. Drop me a line if you have any questions or concerns.