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Feb 01 2023

Portland home prices will keep dropping in 2023 – find out how you can make the most of the market

The housing market correction is much in the news and for good reason. In addition to sharp declines in the volume and speed of sales, we’ve also seen prices come down – for only the 3rd time in US history. But take heart. The pullback is expected to be mild compared to the Great Recession, when Portland home prices dropped 29% from peak to trough. Furthermore, every market offers chances to get ahead. Summed up in the graphic, this blog post reviews expert opinion to forecast key trends (Sections 1-3) and opportunities (Sections 4-6) in the Metro real estate market this year. Use the jump links below to skip to sections of most interest and relevance.

  1. A recession is more likely than not
  2. Prices will continue to decline
  3. Mortgage rates will also trend downward, but not to historic pandemic lows
  4. Move-up buyers – sell at a discount, buy at a bigger discount
  5. Cash downsizers – sell with a handsome total equity gain and minimize the cost of your replacement home
  6. First-time buyers – buy on a market downswing
  7. Caveats and call to action

1. A recession is more likely than not

We’ve already seen housing affordability and demand decline sharply, with last spring’s spike in mortgage interest rates coming on top of the pandemic run-up in prices. Now there’s broad consensus among economists that we face a recession in 2023 – though likely a mild one. Since spending and demand decline across the board in a recession, a downturn this year will intensify Portland’s housing market correction.

2. Prices will continue to decline

In other words, Metro area prices will keep going down for 2 reasons:

  1. Prices have not yet caught up to declines in affordability and demand to date. For example, just 19% of Metro households were able to afford the monthly payment for a home at the median sale price of $526K as of November.
  2. Housing affordability and demand will take another hit with the predicted recession.

Already down 5%, Portland Metro home prices could drop another 10% for a total decline of 15% from last May’s peak.

3. Mortgage rates will also trend downward, but not to historic pandemic lows

From their high of over 7% in the fall, mortgage rates have already come down almost 1 percentage point. Many experts think they’ll stabilize in the range of 5-6% this year. For example, the Mortgage Bankers Association predicts a 30-year fixed rate of 5.6% by Q2.

Much as would-be buyers may hope for a return to the 3% range, experts believe that’s unlikely any time soon. We saw historic lows in the past few years as an indirect result of the Federal Reserve Board’s steps to support the economy in a unique crisis, the Covid-19 pandemic.

Now inflation is the challenge. With aggressive interest rate hikes by the Federal Reserve Board across 2022, inflation has come down from almost 7% in June to 5% in December. Yet the Fed announced a 0.25 point hike today and reaffirmed its commitment to two more in March and May. Many economists and business leaders think the Fed will go too far, not only bringing down inflation but also triggering a recession. These trends and expectations will put downward pressure on mortgage rates.

The bottom line – if rates come down to the mid-5’s by mid-year, they’ll a) reach the same level seen at the Portland market peak a year earlier, when buyers competed fiercely to pay top dollar for a home; and b) fall below the 50- and 30-year historical averages of 7.81% and 5.97% respectively.

4. Move-up buyers – sell at a discount and buy at a bigger discount

Assuming housing prices and mortgage rates trend downward as forecast in Sections 2 and 3, 2023 will be a good year for move-up buyers. That’s because larger and more expensive replacement homes will offer bigger savings than price hits taken on current homes with no change in rates from the market peak. The table presents calculations across 5 hypothetical price points, with the 1st representing a 2BR-2BA condo and the 2nd a detached starter home. Importantly, the figures in rows 4-6 are maximums in a range, as explained in Section 7.

Price points12345
New home value at peak$300K$400K$550K$750K$1M
New home price at trough$255K$340K$467.5K$637.5K$850K
Savings on new home$45K$60K$82.5K$112.5K$150K
Price hit on current home*N/A$45K$60K/45K$82.5K/60K$112.5K/82.5K
Net savings*N/A$15K$22.5K/37.5K$40K/52.5K$37.5K/67.5K

*In the 4th and 5th rows, values shown before slash marks (/) are for moving up 1 price point; and those shown after slash marks are for moving up 2 price points.

In real life, different price points or market segments don’t move in lockstep over time. Luxury homes, for example, have been hardest hit in the market correction. So selling at price point 3 or 4 and buying at price point 5 will likely yield the highest savings in both percentage and dollar terms. On the other hand, some price points or segments may see declines less than the 15% predicted overall.

Timing: Act mid- to late-year to lock in price declines and on-par-with-peak and lower-than-historical average interest rates. Normally, home prices and mortgage rates move inversely, so downward trends in both can’t last.

Tip 1: Keep an eye on your job security, a potential dealbreaker. Unemployment is expected to rise to the mid-4’s or about 1 percentage point in a recession.

Tip 2: In Portland’s correcting market, more sellers are offering temporary rate buy downs. This may be something to ask for in negotiations to achieve further savings on a bigger and better home. However, you should be able to manage your monthly payment comfortably once the temporary buy down ends – typically after 2 years.

Tip 3: Should we see significantly better interest rates in future (with a decline of at least 1 percentage point the rule-of-thumb threshold), those making a move in 2023 can take advantage of them if they refinance. However, since refinancing costs about 3.5% of the loan amount, homeowners should plan to stay put for several years to come out ahead.

5. Cash downsizers – sell with a handsome total equity gain and minimize the cost of your replacement home

The coming year should also be good to those moving from a long-time family home to one that is smaller, easier to maintain and ties up less capital. Granted, the hit a seller takes on their current home will be larger than the savings on a smaller and less expensive one. (Read the table in Section 4 backwards to see what I mean.) However, here are 3 offsetting factors to keep in mind:

  • Paying cash for a replacement home will offer big savings in interest payments.
  • Downsizers moving to lower cost markets (the Sun Belt, for example) or to condos and townhouses (which typically depreciate faster than detached homes in a downturn) will maximize savings on their replacement homes.
  • Appreciation in the pandemic boom still far outweighs declines in value since the peak last spring, with Portland homes seeing an average net gain of almost 31% between March 2020 and last November – 6 months into the correction. Furthermore, the local market had a very good run in the years after the Great Recession and before the pandemic.

Of course, every homeowner dreams of selling at the top of the market – just as every golfer dreams of a hole in one. The fact remains that Portlanders with long tenures in their homes have done very well where growing equity and personal wealth is concerned.

Timing: To minimize further erosion of equity gains in the correction, it’s best to sell sooner rather than later.

Tip: Though current mortgage rates won’t eat into a cash downsizer’s equity on the buy side, capital gains taxes may on the sell side. Ask me for a basic explanation of how to estimate and minimize the tax bill on the sale of your longtime home. Of course, you should always seek tax advice from an expert.

6. First-timers – buy on a market downswing

If predicted trends come to pass, the market will be much friendlier to first-time buyers in 2023 than in 2022. Assuming rates in the mid-5’s, they’ll pay no more in interest than what we saw at the peak of the market but with prices down as much as 15%. That’s a significant improvement in purchasing power in the space of 18 months. For dollar figures, look no further than the 3rd column (since first-time buyers can rarely afford more than price point 3) and the 3rd row (since they don’t have a current home to sell) of the table in Section 4.

Timing: Act late in 2023 or early in 2024. Since conditions are more challenging for first-time than move-up buyers, it makes sense to wait out the market longer in the hope of further price and rate declines. Plus, first-timers can continue to grow their down payments and credit scores.

Tips 1-3 in Section 4 also apply to first-time buyers.

7. Caveats and call to action

               The chances of selling at a peak or buying at a trough are slim and come down to luck. That’s because we can only identify highs and lows with some months’ hindsight. Still, a skilled realtor can track current trends against historical patterns and help you take advantage of and offset market trends. To put it another way, the figures in rows 4-6 of the table in Section 4 are maximums that only a lucky few can expect to realize. I’ll monitor prices and rates closely throughout the year, letting my clients know if and when the time is ripe for a move. Please be in touch if I can help you! catherinequoyeser@kw.com/503 705 5725

Written by Catherine Quoyeser · Categorized: buyers, downsizing, home values and prices, sellers · Tagged: buyers, home values and prices

Jul 23 2022

What the housing market correction means to you

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.”

Explanation

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.

Reassurance

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.

Advice

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.

Written by Catherine Quoyeser · Categorized: buyers, downsizing, home values and prices, sellers · Tagged: buyers, downsizing, home values and prices, sellers

Apr 08 2021

What’s the 1 step you can take to sell your home faster? Watch Episode 10 of Homing in on Portland and find out!

Spoiler: Price it right! Click the link below to watch the video. To cherry pick content, use this timed outline:
0:00 – 0:24​ Intro
0:25​ – 0:38​ The goal – right pricing
0:39​ – 1:21​ How a home’s value is estimated
1:22​ – 2:29​ Marking to market in PDX’s current white-hot market
2:30​ – 3:56​ Marking to market by segments – $1M homes in 97229 are hot, hot, hot
3:57​ – 4:40​ Overpricing – a mistake in any market
4:41​ – 5:07​ Underpricing slightly can attract multiple offers
5:08​ – 5:32​ Buyers need home value estimates too
5:33​ – 5:39​ Closing

Written by Catherine Quoyeser · Categorized: home values and prices, sellers · Tagged: home values and prices, sellers

Sep 14 2018

Homing in on Portland’s neighborhood housing markets – They’re not easy to track but here’s your guide to Cedar Hills and a leg up on the rest of the west side

Portland Business Journal tracks the Metro area’s hottest zip codes quarterly

The Portland Business Journal has good news for lots of homeowners on Portland’s west side. The zip code 97229 (Forest Heights, Bethany, Cedar Mill) continues to be one of the Metro area’s hottest neighborhoods and 97225 (Cedar Hills & Raleigh Hills) broke into the ranks of the top 10 in the 1st quarter of this year.

I feel fortunate to have had a front row seat on the trends. I recently listed homes in the areas (two in Cedar Hills and one in Cedar Mill) and repped buyer clients in the sale of a 4th in Cedar Mill. On average, the three listings sold in 2.3 days at 99.5 percent of asking price.

One of my Cedar Hills listings – a detached home at 11445 SW Lynnvale Dr

I aim to be a realtor of choice for area residents. So last month I created a quarterly newsletter on real estate activity in Cedar Hills. Market data is readily available for cities, towns and zip codes. But that’s not the case for neighborhoods, though they’re probably a more meaningful affiliation for most people.

So my work was cut out for me. I did my best to copy by hand the intricate boundaries of Cedar Hills from the map published by its homeowners association in a small search window on the Regional Multiple Listing Service (RMLS) website. I decided to include two small islands surrounded by the neighborhood (Forest Hills Village and Lynnridge) and two areas on its fringes (Belvidere and 2015-13 Partition Plat). I delivered or mailed Homing in on Cedar Hills to about 300 homeowners and linked it to a Facebook ad for digital access.

My Facebook ad for the newsletter – click here to get your free copy

While working on the newsletter, I consulted Q2 neighborhood rankings for context. I wondered if 97225 had kept its spot among the top 10. But it proved impossible to track that trend because at the time Portland Business Journal published the so-called “Heat Index” – overall rankings based on equal weighting of volume of sales, speed of sales, and average sale price – only in the 1st and 3rd quarters of the year.

I reached out to Brandon Sawyer, the journalist on the hottest neighborhoods beat, to ask if he could share the info and to suggest that the Heat Index be published every quarter. He not only obliged on both counts, but wrote me into his August 21 article.

It turns out 97229 and 97225 slipped in the overall rankings, taking 6th and 29th place in Q2. Still, not bad. And 97225 took 7th for average sale price – 2 places ahead of 97229.

If I can answer any questions about your neighborhood market or you’d like to “subscribe” to Homing in on Cedar Hills, dear readers, drop me a line (catherinequoyeser@kw.com or 503-705-5725). The next issue comes out in October and I’m thinking of launching a counterpart for Cedar Mill.

My wall house listing at 11470 SW Lynnvale Dr
My Cedar Mill listing at 9883 NW Nottage Dr

Written by Catherine Quoyeser · Categorized: home values and prices, neighborhoods, sellers · Tagged: Cedar Hills, Cedar Mill, home values and prices, neighborhood markets, Portland neighborhoods, west Portland

Jan 17 2017

Pushing the price envelope in Cedar Hills – does it pay to have the best house in a popular neighborhood?

New luxury home on Butner Rd

The short answer to whether it pays to have the best house in a popular neighborhood? It depends.

The question was prompted by an unusual Cedar Hills listing that hit the market just 11 days ago. Financed and newly built by a small development company in the area, the house has luxury features and finishes and over 3600 square feet, occupies a 0.37-acre lot on Butner Rd a short hop west of Cedar Hills Blvd, and is priced at $1.185 million. Click here for a video tour.

As a “location, location, location,” Cedar Hills has a lot to recommend it. Just southwest of the junction of Hwy 26 and 217, it’s close to downtown Portland and Hillsboro; is served by Beaverton schools and nearby MAX stations; and has good shopping, including New Seasons and an outpost of Powell’s Books.

Neighbors put Foothills Park to good use, even on a snowy Monday afternoon

Beyond these tangible assets, Cedar Hills has soul. Established in 1946, it features a large stock of mid-century ranch homes built around Foothills Park and Commonwealth Lake. Neighbors walk, run and rub shoulders on the lakeside trail. Also a hub, its recreation center offers classes, a pre-school program and fitness facilities. The homeowners association meets monthly and organizes an annual garage sale, clean-up and 4th of July parade.

The red X marks the new build on Butner. The red circle marks the Lynnridge-Mayfield enclave.

So it’s no wonder demand for homes in the area is high. According to Redfin, the average property is just under 2000 square feet, has 3 bedrooms and 2 baths, and sells for $449,000 in just 14 days. The median sale-to-list price is 99.5 percent.

Of course, averages can be misleading – masking trends in different sub-areas and at different price points. Cedar Hills Blvd divides the neighborhood into eastern and western halves that are roughly equal in size but not in property values. Many homes in the higher-priced eastern half range well above the mid-400K average, with those near the crossroads of SW Lynnridge and Mayfield approaching or topping a million. This pricey enclave falls outside the boundaries served by the Cedar Hills homeowners association, but within what are commonly regarded as the boundaries of the area.

The Spring Ln record holder for list and sale price west of Cedar Hills Blvd

The new million-dollar listing on Butner is a first for the lower-priced western half of Cedar Hills. According to records in the Regional Multiple Listing Service, the highest list price ever recorded there was $679K in 2014. Located on Spring Lane just a block from the Butner new build, the record-holding property was built in 1962 in the Northwest Regional style. It has vaulted wood beam ceilings, a stone fireplace in the great room, over 3000 square feet, and a swimming pool and outdoor kitchen on the 0.8-acre lot. The property sold for just $4K under asking price at $675K, also a record high and an appreciation of 87.5 percent since its previous sale in 2003.

In fact, no other home in the western half of Cedar Hills has ever sold above the $500’s. Four other sellers have tried, as far back as 2007 and as recently as last August. As shown in the last column of the table, a remodeled ranch on Faircrest was relisted at $569K last month after 92 days on the market at $600K.

MLS No. 7095238 13089408 15202640 16091321
Street Belvidire Belvidire Belvidire Faircrest
SF 2808 3309 2420 1986
Lot size 0.5 acre 0.5 acre 0.52 acre 0.29 acre
Yr built 1955 1950 1957 1950
Condition Updated Original Remodeled Remodeled
List Price 649,900 640,000 639,000 600,000
Sale Price 520,000 512,000 579,400 Relisted @ 569,000
Market time 82 days 214 days 82 days 92 days @ 600,000
Yr sold 2007 2013 2015 Still active

 

This Faircrest ranch came on the market at $600K in Aug ’16 and was relisted at $569K last month

So what’s the lesson? Does the real estate mantra – “Buy the worst house in the best neighborhood” – apply? Though the housing recovery was still underway in 2014, the sellers of the Spring Ln property fared well with an 11-year return of almost 90 percent. And the pricey Lynnridge-Mayfield enclave has also seen strong appreciation – for homes not bought at the top of the market pre-recession and owned for several years or longer.

But at $327 per square foot, the new build on Butner is priced far above both the sale price record set in 2014 for west Cedar Hills ($221 per square foot), and the average ($244 per square foot) for homes sold since 2014 in the Lynnridge-Mayfield enclave of east Cedar Hills.

Unless there’s some sea change underway in the neighborhood market, it’s hard to imagine that the Butner property, grand though it may be, will sell at list price. It’s on my RMLS watchlist and I’ll report the sale price on my Facebook page once it closes.

And here’s a final word for readers who are not looking to buy or sell a million dollar home – in Cedar Hills or elsewhere. Having mined their vast data holdings, the CEO and Chief Economist of Zillow published this revisionist take on “buy the worst house in the best neighborhood” a couple of years ago.

Here’s what the data says: Buy a decent house in the right neighborhood. What’s the right neighborhood? It’s the most expensive one where you can afford a home that is not in the bottom 10 percent.

 

Written by Catherine Quoyeser · Categorized: home values and prices, neighborhoods · Tagged: home values and prices, neighborhoods

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