Homing In On Portland

Helping you home in on your best life in Portland

Understanding Portland’s “hot” housing market – Part 1

(Ian Sane)
Portland barista (Ian Sane)

Portland’s “hot” housing market has been much in the local news over the past few weeks – from KATU’s Your Voice Your Vote program on May 10th, to Oregon Public Radio, OregonLive, Portland Monthly, Portland Tribune, Investigate West and more. Key facts, trends and perspectives in the coverage are distilled in this two-part posting focusing on 4 questions:

  1. What is a hot market?
  2. Why is the Portland housing market hot?
  3. What are the benefits, costs and risks of the market – and for whom?
  4. What steps are proposed to offset costs and minimize risks?

1. What is a hot market?

Portland’s inventory of homes reached a 10-year low in March according to the Regional Multiple Listing Service. At the sales rate current then, it would have taken just 1.9 months to sell all listed properties, well under half the national average for inventory. In April inventory dropped to 1.8 months.

Competition among buyers for the limited supply of homes has led to multiple offers, quick sales, spikes in the volume of pending and closed sales, and price increases – with the sales price sometimes well above the asking or list price. As of last month, average and median sales prices had increased by more than 22 and 23 percent respectively since 2012.

The trend of low inventory is not new. Inventory has stayed below the threshold for a balanced market (6 months) for over 3 years. But the trend has intensified, as shown in the table. The market is now tilted heavily in favor of sellers. In other words, it’s hot, hot, hot.

Portland Metro Inventory (in months)
2012 2013 2014 2015
Jan 7 4.7 4.1 3.4
Feb 6.5 4.5 3.9 3.0
March 5 3.2 3.1 1.9
April 4.7 3.1 2.8 1.8

2. Why is the Portland housing market hot?

In this hot seller’s market, the demand for homes far exceeds the supply. The table below fleshes out key factors that have created the imbalance.

Factors increasing demand Factors limiting supply
  • Portland is experiencing economic and population growth, in part as a result of in-migration from other states.
  • There is still pent-up demand created by the recession, when many people lacked the confidence or financing to buy a home.
  • Interest rates continue at historic lows and though credit remains tight, it has eased.
  • Owning a home is about 30 percent cheaper on average than renting a home in Portland.
  • As the housing recovery continues and foreclosure sales have dried up, investors have flooded Portland’s conventional market. Cash sales accounted for one-third of all single family home sales last year. In addition to flippers, remodelers and developers, new private equity firms or institutional investors have bid up housing prices. So have a growing number of ordinary homebuyers, who try to compete in the marketplace by paying cash or overpaying.
  • Owners of existing homes are not selling because they worry that they can’t find a new home, they don’t have enough equity in their current homes to afford a new one, or they are waiting for home prices to reach or surpass pre-crisis levels.
  • Construction of new homes has not kept pace with Portland’s population growth due in part to the lingering effects of the recession. Annual production of new housing has not yet regained highs seen before the recession.
  • Additions to the city’s stock of housing have lagged behind population growth for another reason. Local policy makers have flinched in the pursuit of housing and population density under pressure from

– market forces,

– developers seeking buildable land, and

– residents of close-in, established neighborhoods opposed to infill, taller buildings and zoning changes.

New development has been pushed to the suburbs and to the fringes of an ever-expanding Urban Growth Boundary. The result? Portland averages just 6-10 housing units per acre. And it ranks 8th among major West Coast cities in population density – well behind sprawling Los Angeles. In fact, Portland has fewer people per square mile than suburban Aloha, Cornelius, Happy Valley, Beaverton, Gresham, Tigard and Sherwood.

Click here to read Part 2.