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2007 Portland Real Estate Review

Well, the verdict is out: Portland real estate market is officially a Buyer's Market. Though the first half of 2007 appeared to be strong, the second half clearly showed signs of decline. As of December 2007, the Portland real estate market has 8.5 months of inventory, despite a 7% increase in property value.

So, is the Portland real estate market still viable? As compared to the rest of the country where most are having negative growth, the answer is a definite YES. Why? Our market had always had moderate growth on an even keel, unlike other states where growth were in excess of 30% annually. The growth of the Portland market paces well with the increase in population and jobs. This made appreciation sustainable. As a result, Portland has one of the lowest foreclosure rates in the country in spite of the over heated market in the last few years. We're also one of the three cities where there's still positive growth.

Having said that, the 8.5 month of inventory as of the end of December is not something to sneeze about. Though the number is measured in the low season of real estate, that's significantly higher than 2006 same period. As a rule of thumb, when inventory piles up to exceed 6 months, that usually signifies a downturn.

We'll watch carefully the first quarter of 2008 to see if the actions from the Feds can adequately fence off a major downturn.

2006 Portland Real Estate Review

2006 turned out to be an interesting year. During the first half of the year, every one is so gung ho about real estate. No one even had the slightest thought that our market is going to slow down any time soon. Well, for those insiders like us, we believe that we'll ride high for another 2 years. Then in mid summer, Intel announced their large layoff plan. The media created a series of sensational news how our real estate market is heading towards a crash landing. Overnight, everyone panicked. Properties that usually took a couple of weeks to move were suddenly sitting on the market for months.

Then in December, there's a reversal of fortune. Our housing inventory suddenly got tighter. People are buying again. Prices are rising again. Builders are building again. All is good.

What's going to happen in 2007? Well, I wish I had a crystal ball to tell you the future. I don't. But what I can tell you through deduction is that our real estate market will continue to thrive. We may encounter a speed bump or two in the next 5 to 10 years, but our foundation for a strong market is there. Here's why:

1. The Oregon economy is stronger than ever. Whatever layoff from Intel is only a tiny fraction of our employment. The fundamentals of the city will keep on attracting young talents, companies to be located here. Our economy will continue to thrive.

2. Portland is "still" the most economical city to live in the entire West Coast. With our mild winter and cool summer, the city will continue to attract people from all over the country. That helps us solidify our population growth of 2 million by 2025 (doubling the current population).

3. Unlike places like Nevada, Florida, and Arizona where they're attracting mostly retirees because of the warm weather, Portland is gaining population from all walks of life, from working families to single professionals to retirees.

4. Our real estate growth had never been crazy like other "hot" spots in the US. The highest appreciation that we ever had was 17% in 2005. We haven't priced ourselves out of the market, at least not yet. Growth is a given, despite that it might be more moderate in the next several years.

Time to Buy, Sell or Panick?

Like any other investments, real estate has its own cycle of ups and downs. But unlike any other investments, real estate is "THE ONLY" investment vehicle where financial institutiions are dying to give you the money to invest in or to buy a home. I think we can all imagine the reaction of a banker if you ask him for $1000 to invest in the stock market: "NO! Get outta here! You fool." If you walk in to a bank and ask for a mortgage, the likely response you get is: "How about a cup of coffee?"
We've all heard from the news about the slowing real estate market across the country. Portland, however, remains as one of the very few cities that still has positive gains. According to various sources, including research from the National Association of Reatlors, Portland real estate market will continue to grow. Sure, prices are coming down for some homes in the Portland area, but in my opinion, that was the result of over-aggressive pricing that needs to be corrected. Some sellers or perhaps their Realtors have over-estimated the worth of the homes and resulted in pricing above the market. Unless the home has some very special features that no other homes have, a pricing correction is inevitable.
To gauge the solidity of our real estate market, we need to look for the soundness of our market fundamentals. Do we have real growth in population? What are the prospects of employment? Has our appreciation been reasonable and consistent in the past?
GROWTH IN POPULATON
According to an article in the Oregonian in Spring 2006, our population in Metro Portland wil double to 2 million people by the year 2025. The other half are going to be Californians. Judging from our own business trend and our own neighbors, it's going to be hard to dispute that. The fact is, waves of Californians are coming up to Portland for our lifestyle, our stability, and our real estate.
EMPLOYMENT

Unemployment rate in Oregon hovers around 5%. Jobs in engineering, architecture, nursing, and to a certain extent software have posted strong gains. This reflects the long term strength of our economy.

APPRECIATION

The term "slow down" is relative. What we are calling slow down is being compared with the last two years of highly unusual growth. The Portland real estate market is still stellar by any means. Despite the fact that homes that a little longer to sell, Portland home prices are still increasing at a rate of 15% throughout 2006. Having said that, this rate of growth is unlikely to continue if our housing inventory continues to build up. At some point in 2007, the price correction is inevitable to retain the stability of our real estate market. To get the latest appreciation figures, click here.

Real Estate Videos

A big part of our business is helping our clients relocate to Portland. Quite a number of have absolutely no clue what Portland is like. Like me and my family, we moved to Portland 8 years ago without having any image of what the city is like, except that we "heard" it rains a lot. We sure wished that there was some kind of video image we could access freely. We were even willing to pay for it.

I've been wanting to put up video tours of Portland ever since we started our web presence. But at the time, there just weren't enough people who have DSL or broadband access. When we checked the statistics last year, there was only about 45% of the our visitors accessing our site via some kind of broadband connection. This year, however, that percentage has increased to a staggering 85%. It's just incredible to see how broadband is adopted by so many people over a short one year period. Well...we knew it was time for us to put our video tour concept out on our site at MaxwellSinclair.com. You can now see a series of Portland neighborhood Video created for all.

We hope that the video tours can help anyone moving to Portland. Enjoy!

Cooling Off

We've been getting record heat all across the country in the month of July. The real estate market in Portland, like many other places around the country, is showing some initial signs of a cool off.

According to the June real estate statistics, we're still seeing phenomenal growth (17% average) in terms of sold prices, available inventory is on the rise 3 months in a row. That indicates that our market is beginning to turn in favor of the buyers. Is it a buyer's market yet? Well, not quite but we'll slowly get there.

For homes in the under $500,000 range, they're still moving relatively fast. We're still seeing competing and multiple offers. Those above this mark, things are really taking a slower turn. What used to sell (e.g. in the West Lake neighborhood in Lake Oswego) within 2 weeks last year has been sitting on the market for over 2 months. Partly, that's because sellers are still expecting the same kind of growth rate at 17%. So they inflated the asking price by a large margin. Guess what? Few takers. Interest rates has gone up by a whole percentage point. That means: for every $100,000 we borrow, we have to pay about $100 more a month. So a $500,000 loan is $500 more. That certainly enough to make some people turn to either lower priced housing or a different area altogether if they want to maintain a certain level of life style.

Investors are also taking a much more cautious approach. The days when they could simply close their eyes and throw the dart and they'd make money are gone.

In a way, the market cooling is a healthy sign. Real estate in the last 2 years had been growing at a dangerous rate, making housing unaffordable. Not that I want to see home prices go down. But too much growth at too fast a rate is certainly bad news. You remember the old saying: "the higher you climb, the harder you fall". This certainly could be the case in the market.

State of the Market

Though the statistics continue to suggest that the Portland real estate market is still appreciating at a rate of over 16%, this number could be misleading. We are seeing inventory staying on the market a little longer than last year. This is particularly true for homes of $600,000 and above. For the $200k to $500k segment, homes are still moving steadily.

A 16% is typically indicative of healthy growth. However, we also need to take this number with a grain of salt since the actual market behavior supercedes the appreciation record. That is, home sellers are still pricing their homes high without responding much to the market quite yet. As a result, the successful transactions are still recording a high sales price.

June, July and August will be the three months to watch as we enter the super high season of real estate sales. By end of June, we'll have a better idea of which way the market is going. Stay tune!