The Hot Portland Market
Portland, OR · Member since 2016 · 20 posts · 7 votes
Will the Hot Portland market create a housing bubble in the future ?
I don't think so, because supply is still low and demand isn't going down much. What event(s) would cause the demand to go down and or the supply to go up? There may be a tipping point where the market normalizes as supply and demand get closer together, but if there's going to be a bubble bust it'll be in the entire country not just Portland, and it'll be cause by a big event.
Oregon was the #3 state in percentage of inbound moves for 2016 (or #2 depending on the survey). There's no sign that will slow significantly any time soon. We all know that the supply is growing very slowly in Portland metro.
I don't think so, because supply is still low and demand isn't going down much. What event(s) would cause the demand to go down and or the supply to go up? There may be a tipping point where the market normalizes as supply and demand get closer together, but if there's going to be a bubble bust it'll be in the entire country not just Portland, and it'll be cause by a big event.
Oregon was the #3 state in percentage of inbound moves for 2016 (or #2 depending on the survey). There's no sign that will slow significantly any time soon. We all know that the supply is growing very slowly in Portland metro.
I believe prices will start to cool. We already saw it late summer last year. The price increase can't sustain the levels it has the last 3 years. I don't believe we're in a bubble though. With the stricter lending requirements that have been in place and the jobs that are being created (about 3000 per month), we still have healthy fundamentals. There is no inventory either. Me personally, I am selling my house in a few months to redeploy the equity.
@Tyson Cross I'm with you on this. At worst a lower rate of price increase. There's still a lot of money coming up from California. My company has staff up and down the west coast, and the workers are relocating to the NW. Nobody is headed to California.
Like you, will sell before I lose my purchasing power. Then look to use a bit of the equity for DP on an REI where the money will go further.
I think Steve and Chris are correct, there's just so much demand coming up from California and there's not much room to grow, particularly given there's nowhere to add or expand roads downtown. Portland might be effected by a national downturn, but as far as the local situation goes, I think prices will continue to rise.
when things are good they will be bad soon.. When things are bad they will be good soon..
My prediction is it will go up until 2022 that is when it will dip... Supply and demand starts to cross its self
@Kevin Jorgensen pull national absorption rate for single family.. look at the housing start ie new construction numbers... you will see they are off.. not enough supply... so, the gap is being filled with foreclosures... look at the national foreclosure it is almost all gone.. so you will have a run up in price until starts outpace demand... then once you have a period of more starts to absorption rates then you will have a deep..
it has been the national trend for the last 3 cycles for SFR... you can look it up a couple guy on youtube broke out the charts really simple but it is what the hedge funds been using for a long time.
@Derrick Aragon So here's the only problem I have with that:
Between now and 2022, which I do think is a reasonable date for a pop, the value of the home will raise between 4% to 8% per year. So let's say in total, the value is ~30% higher in 5 years......then we hit a crash, and even presuming we crash down to today's prices, and loose that 30%.....what will the rates be? 5%-6%, the house is more affordable today, with rates at 4%......then, long term hold of 30 years, we would have to see a significant crash along the lines of 40-45% in 2022 to make up for the increased rate.
As of May last year, I believe Paulson was recommended buying due to the low rates, and his forecast of another three to five years of solid house market. And just recently he invested a huge amount into a long term stock play.
Thank you for stretching my thinking on this. I certainly have argued both sides of, buy big home now, as well as the invest in REI now, buy big later arguments.
@Kevin Jorgensen I am not following you 100% but I think I understand what you are saying... I would focus less on the year and more on the housing starts vs home ownership numbers...
yes, if you are actually going to be in the house for the extended amount of time then yes locking in low-interest rates for the long term is a great idea. If you are doing that idea for your own home it is not really an investment... I don't look at your live in home as asset unless it is duplex and you have a way to turn into an asset.. Who knows where it will be in 15 years....
I would ask myself, why do you need a big home??? A 4 bedroom 2.5 bath 2-3k sq ft home will be plenty of room i am assuming and you could invest and possibly 1/3 rd of the mortgage of your new house. you have lived in a small house now..
I don't know your situation you might be stacking cash making a bunch of money and buying big home is your dream...
In the highest point of the last cycle, rates were at 6-7%.... Paulsen, i don't know anything about but I know he has access to a lot more information and opportunities than probably 99.9% of the world... he is not sharing that info with you or I...Greenspan said the housing market is rock solid right before it crashed... everything comes in cycles... when builders can build they will build until they can't...
when it goes down, the bottom will be around the same prices were in 07', and we are at that point now and the housing starts are not enough to fill demand, i think we have a few more years of run up... things will also be affected locally if we still have 10k people moving here year after year they have to live somewhere... who knows intel might not be around in 15 years and drain the local economy...
I think it is cool you are questioning these things... I don't have the answers I am just expressing what I see in the numbers... All i know is I want to be ready for the next downturn to take advantage... Every 6 months or so the banks have been loosening their underwriting. I just did a loan a year ago and they would only take in consideration 75% of rental revenue as a part of my income. one year later same bank same loan they allowed 100% to be considered...
Personally, unless the real estate market nationwide tumbles (which is possible), I don't think Portland will go down much because demand is increasing as people continue to move up to Oregon from California (a trend I see no evidence of slowing down) and there isn't really a way to add infastructure like roads and highways in the city center. The suburbs will grow, but Oregonian cities generally have a densification policy. So I think in all liklihood, if the national economy remains stable, Portland housing will continue to appreciate.
Am I the only one that believes Portland doesn't have a real economy? A port city with no port, a timber town with no timber business. I get that It's cheaper than California', but the economy seems as anemic as ever. Yeah people move here but how many are moving out? How many legitimate business have moved in?
@Account Closed you can look up the answers to your questions last jobs report I read about 8 months ago so it was probably 6 more month in the rear to that was 10% job growth and the bottom $40k and below 3%$40-80k 10% 80k and above.
Google, air b and b, uber, pandora those are some tech that have moved in say in the last 24 months.
@Account Closed
A lot of the people I run into here in Portland seem to have tech jobs that allow them to work remotely. So the fact that there may not be a ton of large employers here doesn't mean that there aren't good jobs available. I think we will begin seeing "remote" style jobs becoming more and more common through a wide variety of career fields.
Here's an example of this - There is a 12 plex down in SE Portland, and 4 out of the 12 units have people working from their apartment full-time for various companies.
Though it might not seem plausible, I think the "creative class" is a large player in the Portland jobs market.
Buildings keep going up catering to "creative companies", and damn if they don't fill up all the offices.
I myself have a desk in a rehabbed building in the bakery blocks, and it's chock full of lots of small companies no-one has ever heard of. In looking for office space I noticed the huge market for shared desk space as well, which is a lot of individuals employed by somebody, if not themselves.
@Chris Parrish agrees freelance is a big component... If you have any of those 12 plexes send them over I am always looking for multi with upside
@Derrick Aragon I appreciate numbers more than anything....Correct, my point essentially being....we have a few more years of appreciation. So as an example, a million dollar house today will appreciate a bit more in those few years.....then the crash hits.....if the rates are at 7%, then in order for me to afford that same house (in terms of monthly payment) the house will need to fall by 20% plus whatever it appreciated in those years.....so a 30% crash? It's only in that scenario that I would break even....so I'd need an even larger crash to have timed the market, so it's a gamble where I'm feeling a bird in the hand is better. Will the crash be big enough, and the rate be low enough in the future such that my buying power in the crash is better than it is today with the low rate, and higher price.
Primary reason for move is I have 3 young kids, house design is only really meant for 2 kids. Place I'm at, I'm not 100% fond of the schools, and I'll likely need a 'live in quarters' for an aging in-law in the not too distant future.
If it was just the wife and I, it would be REI first, time the market for second home second.
@Kevin Jorgensen Could you give me a little more context?
Should you buy in those new housing developments?
What will that do for supply and demand?
Thanks for thinking of asking me.
One of the ways to play on appreciation is get in early on a new development, usually they give a good price to the first in so they can show pre sales or sold to there investors and banks or how ever they are selling. Then they will have different in price structure for the second or third phase. If you can strike your price on the new development and say it takes 1-2 years and say you get in at $600K (just using numbers) by the time you move in and say appreciation on homes are 4-8% as they have been and seem like they will you could have build into 10-15% appreciation when you move in and possibly more when the development is built out. That is one strategy a lot of people use, especially in condo buildings. The risk is if you buy in at $600 but market goes down could be that the property is worth less because the developer needs to sell fast. My guess is they would just stop building and wait as they have a lot capital behind them.
I know 2 different people in 2 different subdivisions do the exact strategy and now they are selling as they have lived in the house for about 3 years and the development is built our and they are selling for 75-100k profit.
The tough part of doing this is qualifying for the financing since you will have to support 2 homes in the eyes of the bank. So, you might have to seat on some cash for longer than you want to but it is a good way to take advantage appreciation.
These large companies that are doing this development are also telling you that they believe the market will be strong in that market for them to build this out. They are not always right.
The supply and demand is local and national. We have population growth hear in Portland metro area, the fed is talking about additional rate hikes but they cant do that unless the economy is doing really good and they want to slow that down. The national supply and demand is indication of what is going to happen. locally the same thing but we have the population pressure. Most of the people are not families but they will at some point. Migration numbers are kind of weak to follow but you can look at moving companies and uhaul rentals. Right now it cost 7 X more to rent a uhaul from San Fran to portland that it does from PDX to san fran. That tells you people are moving hear at a high rate that they are willing to pay for someone to drive the uhaul back to cali. Last statistic I read is we are taking in about 60 people a day to portland.
you then look at your major employers, Amazon is building or it might be done a fulfillment center, Nike has said they want to double in size and have committed to a number of new employees in there tax incentive, intel is up in the air, they are kind of struggling since they missed out on the cell phone manufacturing, I am not sure what the hospital is doing out there. There is public investment into infrastructure up schools ferry and the new middle or high school they are building.
I would go down to the city and find out how many other subdivisions are in there development process, the last time I was in tigard they said like 7 if i remember that right and those some of that was the subdivisions i think you are talking about at the base of bull mountain.
my guess is that they will not be extending the UGB any time soon because that is why all of these new subdivisions are being developed.
I still thing that there is still room to go up, I said in my early post that might be good until 2020-2022, but the rate that people start building and buying can really excel. Depending on the economy and if rates start to clime, that would be an indicate that gov is trying to slow inflation and growth down.
I hope that helped or kind of answered what you were asking.
Thanks @Derrick Aragon I appreciate your breakdown.
I really liked the idea of buying in early on the development, was not a strategy that I was aware of. Carrying two mortgages though would certainly complicate the financing, I agree. I could clearly see utilizing that for condo-rental property, or possibly vacation rental property even.
I had recently discovered the Oregon Economic Analysis office which has some very interesting data.
So I looked at the predicted population growth per year for ages 25-64 for 2018-2026 and compared that with the predicted number of housing starts (~steady 23k per year) and came up with a similar timeline of 2022/23 being where the housing starts catch-up.
They also had an article on the housing inflection point for Oregon, where he argues that prices will soon level off, and won't drop until the next recession due to lower demand.
As far as a national level recession forecast, many economists seem to predict around 25% for this year. But this happens to coincide with research that I've read indicating that historically, in any given year, the odds of a recession are ~25% (usually due to Fed adjustments of the rate - outside of clear over grown bubbles like the dot.com or previous housing bubble)
BiggerPocket just echoed your sentiment on the CA > OR movement, I'd be surprised if that slowed in the short term.
As far as the big companies, overall that appears strong, but as an FYI from the hospitals perspective (for whom I work for) - there are no expansion plans that I'm aware of, and we're a long ways from any job growth due to ACA. Scrambling for efficiency and acquisitions right now, not growth.
All in all, it seems like affordability might stop it's rapid decline and level off a bit, then eventually become better when the next recession hits......so it seems to depend on how far out I believe the recession will be.....the further out it is, the more protected I am from losses if I purchased into the Phase 1 of these large developments near me.
Tough decision, but at least I'm feeling a bit more informed.