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Weeks, Not Months of Inventory | Portland Inventory Report | April 2016

Posted by Nick Krautter on April 20, 2016  /  in The Market  /  No Comments

Weeks, Not Months of Inventory

The seller’s market got even stronger this month with increased activity taking more homes off the market. In most close-in areas inventory is now 2 weeks which is why homes are selling in many cases in just a couple days. The west side is the only area that is balanced in Portland at this time.

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This localized home inventory report helps give context to the metro statistics that often make headlines. Real estate is a local affair and this report shows which parts of town and which types of properties are selling and which ones are sitting. Inventory is figured in months with 6 months being balanced, less than 6 months favoring sellers and more than 6 months favoring buyers. I use active listings and 6 months of sold data from the RMLS to create this report.

Is Portland In A Real Estate Bubble?

Posted by Nick Krautter on April 19, 2016  /  in Uncategorized  /  No Comments

The Four Horsemen of a real estate bubble: Why 2015-2016 is not a bubble market.

I just re-read this post from 2013 and I feel it is appropriate to update it for 2015 as the fundamentals I discuss are virtually the same as they were in 2013 when I first wrote it. In just over four years since the real estate market hit the bottom the bounce back has been dramatic with double digit price appreciation across the board and many areas seeing 50+% jumps. At first, the return to a positive market was a relief from the long grinding crash that lasted for years. Now as we head into the fifth recovery year there is talk of a new bubble. At first look this makes sense; buyers are in bidding wars on homes which are routinely selling over asking price, some at huge margins. Homes sell before the sign even hits the yard and inventory is at lows not seen since the peak of the last boom. In December of 2015 inventory hit an all-time low in the metro area of 1.2 months. Despite the fact that the velocity of the recovery has many people worried, we are not in a new real estate bubble. In a real estate bubble there are four horsemen that tell of a coming crash: Affordability, Rents, Inventory/Vacancy, and Easy Money. To show why there isn’t a bubble about to burst let me illustrate the difference between 2007 and 2015.

Affordability

The cornerstone of the current market strength is affordability. This factor alone shows the remarkable difference between the real estate bubble of 2007 and the current recovery. Affordability is simply a measure of how many households with median income can afford the mortgage on a median home both nationally and in a given city. Affordability came close to historic highs in 2013. In 2015 we’re still more affordable than most West Coast cities. Why is affordability so high? Three things affect affordability: home prices, interest rates, and median income. At the peak of the market in 2007 homes had largely become unaffordable for many families in America. Prices were 20%-30% less in 2013 than in 2007 and interest rates would have to go up 50% to match the interest rates of 2007. In 2015 the average price was about the same as where it was in the peak in 2007. Anecdotally, my first mortgage in 2006 was 7.25% and my current mortgage is at 3.5%. For a 30-year fixed rate loan of $400,000 in 2006 that means you’d be paying $2,728 a month. How big is the effect of lower interest rates on that same loan today? At 3.5% the monthly payment drops to $1,796 a month, a savings of $932 per month. As I write this interest rates are hovering around 3.75% but there is talk that they will lower again this Summer. Another positive aspect of affordability is that the median household income in Portland is finally rising. This rising wage growth helps keep homes affordable even as prices go up.

Affordability:

www.realtor.org/topics/housing-affordability-index/methodology

www.realtor.org/topics/housing-affordability-index/data

Mortgage Rates in July 2006

Mortgage Rates in March 2016

Rents

The increased rents have also dramatically strengthened the investment market which was the first card to fold in the crash. Not only are investors able to get loans at roughly half the monthly cost of the peak of the market, but rents are up significantly. Lower cost, higher income and increasing market values mean there is little chance that your average investor is going to be at risk of foreclosure today. For many people who currently don’t own homes, buying a house actually saves them money instead of paying continuously increasing monthly rent. Rentals cash flow better for investors and renters are motivated to buy due to relatively low ownership costs.

Portland apartment rents in 2008 averaged $0.86 per square foot but by 2012 they were at $1.03 per square foot, an increase of 20%. Luxury rentals and newer buildings have reported rents from $2.25-$2.85 per square foot. In 2015 Portland led the country with the highest increase in average rent at 12% over one year. Older buildings are routinely charging a $1.50 per square foot with newer buildings being in the $3 to $4 a square foot range in some cases.

Rental Rate Comparison from 2013

2015 Apartment Market Forecast

Inventory/Vacancy

At the peak of the market home building was far exceeding actual demand. In cities hit the hardest by the crash they were building two units for every one that was actually needed for the population growth and migration. Vacancy therefore went up to new highs. According to the Census Bureau, housing vacancy hit a high in the West in 2008 when it got to 2.9%. The first quarter of 2013 ended with a vacancy rate of 1.5%, almost half the vacancy we saw at the height of the crash. Even in 2006 it was at an average of 2.1%. The higher vacancy was driven by builders oversupplying the market, and that building frenzy was driven by speculation and easy money. In the apartment market the vacancy rate in Portland dropped in 2015 to an all-time low of 2.9%, despite thousands of new units going on the market and thousands more in the construction pipeline. When you take into account the years of very slow building during the recession, we started to lose inventory that was needed to support the

growth of our market. Even today building is not keeping up with the needed units and due to our restrictive development policies in Oregon and Portland it’s not looking to get any easier to build. In 2015 the inventory of existing homes for sale hit an all-time low of 1.2 months in December and we’re still under 2 months in the metro area. With inventory this low, prices are looking to continue to rise in Portland.

Census Vacancy Info

Easy Money

If you or someone you know has bought or refinanced a home in the last 5 years, you are aware that the process is significantly more cumbersome than in 2004-2006. Gone are the exotic loans and the no income verification loans. In today’s market lenders want to know everything about a borrower’s credit and all of their finances. Gone also are the days of zero down investment loans on properties with no income or not enough income to even cover the mortgage. While the rates are low on today’s loans, buyers need to have real money down and a clear ability to afford their mortgage. These stringent requirements for borrowers ensure that the market growth is sustainable and that homeowners and investors alike can afford to make the payments. In 2006 this wasn’t always the case, and if an investor has no money invested in a property, and the market goes south, there is no motivation to try to make it through the hard times. Simply put, borrowers in 2013 have to actually be qualified and able to afford their loans. Fast-forward to 2015 and loan qualifications are still very strict. You might also be surprised to learn that 30% of the purchases have been all cash in the last few years. If there’s no mortgage, there’s no risk of foreclosure, and that gives a lot of stability to the market.

Summary

The intent of this article is to highlight the major differences between the bubble market of 2006, the recovering market of 2013, and the most recent data from 2015. Today’s market is fundamentally more sustainable across the board. Affordability is very high relative to the rest of the west coast. Rents are up, inventory and vacancy is down and easy money is gone. These four horsemen of a real estate bubble are the factors you need to consider when looking at the health of the real estate market. Right now all the indicators are pointing to a healthy and appreciating market.

What Is The Relationship Between Home Values And Inventory?

Posted by Nick Krautter on April 14, 2016  /  in The Market  /  No Comments

There is a common question among both Realtors and their clients: How exactly does the inventory of homes in our market affect home values? There is in fact a distinct relationship between inventory and home prices, and I have compiled over a decade of data to show you the trends between these important figures.

To start, let’s note that the inventory in the Portland metro market hit a low of 1.6 months in June 2015, with the average home being $370,000. That’s the lowest inventory we’ve seen since Summer of 2005. However, the last peak in pricing happened two years later in 2007 where the average home was at $352,000. By this point inventory reached a near-balanced 5 months as more homes came on the market.

What’s interesting here is not these specific points in time, but what happens in between them. In between 2005 and 2007 as prices increased, so did the inventory. Then in 2008, inventory took a steep climb from 5 months up to 9.5 months, meaning homes were now sitting on the market for what felt like forever. The average price in this market was $348,000, which is only fractionally less than the peak the year before, despite the great climb in number of homes on the market. This shows that there is a notable lag time between changes in inventory and changes in pricing. Now flash forward through 2009, ’10, ’11, to 2012, where the inventory had lowered to 4 months, and the average price was $285,000. That price is almost the same as  in 2005, where the inventory was at an all-time low.

As we continued through 2013 and 2014 prices rose as inventory decreased, bringing us to 1.6 months in 2015. So there is a clear pattern here with supply and demand, and how peaks in pricing follow peaks in inventory with a lag time of about two years. Now that we can see this trend, it is easier to predict what pricing and inventory will look like in 2016 and 2017. I predict that the inventory will increase due to our current high home prices, and as that happens the market will start to balance out making it easier and less competitive for buyers and their agents alike, besides that homes will be less affordable since prices are expected to continue increasing. Once we reach a significant amount of inventory, more than six months, we will likely see prices begin to level off and the current trend will slow down just as it has in the past under similar circumstances.

Portland Apartment Construction Update

Posted by Nick Krautter on April 14, 2016  /  in The Market  /  No Comments

Despite all the new residential units being constructed in Portland, the vacancy rate actually dropped below 3% and rising rents have prolonged the apartment boom with 9,000 units under construction and close to 21,000 more units proposed according to the Barry Apartment Construction Report from Fall 2015.

2015 Barry Apartment Construction Report

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While in the past this would level out rents and move vacancy up a few points the demand is still stronger than the pace of construction. The housing crisis sparked the passing of new rental rules including 90 day notices for no cause evictions and rent

increases beyond the normal cost of living expenses. There are fears among landlords and owners that there will be continued restrictions of how properties and leases are managed in Portland. Apartment cap rates have also dropped and rising rents are increasing apartment prices as well. Market cap rates are now around the 5.5% mark. Institutional investors such as REITs (Real Estate Investment Trusts), insurance companies, and retirement funds are now actively buying in Portland which is promoting the scaling up of buildings from 10-20 units to buildings with 100’s of units.

Huge Jump in Sales | Portland Sales Volume Report | April 2016

Posted by Nick Krautter on April 07, 2016  /  in The Market  /  No Comments

Huge Jump in Sales

866 homes sold in Portland this March, which is 300 more than February. Home sales are on track to match or exceed the all-time highs set in Summer of 2005. The market is still favoring sellers and promises to keep inventory low even before the Summer rush.

Wild cards: As prices rise, more buyers are priced out of the market which could slow the pace of sales. Interest rates have dropped close to all time lows. Out of state investment continues to push prices and rents higher and keep inventory low.

I’m predicting around 900 closed sales in Portland (RMLS areas 141, 142, 143 & 148) in April.

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Zero Inventory in Overlook (Again) | Portland Inventory Report | March 2016

Posted by Nick Krautter on March 16, 2016  /  in The Market  /  No Comments

Zero Inventory in Overlook (Again)

Zero inventory is usually a theoretical idea but for second time the Overlook neighborhood has zero homes available. This small part of Portland in zip code 97227 highlights the difficulty of trying to buy a home in Portland right now. I expect the inventory will go even lower this summer which might give us double digit price appreciation in 2016.

This localized home inventory report helps give context to the metro statistics that often make headlines. Real estate is a local affair and this report shows which parts of town and which types of properties are selling and which ones are sitting. Inventory is figured in months with 6 months being balanced, less than 6 months favoring sellers and more than 6 months favoring buyers. I use active listings and 6 months of sold data from the RMLS to create this report.

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Sales at Seasonal Low | Portland Sales Volume Report | March 2016

Posted by Nick Krautter on March 02, 2016  /  in The Market  /  No Comments

Sales at Seasonal Low

566 homes sold in Portland this February, which is 7 more than January. Home sales are at normal winter levels after a late December rally. Even with lower sales the market is still favoring sellers and promises to keep inventory low even before the Spring and Summer rush.

Wild cards: As prices rise, more buyers are priced out of the market which could slow the pace of sales. Interest rates have dropped close to all time lows. Out of state investment continues to push prices and rents higher and keep inventory low.

I’m predicting around 650 closed sales in Portland (RMLS areas 141, 142, 143 & 148) in March.

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Sales volume is a leading indicator for price. To help predict where the market is going I publish this sales volume trend report. The wisdom is that price follows volume so when you see a market trending higher in sales, prices will soon follow up and when sales volume is low, prices will stay flat or fall.

Portland’s Toxic Air Hot Spots – Nick Krautter Weighs in on Real Estate Impact

Posted by Nick Krautter on February 25, 2016  /  in Misc, Sellpdx News, The Market, Video  /  No Comments

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Earlier this month, extreme levels of arsenic and cadmium were discovered in the air and soil in two Portland areas that have left many residents concerned about long term environmental and health effects.

While the state of Oregon conducts additional testing for pollutants in and around two local glass producers, many are wondering what this means for the local Portland housing market.

KATU News stopped by our new SellPDX office in NE Portland (35 NE Weidler St) to get Nick’s take on how the toxic air controversy will affect the real estate market and whether it will have a major impact on its current upward trajectory.  Take a Look!

Read KATU News Article Here

 

 

Seller Activity Brings Inventory Relief | Portland Inventory Report | February 2016

Posted by Nick Krautter on February 17, 2016  /  in The Market  /  No Comments

Seller Activity Brings Inventory Relief

January brought some inventory relief to the Portland real estate market, as the amount of new listings increased almost 64% over last month. Buyer activity increased 15.9% month over month, continuing to make the close-in market incredibly tight. However stronger seller activity, given the recent uptick in median home values, allows for slightly more breathing room for buyers in the early part of 2016.

This localized home inventory report helps give context to the metro statistics that often make headlines. Real estate is a local affair and this report shows which parts of town and which types of properties are selling and which ones are sitting. Inventory is figured in months with 6 months being balanced, less than 6 months favoring sellers and more than 6 months favoring buyers. I use active listings and 6 months of sold data from the RMLS to create this report.

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Case-Shiller Index Shows Shocking Trends In Home Prices

Posted by Nick Krautter on February 03, 2016  /  in The Market, Video  /  No Comments

The strong demand for homes in Portland continues to drive prices up. The S&P/Case-Shiller index of property values in 20 US cities shows an increase at an average of 5.8 percent in the last year, while home values in Portland increased 11.1 percent, almost double the national average!

We set a record in December for the most homes sold in a month in Portland since 1992, further shrinking inventory, which is now down to 1.2 months.  That is the lowest inventory number recorded since 1999!

Here I am presenting this information to a large group of realtors, and explaining what the Case-Shiller numbers mean.  If you want to dig in more, check out the link below:

S&P Case-Shiller Portland Report