Portland faces prospect of a 'normal' real estate market

By Elliot Njus | The Oregonian/OregonLive | Posted December 26, 2018 at 07:00 AM

Boom. Bust. Boom. 

It's been perhaps two decades since the Portland area's seen a housing market where prices weren't either spiraling into the depths of the housing crash or shooting skyward.

So 2018 came as a surprise for homebuyers and sellers. Neither boom nor bust; just slow and steady. 

The median home price, at $391,400 in November, according to the Regional Multiple Listing Service, is still climbing but at half the rate of a year ago. Sales have slumped, and houses that might once have sold in a couple of days instead took a couple of weeks. 

"I'm trying to tell people that this hasn't been a normal market" in recent years, said Leslie Jones, a managing broker at Re/Max Equity Group in Portland.

The slowdown is expected to continue into 2019, according to real estate brokers and economists. Here's what homebuyers and sellers should expect.

Home prices hit affordability ceiling

Home prices in Portland grew far faster than wages in the 2010s, much like in the housing bubble of the 2000s. 

But at that time, free-flowing mortgages helped keep the party going -- until the market collapsed under the weight of mortgages extended to people who could never afford them. 

Stricter mortgage rules were intended to prevent that from happening again -- and the fact that the market is slowing suggests it's working to prevent another bubble, said Tim Duy, a University of Oregon economist.

"You can't push things too far, unlike in the last housing bubble," Duy said. "Taking a little steam out of the market from the long-run sustainability point of view is, I think, a good thing." 

Sellers slow to adjust

Homeowners have watched their home values climb at a rapid rate for years, and setting a list price was like trying to hit a moving target. 

"In 2016, you're putting your house on the market at a fairly high price point and expect to have a bidding war," Duy said. "You can't really expect that anymore."

But as home price increases have slowed, homeowners have been slow to adapt. That's resulted in more sellers lowering prices after their homes sat on the market for a few weeks. In November, a third of active Portland home listings dropped their price. 

"We all like to say we think we know what our houses are worth," said Matthew Gardner, chief economist for Windermere Realty Group. "But home sellers' expectations are still too high." 

Fewer flash sales

Even homes priced appropriately aren't going to sell as quickly in a market with more listings and fewer buyers, and sellers might need to be more patient, Jones said. 

That doesn't necessarily mean homebuyers should wait when the right house at the right price comes along. 

"We are still seeing some multiple offers and things go quickly," she said. "We as Realtors can't prevent offers from coming in. If they want the house, I still think they need to offer sooner than later." 

Buyers gain power

When homes were selling in a matter of days -- or in some cases hours -- sellers could easily dismiss attempts to negotiate or demands for repairs.

"In some of the super busy markets, buyers were just happy to get in," Jones said. 

But in a slower market, there's more room to negotiate, either for a lower list price or for repairs before the sale is finalized, she said.

Mortgage rates climb

The average rate on a 30-year fixed mortgage climbed by a full percentage point in 2018, peaking just under 5 percent in November before falling to 4.63 percent last week. (The recent decline is a response to the falling stock market.)

That's taken a toll on affordability. Gardner said an increase of 1 percentage point in mortgage rates typically means a 10 percent decline in the price a homebuyer can afford to pay. 

If mortgage rates resume their climb, it will hold home prices to slower growth.  

"Rising interest rates just by the nature of it act as a headwind to home price growth," he said.

-- Elliot Njus

enjus@oregonian.com; 503-294-5034; @enjus

Source: https://www.oregonlive.com/expo/news/erry-2018/12/e85a2147215491/portland-faces-prospect-of-a-n.html