Known for its great food and arts scene, Portland, Oregon, has become an increasingly popular place to call home for singles and families alike. As such, Jenelle Etzel, founder and CEO of Living Room Realty, isn’t surprised by the fact that demand for homes in Portland is still solid even with mortgage rates being as high as they are today.
But Portland’s housing market is a tricky one to navigate due to extremely low inventory, so if you’re looking to buy in the Portland-Vancouver-Hillsboro area, you’ll need to be prepared. Here’s what you need to know about the market today and looking ahead, based on information from the U.S. News Housing Market Index.
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How the Portland Housing Market Changed in 2022
Single-family home construction slowed down in Portland in 2022 compared with 2021. Based on data from the U.S. Census Bureau, permit activity for single-family detached homes dropped from 536 in January 2022 to 375 in January 2023 — a 30% year-over-year decrease. Permit demand peaked in May 2022 at 651, but by the end of the year, it had plummeted to 335, a 48% drop.
A slowdown in single-family housing permits isn’t surprising to Etzel. “Portland has pretty tight urban growth boundaries, so it’s been hard to have new construction,” she explains. “But we need it to happen, and we’re starting to see some building happen.”
Construction for multifamily homes, however, increased in 2022. In January 2023, there were about 698 housing permits issued for buildings housing two or more units, compared to about 569 one year prior. That’s an increase of almost 23%. Permit issuances peaked in February 2022 at 575 units, after dropping since December 2021. Since then, permits were on a downward trend until starting to rise in June. They didn’t regain to the February level until September, but ended the year at 782, a 16% increase.
Portland Housing Supply and Demand
A slowdown in single-family home construction is the last thing the Portland market needed over the past year. That’s because, as Etzel explains, a lack of inventory has long been a problem in Portland.
“Portland supply is super low,” Etzel says. However, there’s a silver lining.
“The market was becoming impossible a year ago,” Etzel says. But “having interest rates rise and forcing some people to have to sit out the market has balanced out the market a little bit.”
As of January 2023, based on data from Redfin, inventory in Portland sat at a 2.6-month supply. That’s actually an increase of 1.73% compared to a year prior. But it can easily take a six-month supply of homes to balance the real estate market and allow for enough inventory to meet buyer demand.
For context, on a national scale, housing supply in January 2023 sat at a 3.2-month supply, representing a 1.71% year-over-year increase.
Meanwhile, the rental vacancy rate for Portland as of January 2023 was 4.8%, representing a decrease of 0.8% from one year prior, based on data from the U.S. Census Bureau. The U.S. rental vacancy rate for the fourth quarter of 2022 was 5.8%, putting Portland’s vacancy rate below the national average.
Because there’s so much demand for homes in Portland, Etzel says, “We are technically still in a seller’s market here. We still see multiple offers on great homes, and I don’t expect that to change.”
However, sellers are making more concessions. “Sellers know they have one or two backup offers, but they don’t have 30 people waiting in line,” Etzel explains.
It’s also worth noting that for the week ending March 17, 2023, mortgage applications increased 3% from one week earlier, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. On an unadjusted basis, the Market Composite Index, a measure of mortgage application volume, increased 3% compared with the previous week.
That same week, the average contract interest rate for a 30-year fixed, confirming mortgage decreased to 6.48% from 6.71% the previous week. But even with that decrease, borrowing has clearly gotten expensive.
Still, Etzel doesn’t think mortgage rates are impacting the Portland real estate market all that much.
“The interest rates are making way bigger news than they deserve,” she insists. And while Etzel does think mortgage rates will go down in time, she also thinks that “people are going to get comfortable again with the interest rates we’re seeing today.”
But while higher mortgage rates may not be affecting the Portland real estate market dramatically, it’s hard to overlook the fact that consumer sentiment is down. In January 2023, consumer sentiment sat at 64.9, according to the Survey of Consumers from the University of Michigan. A year prior, it sat at 67.2.
Median Home Price in Portland
The median home price in Portland was $500,000 in January 2023, according to Redfin data. That’s a year-over-year decrease of 2.9%.
On a national scale, the median home price in January 2023 was $383,000. That’s an increase of 1.9% from a year prior.
Etzel says that home prices in Portland have remained strong. However, she’s starting to see fewer cash buyers.
“This last year, we’re starting to see more transactions where people have modest down payments or low down payments,” she explains.
The median Portland rental price in January of 2023 was $1,866, up 4.2% on a year-over-year basis, according to the Zillow Observed Rent Index. On a national scale, the median rental price in January was $1,970, up 5.8% from a year prior.
Data firm Black Knight shows that 0.2% of homes with mortgages in Oregon experienced foreclosure activity in December 2022, up 0.1% from a year prior. Delinquency rates decreased 0.3% on a year-over-year basis to 1.9%.
Interest rates for 30-year mortgages sat at 6.27% as of January 2023, representing a 2.83% year-over-year increase, according to Freddie Mac’s Primary Mortgage Market Survey. The average rate for a 30-year, fixed-rate mortgage as of March 30 the average rate is 6.32%, according to Freddie Mac.
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Unemployment Trends in Portland
Non-farm employment in December 2022 rose by over 60,000 year-over-year to 1.27 million jobs. In December 2022, the unemployment rate in Portland was 4.1%, according to the Bureau of Labor Statistics. That’s a 0.6% increase from a year prior. The national unemployment rate in December 2022 was 3.5%, down 0.4% year over year.
In December 2022, there were also 14,300 construction jobs in Portland. That’s an increase of 1,900 construction jobs compared to one year prior.
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Builder Confidence in Portland Is Low
In February 2023, builder sentiment in Portland was 37 out of 100, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. That’s a notable drop from a year prior, when builder sentiment was 91. Builder sentiment is negative at values below 50 and neutral at 50. It’s positive at values over 50.
The Architecture Billings Index, which is an economic indicator for nonresidential construction activity, was rated 51.3 in January, up 3.7% year over year. A score of 50 represents no change from the previous month, a score above 50 indicates an increase in firm billings from the previous month, and a score below 50 indicates a drop in firm billings from the previous month.
Portland Real Estate Market: Predictions
Etzel doesn’t expect the Portland housing market to change drastically over the next year. However, she thinks mortgage rates have the potential to drop, which could result in an uptick in buyer demand.
“I think the next 12 months are going to look similar to what we’ve been through,” she says. However, if rates drop, “In a market like we have where we don’t have the supply, I think it’s going to force a lot of folks back into a competitive environment.”
Meanwhile, Etzel says recession fears are not really a concern in the context of the Portland housing market. In Portland, wages have increased, she explains, and unemployment is still relatively low.
Because of this, “Owning a home looks like a good tactic to secure some financial stability,” says Etzel. “It doesn’t look like a very big risk.”
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Portland, Oregon, Housing Market Forecast originally appeared on usnews.com
