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Is the market at a peak or is it the summer doldrums?

by | Jul 6, 2018 | Market Reports

The real estate market in Portland has been rocketing up since March of 2012. 6 years of
appreciation took prices from an average of $253,000 to $461,000, a gain of
82%. For those of us who worked and lived through the last recession there is a
level of concern that the party won’t last forever but the market keeps
charging ahead. Markets move in predictable cycles and each summer there is
another event that happens each year: the summer doldrums. For 2-4 weeks each
summer the market takes a pause while agents, buyers, and sellers head to the
beach, the river, the mountain for summer break. The agents who stay in town
wonder where everyone went and fret over the new listing that doesn’t sell in
the first weekend. So, are we in the midst of the summer doldrums or is there a
bigger market shift starting?


Home inventory remains firmly in the seller’s favor at under 2 months. Basic
economics or supply and demand tells us with this little inventory the demand
should keep pushing prices up. In the last cycle inventory rose for two years
and prices keep going up until inventory moved above 6 months. That means we
should have plenty of notice before prices top out.


Prices have gone up far more than incomes in the last 6 years. The further
the gap between average home price and average income, the less affordable we
become. While Portland is less affordable now, we are still vastly more
affordable than many West Coast cities where housing is reserved for the


Historically low interest rates also made things much more affordable. With
rates as low as 3% at the bottom of the market the average borrower is more
likely to pay 4.5%-5% today for the same loan. For every one percent rates go
up your buying power goes down 10%.


The big change in the last tax reform was to cap the deductible amount of
SALT [State and local taxes] to $10,000. Property taxes alone are close to
$10,000 on many Portland homes, which means the tax benefits of owning a home,
especially when working in an income tax state, just got much worse.



The main ingredient in the housing economy is balance between
population growth and housing development. The last recession stopped building
for years but people kept moving to the West Coast and people everywhere kept
making babies, going off to college, moving out of mom and dad’s house, getting
married, getting divorced, and all these things increase the demand for new
housing. We’re now building more units, but much of the building is in
apartments, which still leaves too few homes for more and more people.


I predict we’re in the summer doldrums a little early this year.
I just have a hard time seeing a major shift in the market with this little
inventory in a city that is still growing, albeit a little slower than it used
to. If prices and interest rates keep rising, which is predicted, then we will
hit a point where the buyers push back. The only segment that is over-built
right now is luxury apartments, which means rents are going to flatten out or
come down. There is good evidence that rents are falling with so many choices
for renters right now.

The market has been so hot for so many years people have forgotten that it’s
common for it to take 3-6 months to sell a home in a balanced market. Markets
usually shift faster than people’s expectations and a big part of being a great
realtor is having those hard conversations with sellers about price and time
expectations and encouraging buyers to make a more aggressive offer and get off
the sidelines. Overall our market is still fundamentally strong and when we
have an inevitable shift I expect it to be a slowing down and a flattening out
of prices in the next 18-24 months. This is great news for buyers and sellers
with a long-term perspective but bad news for flippers and investors who have
been waiting for a crash to get the deal of the century.

If you’re planning to sell in the next five years I’d suggest doing it sooner
than later. If you’re buying for less than a 3 year hold it might be prudent to
wait but if you plan to live in your place or hold an investment for 5-10 years
then buying still looks like a good decision today.

Disclaimer: While these ideas are well researched there is no guarantee of
where the market will go next. If you want to work with a great team of real
estate nerds who love helping people buy, sell, and invest find us at or 503.703.5102 Thanks! Nick Krautter, PC | Principal Broker in
Oregon, Managing Broker in Washington at Keller Williams Portland Central 35 NE Weidler St. Portland, OR 97232


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