Currently, median home values in the Portland Metro Area have increased by 12.1% year on year while at the same time available listings for sale are at near record lows. It appears that prices have not increased by a great enough margin to push enough sellers into the market while at the same time factors like buyer affordability may be keeping prices from increasing much beyond current levels. One factor that doesn’t seem to be getting much press is the fact that home values have been increasing at rates similar to the rate of increase seen leading up to the last market crash. How can our slowly recovering economy possibly hope to support booming price increases?
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Low Real Estate Inventory Vs Low Wages
In the recent article posted on Exclusive Portland Real Estate, factors leading up to the crash were examined such as the Case Shiller Portland Home Values and how those factors played into the last market crash (The Economy Can’t Support Higher Home Values). So, record low inventory is driving prices up via the law of supply & demand but at some point, high prices will stifle demand when too-few buyers are able to afford to make a purchase. As an active real estate broker in the Portland Market, I’ve seen heavy investing from for-profit “house-flippers”, at times bids from investors have outnumbered offers from actual buyers. In this way, investors looking to profit may be artificially pumping up prices and temporarily bolstering demand creating another bubble. These short term investors are turning supply and demand to make it work in their favor but at what cost? Eventually, the fog will lift and we will again be faced with a housing market where average Americans cannot afford to own a home and we’ll see another collapse.
Short Sales Aren’t Over: 18% of US Mortgages Remain Upside Down
According to the Wall Street Journal and other mainstream news outlets, over 18% of homes in the united states still have negative equity. It seems likely that this high level of homes that still can’t be sold due to negative equity are at least partly responsible for the lack of inventory and may also be pushing prices up. But, will buyers be able to keep up with these rising prices given the slow pace of the economy? While nobody can offer a foolproof prediction of the future many indicators show that the current recovery is running out of steam and negative equity, stagnant wages and high levels of poverty will drag us back into the red.
If Values Increase To The Point Where Everyone is Out Of The Red:
Won’t We Be Back At Housing Bubble Prices?
The opinion of this Realtor is yes, if prices were to increase to the point where everyone is out of the red we would have to be back at or very near peak prices. And, unless the economy and wages are much stronger when that happens we’ll be plunging back into the depths of an economic and housing downturn that may rival or perhaps be even worse than the recent “Great Recession“. What’s even more surprising is how few people are actually cognizant of how we’re already on the path to the next crash even while we’re still feeling the effects of the last crash. Part of the problem may be related to the near record-low interest rates. Low interest rates make it very enticing for buyers to get a mortgage and can thereby prop up prices. The problem is that low interest rates mean that people with money can’t find sound investments to give them a solid return. This lack of return on investment may well be driving investors out of banks and stocks and into the housing market, where buying and selling distressed properties can yield large gains in a short amount of time. The low interest rates that are protecting today’s prices are also hurting investments, which pushes investors into real estate.
Portland Short Sale Market: Investors Making It Harder To Sell
Another little reported factor in the Portland Real Estate Market are the side-effects of investor offers. Real estate investors often write more offers than they can actually close and simply bail out on offers that they can’t find the money to buy or easily flip. Sellers trying to short sale may accept an investor offer, only to find out months later that the investor can’t perform when the bank has approved the offer. In our experience as real estate agents, we’ve seen many cases where the investor treated the short sale offer more like an option to buy where if/when the bank says yes to the deal they can either take the deal or simply walk away. Or, investors may write the offer in the hopes of selling their existing flipper houses and simply cross their fingers that they’ve sold their existing inventory before the bank issues short sale approval. While many would call the aforementioned shrewd business, it has also resulted in a growing mistrust of investors amongst the general public and short sale specialists frustrated by the long line of flaky buyers.
Short Sales, Portland Real Estate & The Next Crash
When we really dig into the details of what’s occurring in today’s real estate market the next crash seems to be a question of when, not if the next bubble will pop. A drive through the suburbs reveals new work being done on housing developments that have remained unfinished throughout the housing crash. Apparently, most people are still bullish on housing and think that buyers will want to buy a hastily thrown together townhouse with a yard too small for a family barbeque. Sadly, those builders constructing such new developments may be right in one sense: that a townhouse may soon be all that an average American can afford.
The last question that hardly ever gets asked is: why shouldn’t homes be affordable all the time?