The Pandemic and Portland Real Estate - A Prodigious Pairing
*Note: This article is expressly focusing on the Portland real estate market, which is impossible to talk about without also talking about the pandemic. BUT, this article is not specifically about COVID-19. It’s about the real estate market. We’re all suffering from the fallout of COVID-19 in some way, whether that is physical, financial, mental, emotional, or a mix of all of the above. Let’s keep doing our best to resist this thing so we can make it through to the other side when a vaccine and/or reliable, effective treatments are available.
A Portland Area Market Update
Time flies… except March feels like about 20 years ago…
I last wrote a market update in March. Things were a little different then.
COVID-19 was relatively new; we’d barely begun calling it “COVID-19”, large public gatherings were just starting to be banned around the country, we were conserving face masks for health care professionals and at-risk groups (cloth face masks weren’t really a consideration here at the time), and we seriously had NO IDEA how the novel coronavirus would impact real estate or other markets.
But, everyone figured that social distancing, school closures, travel bans, quarantines, and other public health measures would have SOME kind of an impact…
Well, it did, just not exactly how anyone could have predicted.
A Quick “Historical” Recap of 2020
In March when I wrote my last update, I noted how the winter (pre-COVID) market here in Oregon was going berserk. Before the pandemic, I was anticipating a return to frenzied, low-inventory real estate (as opposed to the not-quite-as-frenzied, somewhat low-inventory real estate market we had over the past year or two). A definite seller’s market, particularly in the more affordable price ranges and detached homes.
Then the pandemic hit.
Remember for a couple months when driving down the freeway felt like this?
Our neighbors to the north and south (Washington and California) both initially issued blanket shut downs, only exempting certain businesses (real estate was not initially exempted). However, Governor Brown in Oregon took a different approach by choosing to shut down only specific businesses, so real estate continued here even during “lockdowns”.
Realtors all over were scrambling to figure out how to meet new clients, perform showings, market properties, host inspections, and schedule closings while remaining socially distanced and safe. We powered forward the best we could and figured it out for our clients that wanted/needed to press on with their listings and purchases.
There was a lot of uncertainty at first. But, some buyers in the early days of the pandemic had success finding homes. Buyers that were routinely losing out to cash or higher down-payment offers were suddenly able to take advantage of opportunities as asset-heavy buyers shifted their focus to their rapidly dwindling stock portfolios. That is, IF they could secure a mortgage.
(I won’t go into a lot of detail about this, but at the beginning of COVID-19, lending was a mess as banks scrambled to figure out how to handle risk assessment during a stock free-fall, mass furloughs, and forbearance, but the Fed eventually stepped in and stabilized things.)
Active residential listings in the Portland metro took a big hit at the start of the pandemic… and haven’t recovered.
There were definitely a lot of sale-fails for a little while and lots of sellers that pulled their listings. Sale activity contracted for a few weeks as many people quarantined and we all discovered what “essential worker” meant. But, the contraction was both by buyers AND sellers; while real estate volume initially took a big hit, home values did not.
Then the unexpected happened. Buyers didn’t just start trickling back into the market. It was a full blown FLOOD of house shoppers.
Real Estate During A Pandemic
Buyers swiftly flood back into the Portland market in April/May, and only the continued lack of inventory is keeping pending sales down now.
I specifically say “house” shoppers because virtually EVERYONE wanted (and still wants) the same thing: a detached home with at least some yard and a little privacy. This was the same whether the budget was 350K or 900K. First time homebuyers, move-uppers, condo and apartment dwellers… everyone suddenly desired a little more elbow room. Not to mention… another influx of people wanting to move in from out of state.
While stir-craziness has definitely fueled the real estate market, historically low mortgage rates poured a whole mess of lighter fluid onto it. At the beginning of the pandemic, banks began going into panic-mode. Rates rose and fell daily as lenders tried to figure out what to do. But, the Fed quickly lowered the federal funds rate to near-zero and began buying billions in mortgage backed securities, among other measures. This helped stabilize the mortgage market and has created an enormous, ongoing refinance boom.
Forbearance is also part of the story… serving to both stabilize AND make banks nervous all at the same time. More about that later.
For any buyers that might have been on the sidelines, historically low interest rates were hard to pass up. The late spring and summer market started BLOWING UP.
Then we began to quickly encounter another problem… an inventory crisis.
If you’ve followed the Portland metro housing market at all or read any of my blogs, you know that low inventory is a tired song running on repeat. But, there’s a difference between an inventory shortage and a crisis.
Inventory Crisis
1.1 months is the lowest I could find on record for the Portland metro.
*Inventory in Months is calculated by dividing the Active Residential Listings at the end of the month in question by the number of closed sales for that month.
What we have right now, folks, is a crisis.
The problem stems from the fact that while a whole mess of people want to buy a house, that doesn’t mean that everyone WITH a house is ready to sell.
Generally speaking, people that don’t HAVE to sell… aren’t selling. Why risk a bunch of strangers traipsing through your home when you’ve already GOT the nice yard and extra elbow room? Why downsize right now instead of waiting a year or two? Why go through the hassle of upsizing if you don’t have to? If you happen to have some underlying medical conditions and can stay put for awhile, why wouldn’t you?
Distressed sales are also relatively rare. A moratorium on evictions due to non-payment means that very few tenant-occupied properties are selling (not that it was easy to sell tenant-occupied in the Portland metro before the pandemic). Foreclosures just aren’t happening barely at all. Forbearance means that homeowners in financial trouble can suspend their mortgage payments hopefully giving them time to get back on their feet rather than being forced to sell.
There’s also a lack of trade-ins. People that would normally be looking to up-size or down-size either don’t think they can find a replacement property, or don’t have a feasible way to purchase a new home without making it contingent upon the sale of their own property.
This can have a serious impact on inventory levels. But, low inventory levels are what cause people to worry about trying to buy/sell… A housing negative feedback loop.
While buyer activity has more than recovered, the number of listings hitting the market definitely has not. Multiple offer situations are the norm. Waiving appraisal and repairs, super-short timelines, and other incentives to entice a seller to accept an offer are common.
Condo Market Offers Opportunities
No matter what’s going on within a few blocks stretch of downtown, Portland is a beautiful city.
On the flip side… if you’re interested in a condo anywhere near Portland downtown, you’ve got a bounty of choices. Sellers are offering amazing incentives, including paying for the first year or more of HOA dues and astoundingly low list prices.
Again, this isn’t MUCH different from the past couple years. The condo market has been soft for awhile now, although before the pandemic it was starting to look a little better.
There are a number of pressures on vertical living… people working from home and wanting more space, widespread closures of shops and restaurants along with stringent limits on social events mean that condo and apartment dwellers are either looking to move or sell. Not to mention, we’ve had widespread development going on the past few years (opportunity zones have definitely added incentives to build fast and dense).
The downtown Portland area is also dealing with overall public opinion problems due to ongoing protests, occasional violence/vandalism, some instances of looting, general unrest, a growing homeless population, and other factors. This isn’t a political blog, I’m just pointing out the obvious. These things all have a clear impact on nearby real estate, both commercial and residential.
It’s a Crazy Market
And, they’re not ALL coming from California!
Home values of detached housing are rising swiftly and it can be difficult to keep up. Affordability will become a concern at some point and we are seeing a few people looking to sell and move OUT of Oregon.
For now, that is more than balanced by the influx of people moving into our area. Notably, people in many different areas of California (especially the Bay area) along with Seattleites are realizing that they can work from anywhere. Portland is an attractive option if they want to stay on the west coast but live more affordably.
So, yes, it’s a crazy market out there. Even with inventory so low, volume has raised as most detached homes quickly sell. Anything sticking on the market more than a couple weeks is either overpriced or has some factor impacting buyer interest.
Average time on market is around 38 days right now, the lowest it’s been in a long time. That means it still takes the average home 38 days to go pending (keep in mind this includes condos and luxury properties which generally can take longer to sell). There are always homes on the market that are overpriced or tougher to sell. If you want the thing that most other people don’t want, there are opportunities to be had in any market.
But, if you want the thing that everyone wants, be prepared to compete hard. Don’t be intimidated, though, just speak to your real estate agent and let them guide you through the various strategies. I have had a LOT of success in multiple offer situations because I prepare my buyers and guide them through the process.
If you’re a seller, pricing your home properly is more important than ever. I’ve seen some wonderful homes sit on the market for far too long. I’ve also seen homes get listed without any preparation at all and take much longer to sell than they should.
While prices are rising quickly in some segments, it doesn’t mean everywhere, and it doesn’t mean that buyers will tolerate overpriced homes that aren’t ready for market.
Also, for the home sellers out there, please don’t agree to sell to an iBuyer (like Zillow, Redfin, or OpenDoor) without talking to a real estate agent first! You don’t know how much money you could be leaving on the table… and you don’t necessarily need to have a TON of strangers walking through your house in order to sell. There are virtual options and other listing strategies that could make the process quick and relatively risk-free. Contact me for more info. I also talk a lot about iBuyers in the latter part of my blog “Why are Realtors so Expensive? (And Disruption in Real Estate)”
Is There a Housing Crash Coming?
As always, there will be fluctuations in micro-markets. Condos/attached in downtown won’t be the same as condos/attached in Beaverton.
I anticipate this buyer frenzy will continue for the next year or two before we move into the next, calmer period. Seasonality will always lead to lowering sales volume through the holiday season, though maybe not as much this year as so many people are working from home and not participating in travel/family functions as much as usual.
People sometimes ask me if I think we’re in a housing bubble. The simple answer is no, I don’t.
The housing crash in 2008 was fueled by too much inventory, incredibly stupid lending practices (and incredibly stupid investments in mortgage-backed securities chock full of terrible sub-prime loans), and an overwhelming amount of people with no equity that quickly turned into negative equity during the crash.
Right now we’re in a low inventory situation that doesn’t appear to have a near-term solution, high housing demand, homeowners with historically high amounts of home equity, and a still-tight lending market due to COVID-19 (anyone seeking a jumbo loan and/or is self-employed knows that underwriting guidelines are very restrictive right now).
It couldn’t be more starkly different.
The one unknown is how forbearance will eventually impact the market. There aren’t enough loans still in forbearance for me to think that this will cause a market crash, though. Right now there are around 2.97 million loans in forbearance and this number is steadily, if slowly, shrinking.
There are some people out there that think once forbearance ends that there will be a sudden flood of foreclosures and homes on the market, possibly causing home prices to precipitously fall, similar to how all the foreclosures impacted the market during the last housing crash.
I disagree that this will happen for several reasons:
Forbearance isn’t the same as foreclosure. I think there are a lot of people in forbearance that are not necessarily in major financial hardship. It’s a blanket program and borrowers are not required to prove hardship to qualify, as long as it’s a government-backed mortgage. (Read here to learn more about forbearance).
The whole idea of forbearance is to keep people in their homes. We all learned a lesson in 2008 that allowing a ton of homeowners to go into foreclosure is bad for the economy and bad for business. Banks are not exactly itching to foreclose on people.
People have A LOT of home equity right now, so when forbearance ends (and that might be awhile depending on how things go in Congress), those that still cannot afford to resume their mortgage payments will list their homes for sale.
In case you haven’t been paying attention, the demand for housing is extraordinarily high right now. The market can absorb PLENTY of inventory before we start fully meeting that demand. New construction isn’t even coming close to narrowing that gap and that situation is unlikely to change. The gap between housing demand and new home construction is growing due to a variety of factors including supply chain issues and costs (labor, land, materials, etc.).
Low mortgage rates have caused one of the largest refinance booms in history. People are improving their housing costs during the pandemic, saving money, and investing in their current homes more than ever (further increasing value and home equity). I’ve never seen contractors so busy!
Jobs are coming back. Not for everyone, and underemployment is a problem, but the unemployment rate is currently at 7.9%. This is bad… and yet pretty good considering where we were at a few months ago.
In the Long Term
If there is anything that the pandemic has taught us, it’s that we should never make long term predictions.
So, I’m gonna make a prediction.
The thing I see happening that could have a major impact on real estate in different areas of the country is climate change.
Again, this isn’t a political blog so I’m not here to debate what causes it or why/how it happens. The vast majority of people at this point DO agree that climate change is a thing and it’s already impacting people all over the world.
What many aren’t thinking about, yet, is that climate change will begin to have a real, heavy impact on real estate in the United States. Not just in coastal markets that are already dealing with horrendous hurricane seasons or eroding coastlines. Inland markets are slowly beginning to feel the impact of longer, hotter summers, less rain, more fires, and MORE fires, and MORE FIRES… Hot, arid areas of the country are becoming less habitable.
Water supply is already an issue and will get worse through the years. This will impact many areas of the country including parts of the Midwest, South, Southwest, Rocky Mountain areas, southern Great Plains, etc.
All of this will lead to a slow increase of climate refugees. Certain areas of the country will be desirable, other areas will not.
As long as we don’t get hit with “The Big One” (otherwise known as the “Cascadia Subduction Quake”), then Oregon, and the Portland metro in particular, will likely see an influx of climate refugees.
We have a lot going for us up here. Plenty of water, generally no major weather events to worry about. Well, other than that pesky impending earthquake that may or may not happen sometime in our lifetime.
We have a large metro area that is very friendly to those in need, a temperate climate, a quirky culture, etc. This past year notwithstanding (we had a warm-weather windstorm event that happens maybe a couple times in a century), major fires near the Portland area are rare.
We’re not likely to truly appreciate the impact of climate refugees for a while, maybe 10 years or more, but it’s already begun. We gain a lot of population from California every year and I suspect all the fires will continue to fuel the momentum.
