The media is starting to report on a slowing residential real estate market, even suggesting the broadest slowdown in years. What does that mean for buyers and sellers in Portland? What does it mean for you?
The Data on Sales Volume
Total active residential listings in June 2018 increased 12.5% over May (6,054 vs 5,380) and 16.2% over June 2017 (6,054 vs 5,211).
The number of closed sales in June increased 5.1% over May (2,946 vs 2,803) and decreased 6.0% from June 2017 (2,946 vs 3,187).
A Little Perspective
Activity has slowed since the spring. It slowed last year about this time, and the year before that, and the year before that, and... So the better question is whether the slow down is due to typical seasonality or to a longer term leveling out in the market.
The answer is: both.
The market is correcting itself after a long run up from the depths of the Great Recession. It is getting more balanced. It also has a long way to go before it can be called a balanced market, and even further to become a buyers' market.
The conventional wisdom is that six months inventory is a balanced market. At the end of July there were 6,054 active residential listings in Portland, and 2,946 home sales closed during the month, giving us 2.1 months inventory. Three times as many listings would have to flood the market, or one-third the number of sales would need to close, or some combination of the two would need to occur for the Portland residential market to balance at six months inventory. Under any likely scenario that is a stretch.
So what will happen?
The Portland market will favor sellers as long as supply is restricted (think Urban Growth Boundary), household formations increase (think millennials starting families and in-migration from other states), employment is strong (watch those numbers in the context of trade wars), and interest rates stay reasonable (below six percent). In short, Portland will continue to have a housing shortage for the foreseeable future, and that leads to higher prices.
The coming autumn will be slower than years past, and spring will be less frenzied, too. The rate of sales will gently decline. It will still, however, be a very active market. Prices will rise, albeit at a slower pace more in line with historic averages, than in the recent past.
What does this mean for sellers?
In the spring you can confidently price your home high knowing that a rising market will catch up if you reach too far. In the fall that strategy backfires. Price reductions will probably be needed, your home will take longer to attract offers, and questions will arise about the home the longer it sits unsold. You may end up chasing a ball rolling downhill. Realistic pricing is very important in the fall and winter.
Additionally, buyers are getting squeezed by rising mortgage rates and by prices climbing faster than incomes. There is only so far they can stretch. So while affordability may or may not directly affect the buyers of your home, it will increasingly affect the market as a whole. That percolates to you one way or another.
Nonetheless, fall can be a great time to sell your home. Fall and winter buyers are serious. There will be fewer quality homes available, so yours will stand out even more than usual, and potentially sell for more than you expect.
What does this mean for buyers?
You have the opportunity to get the home you want at a price and with terms that work for you.
Many buyers will soon go to the sidelines to wait out the fall and winter, then get back into the game next spring when, once again, they'll compete with others wanting to buy the same home they want to buy. Many will pay top dollar for a home that is not their first choice. Buying in the fall, on the other hand, allows you the time to make better decisions.
What if the market declines?
The simple answer is that interest rates affect you more than price.
The additional cost of a 6.0% vs 5.0% thirty year mortgage of $320,000 over ten years (the current average length of ownership) is $31,297 (sum of the difference in monthly payments plus the difference in mortgage payoff balance after ten years), almost 8% of the value of the $400,000 home you got the mortgage to buy. That's the math. And with higher loan-to-value mortgages, such as FHA guaranteed loans, the difference increases.
Which is more likely: homes values falling eight percent, or interest rates going up one percent?
Your interest rate risk is greater than your price risk.
We think you are safe buying today, and you'll probably get a home that is better for you. Fall is a great time to buy the home you want.
Whether you are buying or selling, you need expert guidance.
Call us at 503.222.4300.
We'd love to chat.
- The Portland Home Team at Keller Williams Realty Professionals