Is the Portland Real Estate Market Stabilized?

6-18-2009

When taking a snapshot of any given real estate market there are a few factors that must be considered:

1. Local Jobs

2. Supply and Demand

3. Interest Rates

Why are these factors important? Well if an area has a lot of jobs and employers and people are not worried about their next paycheck. Not worrying encourages spending. When jobs are hard to come by then it creates more competition for each job which means that employers can get more qualified workers for less money. If people are earning less they are pinching pennies more. If they are pinching pennies the entire local economy takes a hit. Not only are people not going out to expensive restaurants as much, they are not buying fancy cars, and certainly not making large fixed payment purchases like homes. The next factor is the current supply and demand. The supply and demand is very much related to local jobs and interest rates. If their is an excess of supply of homes it pushes demand much lower. When the demand is high it causes people to buy which thus lowers the supply. Real estate is entirely market forces at work. Another big factor is interest rates. If interest are extremely low then it not only makes the home more affordable but it locks that affordability in for a very long period of time. If the interest rates double then the same house could cost twice as much which pushes many people out of the market. Lowering interest rates creates more demand because more people can afford the same house.

Ok now for Portland, Oregon's Real Estate Market

Local Jobs
The Portland job market is not so great. The current unemployment rate is 11.6%. The national average is 8.6%. Workers are fighting tooth and nail for their jobs. When they take a job they are overqualified and underpaid for they end up fighting for better jobs. This causes a lot of turnover which ultimately is not good for employers. See chart below to see what the local unemployment rate has done over the last 10 years.

Supply and Demand
Ok what is Portland's supply and demand for homes like these days you ask? Well I write a brief monthly market conditions report you can read. The statistical data comes out mid month so you can expect the market conditions to come out the third week of every month. Currently the Portland Market has 10.2 months of inventory on their books. A balanced and average real estate market is 6 months worth of inventory. Even though the Portland market hit an all time high in January at 19.2 month, you can see this is still very high supply of homes available. The consumer ends up with more choices and hesitates to make a decision unless it's an incredible deal. Most of the homes that are selling are unique homes or foreclosure/short sales. 

Interest Rates
Historically, interest rates are still very very low. The 30 year fixed rate loan has been hovering between 4.5% - 5%. This is very good for the real estate market and helps to spur on demand.

Overall, does this mean that the Portland Market is starting to stabilize? In my opinion until the Portland job market starts to stabilize and grow then it would be very difficult for the real estate market to stabilize. When the job market stabilizes and people are able to keep their jobs, then this will cause people to continue to make their mortgage payments. Making mortgage payments will slow down the foreclosure and short sale market. Slowing down the foreclosure and short sale market will slow down supply of available homes and allow the current market forces to filter out the lowest priced homes. When the lower priced homes get filtered out then the market can return to normal conditions with a more balanced supply and demand. How are interest rates tied into this. Right now a drop in interest rates only impacts the people that have the good jobs and good credit, but they are worried about buying in a declining market. When the market stabilizes then a drop in interest rates can do much more. Not only will people not be worried to purchase a home but more people will be impacted. So to make a long story short no the Portland market has not stabilized quite yet.

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