Housing Market Chatter: Keep It Local!
May 2022: Housing Market Distinction
We love predictions because predictions make us feel as though we can plan a little and have a modicum of control over our reactions to future events.
In the world of real estate, there is a saying, “Statisticians are mediocre at predictions, stellar at postmortems.”
Of course they are! We all are!
When circumstances are in our pasts, it is easy to relegate them to hindsight and speculate as to why things happened the way they did.
But predictions are another animal altogether. They involve speculations about the one thing that has perplexed scientists and behavioralists alike: human behavior.
Why we humans do what we do is a marvel to most and a mystery to many. This is why accurate predictions are extremely difficult to make.
A few ground rules to follow when looking at statistics, especially those that pertain to our local housing market;
1. Firstly and most importantly: The West Coast of the United States is not the rest of the country.
Ditch the national statistics.
The West Coast of the Unites States is its own market with home prices far higher than the national average, and the average length of time people stay in their homes far shorter than the national average. For this reason, national statistics rarely apply with any accuracy to actual conditions on the West Coast of the United States.
2. Average home prices on the West Coast can be double that of average home prices across the rest of the United States, with the exceptions of Washington D.C. and New York City.
Again, when you see a average value for a home at $367,000 (as was just announced on the local NEWS last night, here in Portland Oregon), know there is very little available for that amount on the West Coast. That is an average based on millions of homes that are most assuredly not located anywhere near the West Coast.
For example: the average home price in Portland Oregon, the most affordable major West Coast city, is around $600,000.
3. Much of the rest of the United States does not need to worry about things like the interest rates of Jumbo Mortgages and Super Jumbo Mortgages.
These loan products are primarily a West Coast thing because of the cost of housing.
Again, New York City and Washington D.C. likely utilize these loan products as well.
4. In many expensive places in the United States, ‘forever-renters’ are a comfortable reality.
On the West Coast, particularly in the Pacific Northwest, the desire to own a home runs so deep, many Buyers will go to great lengths to buy a home of their own.
‘Forever-renting’ is considered ‘unfortunate’ or due to the lack of enough opportunity to purchase a home.
In places like San Francisco and New York City, L.A., and Washington D.C., renting without purchasing is absolutely acceptable and is not considered a side-effect of the absence of opportunity.
5. It is just as expensive to live in Portland Oregon as it is to live in most of the State of Hawaii, with the exception on Honolulu on the Hawaiian island of Oahu.
Portland, Oregon is expensive by any metric. While Oregon has no sales tax, it makes up for it with very high property taxes, income tax, and with various bond measures that assign homeownership with the burden of paying for many social programs that are normally paid for with sales tax.
6. Tax structure varies widely on the West Coast of the United States.
In California there is property tax, sales tax, and income tax. In Oregon, there is income tax, property tax, but no sales tax.
However, this does not mean anything is ‘cheap’ in Oregon. Instead, it means property taxes here in Oregon are exorbitantly high. In the posh neighborhoods, there are homes with $20,000/year - $35,000/year property taxes.
That is shocking to most who live in other parts of the country.
In Washington State, there is sales tax of almost 9% but somehow many items are less expensive than they are in Oregon, making the cost of living less expensive in Washington than it is in Oregon.
7. No place in the United States abhors a vacuum more than West Coast markets.
When one product or service disappears or becomes too expensive to obtain, another pops in quickly to take its place.
Consumer markets on the West Coast move very quickly to provide products and services to consumers.
8. The average length of time homeowners own their homes in the rest of the United States is about 9 years.
On the West Coast it is far less.
We move. We move sideways, up, down, away - A LOT!
When looking at or listening to statistics that attempt to predict what is coming up, please remember that markets on the West Coast react faster, and often, more dramatically to factors such as scarcity of inventory, and less dramatically to factors such as rising interest rates, simply because incomes are so much higher on the West Coast than they are in the rest of the country.
What does this mean?
It means that while national statistics have their places, national predictions about the housing market to come may have little application to the West Coast of the United States.
When you are looking at and listening to pundits giving their wide array of opinions, do yourself a favor and ask the question, “Is this something that applies to the part of the country where I live?” Wide, general statistics are best avoided as there is nothing specific about that data that actually applies anywhere.
Local statistics are going to give you a much better grasp of what has occurred, and much clearer window to what may happen next.
Mortgage Interest rates are climbing at a pace faster than at any other time in recorded U.S. history. Our new revised formula with which we calculate inflation is also indicating
a rise in inflationary pressures at a faster rate than has ever occurred in U.S. recorded history.
However, the sheer scarcity of homes available to purchase on the West Coast is driving home Buyers to purchase at a staggering pace, with the differences between list prices and actual sale prices representing the largest differential (between the price a home is listed for, and the price the winning Buyer actually paid) in recorded history.
The data is clear, as long as the West Coast housing market continues to experience the current levels of scarcity (low number of homes available to purchase), and as long as home mortgage interest rates have not yet hit the pain-point at which Buyers decide the prices are too high to pay at current or future interest rates, our West Coast housing market will continue to break records in terms of value-gain over a short period of time.
That said, I am seeing pockets of real estate here in the Portland, Oregon Metropolitan Area that are beginning to shift.
Areas such as Happy Valley and Bull Mountain are always my indicator micro-markets that warrant a very close watch.
I am also watching a pocket in Hillsboro, near Orenco Station, beginning to show the very first signs of a shift, as some homes in the hyper-competitive price point around $500,000, sitting for over 10 days without an offer, and with some reducing their prices significantly to sell before the shift takes hold. There are the earliest signs of a shift in the air.
All this tells us, with any accuracy, is that we need to watch these areas very carefully to see how this plot plays out.
If you are interested in having a deeper conversation about buying, selling, investing, commercial real estate, residential real estate, or even a career in real estate, please feel free to reach out and say hello! Amy@Wildwood-Realty.com or 971-258-5500!