There's A Chill In The Air
The Portland area saw an uptick of new listings to begin the year this January compared to where we exited 2018. Closed sales ended 10.9% lower than last year and 21.4% lower than last month. As a result of lower levels of closed units, plus the uptick in new listings, inventory rose to 3.3 months in January, with total market time rising to 76 days.
The Average Sales Price of homes sold in the twelve months ending January 31st of this year showed an increase of 5.2% compared to the same look from last year. Year over year, the Average Price in January was essentially flat compared to January last year.
There are more new listings, but a decline in the number that actually close....and by one measure prices are up, but in another they are flat. Inventory increased as the market time increased overall. The Average Sale Price and Median Sale Price appears to be showing a downward trend lately. So this is like deja vu all over again, right?
Not so fast....
Separate The Noise From The Data
Several interesting things are happening if you follow certain publications, authors, blogs or Twitter feeds like Jeff does. You are inevitably seeing articles talking about prices falling, the market is stalling, and we are approaching the cliff "just like last time". These are great headlines, in that they stir up a lot of fear, emotion, concern, and most importantly, clicks to the articles for the publishers. And yes, for January, year over year average prices are down and homeowners have lost value. We have lost approximately on average $800 in home value. Yes....$800. That's it. You will also hear that our "over priced" inventory is at its highest level in years and the number of closed transactions are lower. Those are all true.
But lets focus on the data, not the headlines. All the above data points are correct, but what is really driving this? January shows flat prices, but looking back over 12 months shows an increase....so something happened late in 2018. The answer of what happened lies in the 30 Year Fixed Rate Mortgage chart below:
In the 4th quarter of 2018 the 30 year fixed rate mortgage hit a peak of 4.94% compared to 3.99% the year before. A 1% lift in mortgage rates, after YEARS of being so low, is going to shock the market a bit. Buyers will want to wait to see if rates will come back down (good news, they did...but for how long?). Sellers who need to sell will cut their prices to get their home sold, while those that are not in a hurry will simply wait, knowing our market is ultimately constrained.
We have a generation of buyers that have never seen mortgage rates at or near 5.0%, and the rest of us haven't seen them for a very long time. As they do eventually rise, home affordability becomes increasingly more difficult, and thus short term spikes in rates will inevitably create lulls in the market, as people sit to see if they will ease back to more typical levels. By January of this year, rates had done just that, so we should begin to see the activity resume. Rates will inevitably increase, but slow and steady increases will help dull the overall resistance and pain.
At the end of the day, Portland still is constrained on inventory, and that will continue for some time to come. Rates are still at historical lows, and ultimately prices and home values are still increasing. So yes, some might see this as a good time to pay rent and sit on the sidelines, but we remain extremely optimistic about long term values for Portland area real estate. Our expectation is that the 2019 housing market will be much like 2018. So in that sense, I suppose that maybe it is just like deja vu all over again.