As a Realtor in Portland, Oregon it’s frequently my job to apply a compelling narrative to the currently perceived market phenomenon. Perhaps my latest blog articles have pleased the real estate gods and we will have a bountiful harvest or maybe it’s time for some soul searching and grovelling for redemption. Currently we may be preparing for the latter because the last few seasons of marketing Portland homes for sale haven’t been great. Between market jitters over the recent presidential elections to repeated snow storms that shut down much of Portland’s commerce, we haven’t exactly been set up for success. What we don’t really know is whether bad weather will waver the wherewithal of buyers over time. Or, will warmer days and hope for the future usher in another year of robust increases in home values.
After presenting the facts about the housing market I’ll offer three narratives about what all this might mean and what the future might hold. Of course, at the end of the day nobody really knows what will happen and I cannot predict future profits or losses. We don’t know whether this trend of robust sales and high demand will level out, continue its meteoric rise or flop. What follows are three possible scenarios that may turn out correct or incorrect. This article is a creative extrapolation based on recent data from a recent blog article on the Portland real estate market for Spring, 2017. Choose whichever one seems most plausible to you and your expert advisers or better yet, live life by your own rules, disagree with me and draw your own conclusions.
Scenario 1: Portland Housing Boomtown into the Stratosphere
Even though Portland’s prices are at/near record highs it’s possible that we’ve entered a fundamentally new market and that today’s prices are a new and permanent reality. An example may be the neighborhood transformations that have taken place in NW pdx Pearl District or NE Alberta Arts District. In these areas, the fundamental nature of these neighborhoods underwent a complete metamorphosis and today’s vibrant butterflies bear little if any resemblance to yesteryear’s awkward caterpillars. In a similar fashion, the entire city of Portland may be being transformed under the pressure based on the desirability of the area.
In the Pearl, abandoned warehouses became luxury lofts and condos located in the heart of the city. As old warehouses became exceedingly rare and the local demand increased, new condo developments and mixed use buildings sprang up to meet the demand. Similarly, Alberta Arts was once an area defined by higher crime and lower property values. However, as close-in neighborhoods became increasingly in-demand Alberta Arts experienced a renaissance of local artists and culture. Consequently, increasing home values soon followed and today both of these areas have become so cool they’re frozen.
Overall, in this scenario, Portland would become a hybrid of Seattle and San Fransisco where technology firms and innovation continue to bring in a new generation of young and wealthy free-thinkers who will pay top dollar to live here. A prime piece of evidence pointing toward this possible future is the fact that many wealthy transplants to our area work from home online or only have to be at their offices sporadically and commute to their work a few times per month by simply buying a plane ticket. The internet age has geographically freed many employees and tech entrepreneurs from having to live in proximity to where they earn a living. And, this new online work environment may lead many highly paid individuals to live in Portland while working for firms located in prime financial markets such as San Fransisco, Los Angeles or New York City.
Scenario 2: Portland Real Estate Bubble Implodes
Another possible scenario for housing is that rapidly increasing home prices will outstrip the local economy’s ability to support the costs. Already in our city, we’re frequently hearing about college-educated individuals with successful careers, often in dual income families that are still having trouble affording a place to live. Many individuals and families in Portland are in the “kind-of getting-by” category and are thus at the mercy of unexpected life events including corporate layoffs, medical illness, rising childcare and family costs and other setbacks. The argument goes that if successful upper-middle-class people are sometimes finding it hard to afford a home then how much harder will it be for working-class families? Wealthy home-buyers that work from home in high-tech fields doesn’t seem like enough to support an entire city. Also, if the cost of living becomes too high for service industry workers to live nearby, eventually it may force those people to find better lives elsewhere.
Logic dictates that working-class families would grow tired of the long work commutes and horrible traffic, scraping by each month at the edges of the suburbs and seeing any remaining financial freedom absorbed into ballooning housing costs. As a full-time real estate agent who worked through the entire Great Recession, I noted the unsustainability of homes that were priced out of reach of their target demographic. When entry-level starter-houses moved out of reach of first-time buyers, our market shifted into bubble territory. The next step of the last housing bubble was when middle-class families couldn’t afford to trade up and ended up “spending the equity” of their home’s appreciation keeping up with high living costs. Lastly, the bubble burst when nobody could really afford to buy and one by one, anyone with even a modest financial hardship fell behind on their high mortgage payments. With the way that Portland real estate prices have gone up six figures over the course of a few short years, one can make a compelling argument that we’re already well into the next housing bubble now.
In this second hypothetical scenario, the endgame of Portland’s runaway home prices may be a Dystopian future where everyone but the few ruling technocrats have been priced out of the market and nobody is left to buy any homes at bloated prices. Basic services like repairing broken plumbing or childcare would become astronomically expensive because people that work in those fields would no longer be able to afford to live in the area. Already today, the freeways that lead across the river to Vancouver, Washington are backed up for miles because people who work in Portland can’t afford to live there. The free-thinking artists and musicians who made the city cool to begin with would all be forced to leave because of economic factors, gutting much of the “Keep Portland Weird” vibe that made people want to move here. Then, once all of these factors was in play, any national or worldwide economic disturbance would be enough to cause the house of cards to fall under the weight of an ever-lower standard of living due to rising housing costs.
Scenario 3: Boredom Ensues as Home Prices Stabilize Into Sustainable Pattern
In this last hypothetical scenario, local home prices would stabilize and plateau long enough for wages to catch up with housing costs. This may take the form of slow housing growth or mild to moderate settling of home values combined with more robust economic growth. In this narrative, factors like increased prices, heavy traffic and even our recent cold winter snow storms would all serve to slow down the new demand from new transplants to the area. Meanwhile, the FED raising interest rates and global economic concerns may also tighten up some funding for mortgages. If our new president does manage to increase federal spending on infrastructure projects and manages to move good-paying jobs back to our country that may also help in terms of raising the average individual and family income.
Another consideration to our current Portland real estate market is all of the new construction projects being undertaken of late. Simply looking out the window almost anywhere in the city from St Johns to NW Industrial down to Inner SE and you’ll likely see one of the many new condo and mixed-use residential towers going up. And, while many longtime and lifelong residents may not appreciate our newly crowded city skyline, it’s also important to note that this will equate to thousands of new close-in living spaces for people in the area. Close-in being important because this will help mitigate the already excessive strain on our roadway system.
In this last potential future scenario, everything from rising interest rates to the plethora of new condo developments would help both satiate and temper the strong demand to move to Portland, Oregon.
What Might All This Mean?
The short answer is, we don’t know. Even if the housing market does crash again, there would also be the silver lining of renewed opportunity for millenials to be able to buy affordable homes. On the other side of that coin, if high prices push out more and more working and middle-class workers that may also force wages for those industries to rise as well. I may be channeling Mike Rowe a little bit here, but it’s possible that being a plumber, mechanic or childcare provider in Portland, Oregon may become an extremely lucrative career once many in those fields have opted to move elsewhere due to housing costs. Or, if increases in home prices moderate that would allow time for local wages and the national economy to stabilize and lead to modest, sustainable growth in the future that moves everyone in our city and country into increased prosperity and quality of life.
In closing, it’s important to remember that this is all speculation and that the future may involve some, all, or even none of these possible scenarios. As a Realtor in Portland, I’m not one to predict the future or be able to promise future real estate gains or losses. Nonetheless, it’s fun to dream and think creatively about what might happen tomorrow. In the 1950’s there were people writing newspaper articles stating that we’d all have flying cars by now and that still hasn’t become mainstream yet. At the end of the day, this is more of an exercise in food-for-thought in the hopes of spurring a healthy debate and an increased awareness of the many factors that might influence home prices.
Richard Lockwood is a Portland Realtor with Oregon Realty Company.