Outlook: Oregon

January 16, 2007 – The numbers are in. According to the National Association of Realtor's annual price analysis report through Q2 2007 just released, the local forecast bucks the national trend with resiliency and even (dare I say) growth projected in the coming months. Here are some highlights (all data from the October 2007 NAR report);

The big story seems to be foreclosure rates and the sub-prime lending fallout. The overall foreclosure rate in the State of Oregon for Q2 2007 was 0.5%, compared to the national trend of 1.4%. Similarly, the Portland market has weathered the price storm, showing an overall appreciation of 5.2% while the national average fell 1.1%.The local market has also added more than 46,000 new jobs in the past two years, causing the NAR to predict "A rise in home sales and a strengthening in home prices appear imminent."

The continuing problem Oregon faces is the gap between income data and housing affordability. Housing prices have grown roughly 250% since 1990, outpacing income growth which is just shy of 100%. "However, such a reliance solely on price and income growth is inappropriate," the report claims. "For a home buyer, what is relevant is not home price in relation to income, but rather the mortgage payment in relation to income." With interest rates hovering around 6.5%, a buyer can simply afford much more house than they could in 1990.

The other major factor we have in Oregon (my opinion, not NAR research) is the continued stream of California buyers flocking to Oregon for the schools, recreation and relatively inexpensive housing. These buyers have undoubtedly fueled the swell in housing prices in spite of local income levels, and will continue to provide such support.

The halt of new construction will help stabilize the high inventory of homes on the market. Prolonged oversupply in the new housing markets have caused this reduction, which will in-turn whittle away at our inventory, strengthen prices and more quickly address demand.

As predatory lenders have been chased out of the market with their unrealistic loan products, borrowers are shifting focus to more stable FHA loans. In 2000 in Oregon, FHA loans accounted for 13% of the market. Today, it's around 2%. The mortgage industry is buzzing with speculation that we may see some of the restrictions eased on income caps and lending amounts in FHA loans - which will lead to stronger housing demand. Rents have also risen dramatically in the past year, which is typically a catalyst for first-time home buyers - many of whom are going FHA.

So the outlook is actually pretty good for Oregon. I'm cautiously optimistic. The report indicates that even with a rise in interest rates to as much as 7.5%, Oregon will still see slow, stable growth. And if interest rates remain stable, things will return to normal faster than otherwise expected.