Will the housing market in Portland continue to grow in 2022? If so, how much more growth can be sustained before another housing market bubble bursts? How far will interest rates rise over the year and how will we deal with a historic shortage of housing stock? Any predictions on which way the housing market is heading this year depends on the answers to these questions. After considering those answers carefully, here are some of the predictions we have about the housing market in Portland for 2022.

Going into 2022 Strong

As we reported last month, 2021 was a very healthy housing market for Portland. The numbers for the housing market in the area showed growth in the fourth quarter as they have throughout the year. Homes commanded higher sales prices even as both the number of sales dipped a bit and the median days on the market increased slightly as well.

The best news was for sellers who generated huge sales prices last year with many homes going for well over their asking prices. One reason for this sellers’ market was the shrinking housing inventory. Portland is not alone in this. Many, if not most, areas of the country are experiencing a housing crunch. Supply chain issues are making building new homes difficult and many would-be homebuyers are simply being priced out of the market. This is something that will continue to be a problem throughout 2022.

Another reason the housing market has been red hot is due to interest rates which have been kept very low throughout the pandemic. That will change this year as well. For the housing market to continue to surge, interest rates need to stay low and the housing stock needs to grow, but this doesn’t suggest a crash. In fact, if you can buy, now is the time.

No Crash in Sight

Worries about a crash in the market are understandable, but what happened in the previous crash of 2008 was a result of homeowners not being able to make their monthly mortgage payments due to creative financial packages such as interest-only payments. This led to over-leveraged buyers who could not sell their property and had to short sale or foreclose. Additionally, banks were then left with properties that they couldn’t sell and they took massive losses. This resulted in a loss for everyone.

The current market is much different. Lenders got hurt so badly last time and are more regulated now, so they are not granting risky loans. If a homeowner is forced to foreclose in the current market they would be left with a marketable property. This would help the inventory issue we currently find ourselves in. 

How High Will Mortgage Rates Rise?

The Federal Reserve will raise interest rates this year. Of that, there is little doubt, but how much is the question. Some experts believe mortgage rates will rise to between 3.875 percent and 4.375 this year. The belief is that this will happen in two increments. This will likely raise home prices in Portland by between four and six percent. Keep in mind that a 1 percent increase to interest rates has the same impact as an 11 percent increase to home prices. Therefore, via home price appreciation and interest rate increases homes will be 15-20 percent less affordable in 2022.

This is another reason to act fast. If you’re planning on buying a home in 2022, sooner is better. For now, the market in Portland remains hot despite the inflation and economic turmoil caused by the pandemic. Closed sales last year were equal to or better than the previous four years and the median sales price increased by 16.13 percent over 2020. It’s competitive for sure, and it is tightening, but for now, there are homes available for motivated buyers.

Low Inventory and High Buyer Demand

Real estate in the Portland area continues to be affected by extremely low inventory and high buyer demand in the single-family residence market. With the feds indicating that they plan on raising rates each quarter to employ some inflationary control measures, I think we will see a slight decrease in buyer demand as higher interest rates usually means fewer buyers in the market. This will likely ease the market slightly, but we will still see values continue to rise this year. However, the condo market in Portland will continue to be a much more buyer-friendly market with potential opportunities to get seller concessions such as buyer closing costs covered, home warranties, and buyer contingent offers accepted.

The Seller’s Market Continues

Many economists believe the housing shortage could last as long as 15 years as new construction catches up to the pressing demands on our growing population. As a result, the Portland market will continue to be in demand with a short supply of homes in our metro area for the foreseeable future. This is great news for sellers yet a bit problematic for buyers. Even so, it’s still a great time to buy even though real estate appreciation will outpace rates which equates to a sound financial investment on all fronts. 

Portland is still nowhere near the cost of our sister cities on the West Coast (San Francisco, Seattle, and Los Angeles) and with more and more people working remotely, our cost of living is a sound investment. First-time homebuyers may feel a bit more pinched as they lack the equity from a previously owned home. They need to continue to be patient and use their savings to close. The only recommendation I have for these clients is to try and get in as soon as you can.