As we welcome 2018 I’d like to do a quick recap of 2017 before peaking to the year ahead. I wrote back in September about the real estate outlook for 2018 and I’m happy to say not much has changed. But first, let us see where 2017 ended for the Portland Metro Market.
2017 saw stabilization of sorts. After two years of double-digit price appreciation, 2017 is ending with 6% gains in home values after peaking in June at 8.5%. Inventory while up a tad over LY still proved to be a challenge and was the driver for increased home values. With an average of fewer than 2 months of inventory throughout the year, 2017 proved to be another sellers’ market. It’s important to note while prices increased year-over-year unit sales year-to-date as of December 1st are down 2%.
The year ahead is looking more balanced for the Portland Metro Market. For 2018 I’m forecasting new construction to catch up a bit more to demand and help the inventory crunch giving buyers a bit more breathing room. Home values are forecasted to grow a modest 4% for 2018. And Interest rates are guaranteed to rise in the new year. Mortgage experts are forecasting 4.6% (compared to the sub 4% we have had the past two years). Thus the amount people can borrow will be reduced, but this will help keep prices and affordability in check.
As home values continue to increase at levels greater than historic norms, some are concerned that we are heading for another crash like the one we experienced ten years ago. As I’ve mentioned recently lenient lending standards of the previous decade (which created false demand) no longer exist. But what about prices?
Are prices appreciating at the same rate that they were prior to the crash of 2006-2008? Let’s look at the numbers as reported by Freddie Mac. The levels of appreciation we have experienced over the last four years aren’t anywhere near the levels that were reached in the four years prior to last decade’s crash. We must also realize that, to a degree, the current run-up in prices is the market trying to catch up after a crash that dramatically dropped prices for five years.
Prices are appreciating at levels greater than historic norms. However, we are not at the levels that led to the housing bubble and bust.