PORTLAND HOUSING 1Q17: A Market Driven by Fundamentals – Rising Prices May Force Additional New Home Buyers into the Resale Market
- Detached single family starts have outpaced sales velocity for four consecutive quarters, causing increases in the months of supply.
- The cost of construction and dirt continue to rise so builders are left with little option but to raise prices, but we will see sales continue to slow slightly due the lack of affordability.
- This is NOT 2007 all over again: While price points are well above where they were during the previous peak of the market, but 2003 to 2007 was driven by fraudulent mortgages and reckless lending. The current market is being driven by fundamentals – job growth and in‐migration
Metrostudy’s 1Q17 survey of the Portland housing market shows that new detached single family starts have outpaced the sales velocity for four consecutive quarters, causing increases in the months of supply for spec inventory as builders have not slowed the pace of construction. All Counties with the exception of Clackamas have increased dramatically since this time last year. Fee simple townhomes are driving the attached sales at this time. With roughly 800 units coming on line in 2017 they will make up 80% of the attached sales. Condos are still slow to come to market but we may see that change as we move through 2017 into 2018.
With the median available price of new construction continuing to rise in the Portland Metro region more buyers will move to Townhomes looking for a more affordable home. The cost of construction and dirt continue to rise so builders are left with little option in regards to raising prices. With the rise in price points we will see sales continue to slow slightly due the lack of affordability.
“While many people keep asking me if I think it feels like 2007 all over again, my short answer is no,” said Todd Britsch, Director of Metrostudy’s Portland region. “The reason why not is that in 2007 we had over 3,000 spec homes under construction and as of the first quarter of 2017 we have just over 1,000. Yes, price points are well above where they were during the previous peak of the market but 2003 to 2007 was driven by fraudulent mortgages and reckless lending. The current market is being driven by fundamentals – job growth and in‐migration.”
The closed prices shown in the chart above represent all closed new construction while the median available price is strictly subdivision pricing. The average % of infill new construction is less than 9% of new single family homes with the exception of Multomah County which consists of roughly 30% infill builders. When looking at the new median list price of homes we can expect the new median closed prices to rise by another 7% to 10% within the next 12 months.
2016 ended with Portland metro continuing its trend of selling homes faster than we can deliver new lots. Although not as bad as in recent years down only 228 lots in net inventory. This should change in 2017 with Reeds Crossing coming on line with some much needed lot inventory in Washington County.
“The real estate market is a cyclical animal and it will slow again and the market will become a buyers market again,” said Britsch. “I am confident in saying that this will not happen for at least a couple more years. That isn’t to say that the market won’t slow in that timeframe because I believe it could very easily happen as we price home buyers out of the new construction arena and into the resale market especially if interest rates climb in 2017.”
For information contact
Todd Britsch – firstname.lastname@example.org
About Metrostudy: Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com
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