Blog Education The Market In Focus: Cycle of Real Estate and FHA Financing – are we primed for a change?

The Market In Focus: Cycle of Real Estate and FHA Financing – are we primed for a change?

By Aryne + Dulcinea, December 11, 2018

By Aaron Nawrocki, Capital M Lending

If you talk to Portland real estate agents these days, most will tell you we are seeing a sea change in the market. Buyers are pickier, listings are sitting longer and more transactions are terminating after inspections. Of course, some if this is completely normal – homes don’t typically sell in three days for full price. So what is the relationship between the cycle real estate and FHA Financing? With a rise in marketing times, inventory and FHA financing, the real estate cycle will likely experience a slowdown.

We’ve had an amazingly robust market, with Portland’s median price up over 45 percent from the bottom 8-10 years ago. It’s been a run fueled by strong economic growth, Portland’s livability and position as one of the more affordable west coast cities. The increased values were also supported by gradually loosening mortgage underwriting criteria that made it easier for homebuyers to get mortgages. Now, these looser criteria were nothing like what we saw in the early 2000’s. Income, assets and credit were all verified and loans originated from 2010 to today are performing very well.

What accounts for the market slowing, then? Is this a warning sign? Home prices have risen faster than incomes. In conjunction with higher interest rates, that makes homes less affordable. It’s just harder to buy a home with a comfortable monthly payment than it was 5 or 6 years ago. Much of the pool of well-qualified buyers already bought in the last eight years. There are fewer buyers, and those that remain often have higher debt to income ratios and lower credit scores. Overall credit quality is down and Fannie Mae and Freddie Mac are beginning to tighten up their guidelines to lower risk. Because it’s easier to qualify for an FHA mortgage, more buyers are using FHA financing. Here’s where there are some similarities with 2008; the rise in FHA loans was dramatic when the housing market cratered. Currently, FHA originations are 20% of new loans issued, vs the historical average of 9%.

Fannie Mae and Freddie Mac are chartered differently than FHA. They are tasked with providing liquidity, whereas FHA is chartered to raise the level of homeownership.  That means FHA is supposed to do riskier loans. They are supposed to step in and make loans when other entities will not. Nowhere was this more evident than when the bubble burst. FHA mortgages went from 3% of new purchase loans issued in 2007 to 28% of the market in 2009. FHA did exactly what they were supposed to do – when lenders were reluctant to originate new mortgages, FHA provided the guarantee that kept the real estate market going. Of course, the dramatic rise in FHA loans occurred after the market had crashed, not before.

So – we have sales slowing, affordability declining and FHA’s market share rising. Does this mean that the market has peaked and that we’re looking at a repeat of 2009? It makes for exciting articles on the internet, but probably not. We are all subject to a preference for recency, and when it takes more than a week to sell a home, it’s easy to jump ahead and assume the market is ready for a “correction”. The likely answer is that sales and price activity are within a healthy band. Within that band there are mini peaks and valleys that do not necessarily represent the beginning of a long term trend. Watch inventory – we’re currently at 3.9 months, underneath the 4 month average in the “boom” years from 2000 – 2005. For perspective, inventories peaked at over 10% in 2008. When we see a rise in marketing times, an increase in inventory and a rise in FHA financing, it’s likely there’s a trough coming in the real estate cycle. For now, expect slow growth and some stagnancy as sellers adjust to a more balanced market. It’s a great time to get advice from a trusted realtor, as we see well-marketed homes still moving quickly.


Aaron Nawrocki has over 20 years of direct experience overseeing mortgage and loan processes, working to provide clients the market insight and lending expertise required to make informed decisions.

About Us:
Over the course of their professional partnership, Aryne + Dulcinea have helped over 200 clients prosper in their new lives. During this time, they have prided themselves in their top-notch selling abilities, with homes outperforming market standards, consistently exceeding list price while most of their listings sell in under 7 days. Whether you’re looking to buy or sell, Aryne & Dulcinea will work in collaboration to guide you in investing in your future and reaching your real estate goals.

Aryne + Dulcinea

Earth Advantage Principal Broker | Earth Advantage Broker | ADU Specialists | OR


Aryne + Dulcinea are full-service, high-producing agents, who understand how to navigate the unique challenges facing the Portland real estate market. The secret to their success is in their professionalism and complementary skill sets. In 2012, Aryne + Dulcinea saw an opportunity to combine their creative and technical wisdom to create a values-driven, full-service agency unlike any other. Expert negotiators and project management mavens with a strong background in creative marketing, Aryne + Dulcinea serve as fierce advocates for their clients. Their passion for real estate relates closely to their commitment to the Portland way of life, which entails a dedication to sustainability and appreciation for all things local. As Earth Advantage Brokers and ADU Certified Specialists, Aryne + Dulcinea are savvy in all aspects of alternative living practices—from versatile housing additions, green building practices, and revenue-generating strategies. Whether you’re looking to buy or sell, Aryne & Dulcinea will work in collaboration to guide you in investing in your future and reaching you real estate goals.

Aryne greets working with clients throughout Portland with open arms. Licensed since 2005, she appreciates the ever shifting desires her clients have as they move through their real estate goals. Investigative genius on her side, Aryne will strive to bring you the results you desire.  When not working for you, Aryne is a constant cheerleader for her son and daughter’s pursuits on the basketball court and on the ballet stage! She practices yoga, hikes, loves to walk and explore Portland neighborhoods, reads, and delights in soaking up everything Portland has to offer! 

Dulcinea thrives on working with clients with a range of real estate goals.  Oregon born, with a design and an award-winning professional background, Dulcinea is steadfast when it comes to working for her clients and has a keen eye for properties that best serve client objectives. Licensed since 2013, Dulcinea works in and around Portland.  A mother of two and wife to her high school sweetie—in her free time she stays busy with her family, travel, community activism, exploring the outdoors, curating art shows, and dreaming big!

Click here to get to know Aryne + Dulcinea!
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