By The Dream Digs Team, June 4, 2018
By Aaron Nawrocki, Capital M Lending
Portland home prices have been climbing consistently this decade, and there’s a lot of “bubble” talk these days. If you had to name the two defining changes in the Portland mortgage market over the last eight years, they would be higher sales prices and smaller down payments. Portland has traditionally had a strong real estate market, even in downturns, but Portland down payment amounts are decreasing. Historically, sales prices and loan amounts rose in lockstep. As Portlanders moved up, they took the equity from their sale and put it down on the new purchase. Portland incomes have traditionally been lower than other places on the west coast and Portlanders needed lower monthly payments. Larger down payments kept the monthly payment affordable and limited the growth in prices.
Now that Portland is the it city on the west coast, the connection between down payment and sales price has changed. More buyers are moving here from other locations, bringing their well-paying jobs with them. They’re younger, make more money, can afford higher monthly mortgage payments, and are putting less down. Accelerating the shifting dynamic is the increasing availability of small down payments paired with large loan amount mortgage. This trend has pundits worried we may be headed for trouble. Small down payments mean banks have a smaller cushion in case of default, and a moderate price decrease would leave more homeowners under water. That makes defaults more likely, as homeowners are less likely to continue making mortgage payments when they owe more than their home is worth. In the last recession, many at-risk homeowners elected to stop making payments, and the flood of foreclosures created a downward market spiral. It’s understandable that analysts would make the connection between 2006’s peak and the recent price runup.
The rate of price increase is similar – the early 2000s and recent years have seen strong price growth, which raises concerns of a correction. However, while the price increase is similar, there are two factors which make a bubble less likely.
- Rents have risen along with sales prices. That makes elective defaults less attractive. In 2009, a homeowner might abandon their home and its $2,000 per month payment and rent a similar home for $1,500. Today’s housing market is different – rents and monthly mortgage payments are similar. Therefore, homeowners typically can’t reduce their housing expense by opting to rent.
- Mortgage qualification is dramatically different. The biggest change is the absolute requirement to verify the buyer has the means to repay the mortgage note. In 2006, buyers could easily get a mortgage to buy a new home without having to document they could afford the payment. There was no validation by the bank, allowing many buyers to make speculative purchases. As soon as the market turned even slightly, many of these buyers could not make their monthly payments and allowed their homes to go into foreclosure. While a price decline will increase defaults in today’s housing market, ensuring the monthly payment is truly affordable will mitigate this effect.
There’s an old saying that whatever goes up, must come down. That’s as true today as ever. The rapid rise in Portland home prices definitely feels evocative of the early 2000s and brings up the specter of a bubble. Prices will eventually decrease, of course, but unfortunately no one knows when. The good news is that the structural and mortgage changes in the real estate market will likely dampen the severity of the market’s ebbs and flows. With the strong inflow of well-qualified buyers in the Portland market, it appears that Portland home prices are set for a period of stable growth.
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.
THE DREAM DIGS TEAM
Aryne + Dulcinea, Earth Advantage Principal Broker | Earth Advantage Broker | ADU Specialists | OR
The Dream Digs Team are full-service, high-producing agents, who know how to navigate the unique challenges facing the Portland real estate market. The secret to their success lies in their professionalism and complementary skill sets. In 2012, Aryne + Dulcinea seized the opportunity to combine their creative and technical acumen to create a values-driven, client-driven team unlike any other. We are expert negotiators and project managers with a strong background in creative marketing. The Dream Digs Team are fierce advocates for our clients.
Our passion for real estate is connected to our commitment to the Portland way of life - a dedication to sustainability and appreciation for all things local. As Earth Advantage Brokers and ADU Certified Specialists, our team is 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, The Dream Digs Team will work in collaboration to guide you in investing in your future and reaching your real estate goals.
Dedicated to serving buyers and sellers with expertise, enthusiasm, and attention to detail, Aryne adeptly navigates the Portland real estate market. Licensed since 2005, she honors our clients' wants and needs using her sharp negotiating skills and professional know-how to achieve the best results for everyone she serves. Aryne loves the Pacific Northwest! Outside of work, she enjoys hanging out with her husband, listening to music, going on road trips, and talking about everything under the sun. She looks forward to visiting her grown-up kids at college and watching them succeed in all their endeavors. She loves yoga, hiking, dinner parties, podcasts, and embracing all that Portland offers.
Dulcinea thrives on working with clients with a range of real estate goals. Born and raised in Oregon, Dulcinea comes to real estate with a background in design and education. She is an award-winning professional and a steadfast advocate when working for our clients. She has a keen eye for preparing properties for listing and finding properties that best serve our buyers' objectives. Licensed since 2013, Dulcinea works in and around Portland. She is the mother of two and wife to her high school sweetie. In her free time, she stays busy with her family, traveling, creating community, cooking, gardening, making art, exploring, and dreaming big!
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