After a run of continuous multiple offers and homes selling well above list price in 2021, predictions were made that 2022 would see a market slowdown. The pace of last year continued through Q1 of 2022, but rising interest rates are now causing the market to shift down a gear.

Are we heading for a Real Estate Market Crash?

After the market crash and recession in 2008–2012, it makes sense that people would be fearful of a tragic repeat of the circumstances that left millions of homeowners in foreclosure. Fortunately, that is not going to happen. The real estate market is going to remain strong, and home values will not take a nosedive for the time being. Keep reading to understand how the simple economic principles of supply and demand create the market conditions that allow me to make that statement with confidence. 

What makes the current scenario different from 2008? The key influencing factor is that inventory (homes for sale) remains incredibly low. There is less than one month's supply available. That means if no new listings were put on the market and the current rate of sales remained steady, within one month, all the available homes for sale would be sold, leaving nothing on the market. That is a drastic example, but the reality is that we need at least 3x more homes on the market to create balance. A balanced market means that homes can be sold without market forces creating an upward or downward pressure on prices. In a balanced market, people feel like they have enough home choices to make a fair buying decision without prices being bid up.

What’s caused the low inventory? It started during the previous crash, when many builders faltered and went bankrupt. The rate of building has never recovered in Portland. We've now had nearly 15 years of under-building, and population growth has far exceeded the available housing. Another factor leading to record low inventories is the pandemic and supply chain shortages. When COVID first appeared in Spring 2020, many projects were halted. The wait times for building materials, fixtures, appliances, and more have also increased as manufacturers and shipping companies work through their backlog. Another key point that will have a long-term effect is that Millennials have entered the home buying age. They are the largest generation in terms of population, and there are not enough housing options to meet their demand. Couple this with the Boomer population, who traditionally stay in their homes much longer than the US average of 13 years, and it creates a significant housing shortage. 

Higher interest rates and inflation will temper some buying decisions, but it won't change the fact that there are not enough homes to meet the demands of the population in the Greater Portland Metro area. The pace of the market is not expected to slow, but values will significantly decline until a balance of buyer demand and housing availability occurs. This will create a healthy real estate market.  

What does all of this mean for you? If you are thinking about selling your home, now is the perfect time to do so. It is still a very good time to downsize, upsize, or take that next big step in life to move to a new location. The market value of your home is still at an all-time high. The best homes may still get multiple offers, but that will not be the norm for all homes. If you’re a buyer, you’ll need to remain patient and trust that the perfect home will come your way. Some buyers are currently priced out of the market and are taking a break from home shopping. This is creating an opportunity for others to actually get an accepted offer without extreme competition. Owning your home remains an important step in building personal wealth. The market shift is a reality, but it is imperative to understand that the Portland Metro real estate market is leveling out, not crashing. 

If you think this is the time to buy or sell, send us a message to learn more.