Portland Real Estate Bubble – Housing Market Crash 2020

You have probably started hearing already that the Portland real estate market is cooling, and many now want to know if the real estate market here will crash, are we in a market bubble now and will it pop in 2020?

Will the Portland Real Estate Bubble Pop in 2020?

We are going to answer that question, I believe fairly definitively (minus any international market calamities that we could not possibly predict), in this article by looking at all of the major drivers within the Portland real estate market and they are these 5:

  1. Portland wage rates
  2. Portland employment rates
  3. Portland new home construction rates
  4. Portland housing affordability rates
  5. Portland population growth

After analyzing these five local market questions, we will be able to answer definitively (as much as that is possible) whether or not there will be a Portland housing market crash or bubble popping.

1. Portland Employee Wage Growth

Believe it or not, in just two years Portland employee wages have grown an average of $8 an hour. This is a huge jump in a short amount of time. The U.S. Department of Labor says that the 2018 Portland average wage was $27 an hour, up from a mere $19 an hour in 2016. That is an incredible 26% Portland wage increase in two short years. So certainly, considering Portland wage growth as one factor to a healthy real estate market, we’re doing great.

2. Portland Unemployment Rates

Incredibly, there are 200,000 more people employed in Portland in 2019 than they were in 2014 according to the U.S. Department of Labor. Now match those numbers with these – around 75,000 people in Portland were unemployed in 2014, but there are only 50,000 unemployed in 2019! The unemployment rate in Portland is currently, fantastically low. Also, I have not been able to find any reports that wage growth is slowing or that unemployment is rising in Portland, since both of these recent U.S. Department of Labor reports have come out.

3. Portland New Home Construction Rates

Now if you had a strong economy but a home building boom, where they were simply building thousands of more homes than a city needed, it could have a significant impact on a local real estate market. But that is not the case in Portland. According to the City of Portland, new home construction is practically at a standstill. (Now please note this is not a report about new apartment construction, that is booming in Portland, but the rental market and the residential sales market are significantly different from one another.) There are about zero new condos being built. For new detached single family homes the City of Portland reports that about 600 homes a year have been built since 2013. From 2000 to 2006 there were around 1,000 new homes built each year. And now in 2019, Portland is reporting a drop from that roughly 600 new homes a year mark, down to 400 (we’ll see if that sticks, but it does look to fall short of previous years). To summarize, new home construction is going down in Portland, not up, so if you own a regular detached home in Portland, demand should be rising for it.

4. Portland Housing Affordability Rates

We just posted a full length article on this topic, but I’ve added additional research here from NAR, National Association of Realtors. They have created a fantastic tool for determining housing affordability in the Portland real estate market. In their chart, a value of 100 means that 100% of families with a medium income can qualify for a mortgage on a median priced home. So basically if you hit 100, then the average Portland person can afford the average priced Portland house.

Here are Portland home affordability rates:

  • 2015 Portland Affordability Rate – 127
  • 2016 Portland Affordability Rate – 132
  • 2017 Portland Affordability Rate – 122
  • 2018 Portland Affordability Rate – 114

In 2018 we got close to 100% and I guarantee when the 2019 numbers come out we will be even closer to that figure. So home affordability in Portland, Oregon is increasing rapidly, not decreasing.

5. Portland Population Growth

So we have strong wages, high employment rates, barely any new construction, and increased affordability for Portland homes. How in the world are we still in a cooling Portland real estate market (since 2017 by the way)?

The answer is rapidly declining population growth. Don’t believe me? Argue with Portland State University’s report. According to PSU in 2016 Portland, Oregon was top 5 in population growth for the top 100 U.S. cities. In 2019, Portland was 56th in population growth out of the top 100 U.S. cities. What a drop! And here, finally, is the answer for a cooling Portland housing market. Now, keep in mind, the Portland real estate market is not uniformly cooling. The top 25% of housing prices are dropping, but the bottom 25% of housing prices here are still rising. The luxury and condo markets in Portland are bring down the numbers for everyone else. Now, out of state population growth propped up what real estate markets in Portland? The condo and luxury market, of course. So locals who can afford the bottom 25% tier of housing are still buying it up in force. The middle of the Portland real estate market is performing fine, but as soon as you get to above average priced housing in our market (much of anything over 450K) or the condo market as a whole, and you can see signs of a cooling or altogether cold market – depending on your exact location. For a full breakdown of all this, visit our 2020 Portland real estate market forecast, which goes over these items in more detail.

Is the Portland Real Estate Market in a Bubble?

No. Simply no. We have an incredibly strong local economy as measured by employment and wage growth. Hardly any new homes are being built (large amounts can cause a housing bubble). And overall housing affordability rates in Portland are pretty good and only getting stronger. The reason you’re hearing rumblings about the Portland real estate market dropping are based on significantly decreased population growth that is primarily affecting the condo and luxury real estate markets here in town (and most homes priced over our median value of around 450K).

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December 3, 2019
AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and a top 1% agent in the Portland Metro. Principal Broker in Oregon, Managing Broker in Washington he has been licensed since 2003 for residential real estate sales in the Portland Metro area. Call him direct: 503-714-1111.

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