Portland’s housing shortage: Low inventory spurs higher prices, pushing ownership further out of reach
By Janet Eastman | The Oregonian/OregonLive, 09/03/2021
When Laura Beth Weinberg bought a Portland bungalow in 2010, she had plenty of choices that fit her price range as more homes were put up for sale every day. “Things weren’t moving at all” after the recession, she said. “I didn’t feel pressured to make an offer until I was ready.”
Now, a historic low level of homes on the market in the Portland metro area has caused anxious buyers to make fast offers, sometimes for more than the asking price, and still some are being shut out by challengers able to sweeten the deal.
“I am so glad I bought when I did, for many reasons,” Weinberg said, grateful for the price she paid in Northeast Portland’s Cully neighborhood a decade ago.
She also didn’t endure the stress of competing in a tight market, she added, “possibly having to settle on the house I could get rather than the one I would want.”
Understanding the impact of the level of homes for sale is not a great mystery, experts say. The advantage to buyers or sellers comes down to simple supply and demand.
But the factors that control inventory are complex: Builders need to pump out new construction, even during economic down times, and existing homeowners need to be willing to sell, even during a pandemic, to overcome Oregon’s longtime housing shortage and its rising population.
It wasn’t that long ago that buyers had the upper hand in negotiating the price of a property in the Portland metro area, according to an analysis of data by The Oregonian/OregonLive based on almost 20 years of monthly inventory reports by the Association of Realtors’ Regional Multiple Listing Service (RMLS).
The residential real estate market is considered balanced between buyers and sellers when there are enough houses and condos for sale that it would take four to six months to sell them.
In December 2009, on the heels of the Great Recession, the inventory of unsold homes in the Portland area was at 7.7 months, favoring buyers.
By December 2019, the level had plunged to 1.8 months, putting sellers in control, which continues today.
Compounding rock-bottom inventory levels in a state with the largest housing shortage in the nation are more than 4,000 Oregon dwellings lost in last year’s wildfires as well as labor shortages and higher costs for new construction.
Another setback for buyers: Owners hesitated to sell during the coronavirus pandemic. The biggest motivator to stay put, according to national real estate database analysis, is concern of not finding another home.
But that is changing.
Sellers who waited to list their property are jumping into the market while it’s hot, bumping up inventory. And the state-wide foreclosure moratorium, which temporarily halted what is typically a steady supply of distressed properties for sale, is scheduled to be lifted Dec. 31, 2021.
Oregon was already 111,000 housing units short of what’s needed, not counting shelters for the homeless, before the coronavirus added more roadblocks, according to the 2020 Oregon Regional Housing Needs Analysis report.
Before the pandemic, one permit to build a new home was issued for every three new jobs and the historical average is one for every two jobs, said Michele Gila, government affairs director with Portland Metropolitan Association of Realtors.
“The list of hurdles to catch up keeps growing,” she said.
During the Covid-19 era, prices for lumber, other building materials and appliances soared while “red tape and regulations” associated with lot improvements and new construction stayed in place, said Gila.
Many developers and builders, forced to face the ups-and-downs of the economy, went out of business during the recession and set a skilled workforce off to be trained in new jobs. After demand ramped up again, a shortage of labor caused wages to rise.
“Labor has been an issue since the recession and will continue to be an issue,” said Ryan Makinster, director of policy and government affairs for the Home Builders Association of Metro Portland.
Dwellings under construction and proposed to be built are factored into RMLS’s inventory levels.
Kurt Misar, a broker with NW Property Advisors, concluded: “Even if demand were the same as it was three to four years ago, the lack of inventory simply puts intense pressure on the marketplace.”
Advantage sellers or buyers?
When the market is flooded with homes for sale, as it was in 2008 and a few years after the Great Recession, home shoppers like Weinberg could take their time making a selection based on their choice of architectural styles and locations within their budget.
When buyers have the advantage, they can negotiate for a lower price and request repairs and even upgrades be made before the deed changes hand. Desperate sellers wanting to move on, especially those during the recession who needed to offload their debt if their property value fell, are willing to meet those demands.
Weinberg spent a little over a month looking at homes for sale. By the time she found the place she would eventually buy, she had seen enough comparable properties to know it fit what she was looking for and that it was a good deal. In fact, she thought it was underpriced.
“I put an offer in the same day at full price and they accepted,” she said. “I was the only person who looked at the house and the only offer they received.”
Fear of losing out in today’s low-inventory market, although the frenzy is cooling, is fueled by heightened competition from people with deep resources and no plans to live there.
Portland area home shoppers searching for properties around the median price of $522,000 feel squeezed out by developers and investors flush with cash and flippers with a construction crew who can waive inspections and repairs.
Businesspeople with an “insatiable demand” to profit from homes are growing into a larger buying force, said Misar of NW Property Advisors.
The drive to buy properties that can be developed intensifies as Oregon’s state and city governments grant greater residential density, he said.
As of Aug. 1, a Portland residential lot can have two small, self-contained accessory dwelling units (ADUs) in addition to the existing single-family home, creating more housing.
“There are tons of developers who want to acquire and convert an R5 standard 50-foot-by-100-foot lot into a duplex with an ADU,” said Misar. “That’s three rental income streams or two sale products with tax lot partition where one existed.”
Portland’s Residential Infill Project, designed to address the housing shortage, will allow some lots to qualify for up to four homes or a three-story apartment building of up to six homes if at least half meet affordability standards.
Traditional home buyers who need time to go through the mortgage process can tempt sellers with a higher price, which an appraisal might not support, or get creative by promising sellers a signing bonus or charity donation in their name.
But Misar cautions buyers against acquiring a property at an inflated price that doesn’t provide protection of owner equity if the market were to fall.
“It can get eaten up quickly, as it was in 2006-2007, putting the home value below the bank debt,” he said. And starting the cycle all over again.