2021 Market Report

Introduction & Summary

Hello, Portland Metro Residents! Welcome to your 2021 Market Report. I am not a fan of bar graphs or pie charts until we start talking money and value. It is up to us to ensure we manage our finances and see that all of our assets achieve maximum benefit in the long run. Here it is in plain English!

2020 in review

As if you need a reminder, together, we’ve endured a global pandemic, and to some overwhelming loss. Individuals and families lost loved ones, businesses, jobs, and time together. We’ve experienced high profile and devastating social injustice followed by highly destructive protests.

Many have experienced sweeping changes to our education system including its newly presented challenges and shortcomings. Sadly, our country lost a trailblazing Supreme Court Justice and witnessed the unconventional conditions for her replacement.

We’ve withstood one of the most stressful political environments in recent history, separation from family and friends, seclusion, boredom, space challenges, etc. (Deep inhalation, followed by a very heavy sigh!) For mental health purposes, moving forward and beyond the negativity should be the only thing on our minds!

All the while, the housing market exploded! Low inventory, homeowners changing needs, and low interest rates created the perfect storm for the blazing hot residential market.

Facts

Low interest rates.

On September 17, 2020, Jerome Powell, Chairman of the Federal Reserve stated, no matter what happens in recovery, anticipate rates to remain stable between 0 – .25% through 2023. Current interest rates available to consumers starting at 2.32% depending on the product and buyer’s credit.

Now is the time! Take advantage of the rates if you are considering reducing your tax burden through homeownership. Perhaps you have considered moving up, or creating some positive cash flow through real estate investments.

Stay at home orders have increased savings and made homeownership possible much sooner than anticipated for some first-time homebuyers. Current homeowners experience similar benefits from rising equity due to high demand and low inventory caused by the pandemic.

Employment Indicators

Unemployment peaked at 14.7% at the beginning of the pandemic dropping to 6.7% to date. It slowly continues to decline and is projected to level off at 4% by December 2021. Industries are changing, and people are gravitating to meet the new changes. Faster job growth is expected due to the release and distribution of a vaccine for COVID 19. The projected return to normal is unclear.

On the Business End

People are on the move. Workers are leaning into the new normal, shifting to work for businesses outside of hospitality and other negatively affected industries. Smart business owners are shifting to create new businesses or augment practices to accommodate the changes necessitated by COVID 19. People are taking advantage of opportunities to move to more affordable communities to live. Workers and businesses are looking for more favorable tax rates and lower cost of living. This is needed to improve business viability, quality of life and long term sustainability.

Aligning with business moves, workers realize a change in needs as they are sent to do business from their home environment. Renters are realizing they need more space to develop home office settings. Homeowners are struggling to find quiet spaces away from the bustle of educating children at home. Likewise, they must eliminate distractions caused by family eating or entertaining themselves while under stay at home orders.

Low Inventory and Specific Desires

A direct result of telecommuting, most businesses began mass consolidation of office space at the onset of the pandemic. Consequently, many workers informed of new directives including changing practices and office structure continues to fuel buyer beneficial moves. Despite the pandemic, 15.9 million Americans moved in 2020.

Home prices are up due to low inventory, homeowner retention, and a strong surge in buyer activity due to decentralization. Buyers are looking for extra rooms with closed floor plans seeking quiet places to work and play at home. Attempting to return to normalcy within their own environment, buyers need space to accommodate home gyms and home entertainment.

Similarly, ADUs (accessory dwelling units), granny units, or converted sheds are attracting more attention from multi-generational families. Many families are converging out of necessity to make living more affordable and ultimately improve their lifestyle.

Thinking Ahead

Some purchasers are interested in generating rental income to hedge against potential loss and to help pay for the mortgage. This is a smart investment strategy geared toward self-sufficiency and long term stability considering recent experiences with volatile economy shifts. It’s also never to early to begin planning for retirement.

Millennials are expediting plans to purchase with resulting increased savings, a pleasant result of restrictions and stay at home orders. Living close to work isn’t a priority any longer. These buyers are opting to purchase homes in more suburban and rural areas, trading coffee shops for chicken coops.

As buyers enter the market to seek out safer and improved communities to accommodate their needs, they meet the competition. Despite a significant increase to 1,530,00 housing starts in late 2020, we are experiencing record low sales of existing homes. It remains perfect timing to make your move with potential for favorable cost of living, tax and interest rate savings. Nevertheless, the low inventory and challenges of competition rewards buyers with pleasing outcomes.

Predictions

The stock market likes divided government. Nobody gets everything they want, however division ultimately means compromise. Conversely, severe fluctuations create uncertainty, whereas compromise inevitably results in common sense decision making and stability. Projected lows for interest rates and sound underwriting practices ensure a stable future outlook in the residential real estate sector.

Bold Projections

Home value increases are expected to range from 5% up to 10%. Sellers will continue to experience market advantages due to low inventory. However, on the flip-side, they will be entering the same competitive market when it comes to purchasing a replacement.

People in general will act upon their growing discontent with their current home space. Workers will take advantage of their newly developed “work from home flexibility.” Sellers will move up to secure more square footage to accommodate home office space to work and educate their students at home.

Fueling the fire is the desire to move to an affordable community with a lower cost of living. More thought reveals the search out of county to pay less property taxes. Likewise, bolder out of state moves to pay less income taxes increases the benefit. Desires to upsize, find cheaper and safer communities will result in a rising sale prices of suburban and semi-rural homes. The $64,000 question homeowners should ask themselves, am I living in the right size home?

Greatest Hedge Against Inflation

Real estate

The population as a whole is going through decentralization, but re-centering around home and hearth. They are looking for safer, cheaper communities to live. Over 50% of buyers are moving more than 2 hours away. They are looking at states that will reduce their income tax burden in more business friendly states like Washington, Nevada and Wyoming.

After the the last election, some individuals and families are looking to align themselves with likeminded communities. Many are making moves based on their political associations. People living in Republican leaning states are wanting to move to states with a majority Democratic representation, and vice versa.

Millennials once bent on renting over the purchase of real estate are realizing the upside of homeownership. There is an increase with 32% of Millennials becoming first time homebuyers, COVID 19 highlighting the importance of comfort at home. As a result, decentralization is causing rents rising in some areas and drop in others.

Historically speaking, inflation usually follows a boom. So, be prepared, plan for it, including preparations to build and protect your assets. What is the greatest hedge against inflation? Real estate!

For more specific information on the Portland Metro and SW Washington areas, please refer to my latest Market Report post.