Sunday, April 17, 2005

Housing Bubble in Portland?

Is there a bubble in Portland or will housing prices just keep going up and up (or level off without a crash)? No one knows. But looking at past housing bubbles (they do happen) in places like Los Angeles and NYC, the answer is YES, we are in a bubble. YES prices are likely to be lower (someday), and NO you don't know when. One thing that seems likely from history's example: things will level off for a while (a year or two) before a collapse. During that leveling off period the number of homes bought and sold will slow down dramatically.
And what is a collapse? Prices could drop by as much as 50%, but that would be extraordinary. One economic evaluation based on Portland employment levels, population size, market size, income and residential density extimated that Portland Metro housing is overpriced by about 25%. If I were to guess, that would be the maximum magnitude of a price drop. But it will take a lot longer to find a home and buyers will find sellers reluctant to negotiate for quite a while (until the reality of the market drop has set in). There just won't be as many buyers and they won't be able to afford as much because mortgage rates are and will be higher.
Should you buy now? IF you are currently renting and you can afford a fixed rate mortgage and you plan to stay in the house more than 10 years, it's probably not a bad idea. Should you sell now?
Do you have somewhere else to live? If the market does drop, you can probably expect a two or three year wait to get a deal worth the effort and expense. And I could be wrong. All the guys who work for house builders think so.


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