Skip the usual disclaimers; here is what I think:

1. The Portland housing market has stabilized, as evidenced by the leveling of sale prices and the generally balanced inventory.

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2. That stability is fragile. Several threats remain:
  • Weak Demand:

Continued high unemployment means fewer qualified buyers, fear of buying amongst those who are qualified, and a general lack of urgency by the buying public. There are a lot of potential buyers waiting for the day they are certain values won’t drop further.

  • Mortgage Availability:

The Federal government is scheduled to stop its bailout buying of mortgage-backed securities after March 2010. Without a fluid secondary market, loan originators won’t be able to cash out new loans, and will make fewer new loans at higher cost to borrowers. I have a strong hunch that the Feds will continue this intervention if the secondary market hasn’t started to heal itself by then.

  • Interest Rates:

Some economists think 30 year fixed rates will rise close to 7% this year. They’ve said that many times over the past few years. This time I think they’ll be close to right. Perversely, the threat of rising rates will stimulate buying in the short-term, as it has done many times before.

  • Employment-Related Distressed Property Sellers:

No job, no money to pay the bank. Have job, keep the home. ‘Nuf said.

  • “Strategic” Foreclosures:

Reports are circulating of people who, though able to pay their mortgage, choose to abandon their homes on the theory that they’ll recover faster financially without the house than waiting for the house to recover its value. Credible estimates exist that the likelihood of homeowners doing this increases dramatically when their homes’ value dips below 75% of the secured indebtedness. My hunch is that we’ll hear a lot of these stories from other parts of the country, particularly the housing bubble states, but that the Portland real estate market won’t be affected much further.

  • The “Shadow Inventory”:

No this is not a Marvel comic book character. Anecdotal reports are increasing that banks have a huge supply of distressed homes, either about to be taken back, taken back, or foreclosed upon, that will be dropped on the market any day, and that such a flood will sink property values further. No doubt these homes exist, but the number doesn’t become larger by repetition. Banks frequently delay starting the foreclosure process, call it “strategic non-foreclosure,” for a number of reasons (a topic for another post!). Nobody has been able to give a good estimate of this shadow inventory’s size, or how it will be managed, so its hard to know if it will matter in Portland or not. Even if the number is as large as some speculate, one would think the banks will trickle the properties onto the market over time. Imagine Bill Gates selling all his shares in Microsoft: it would be done slowly. Nonetheless, bank-owned or controlled properties will be added to the supply of active listings for a long time to come, thereby putting some downward pressure on prices. It’s just impossible to tell how much.

  • Expiration of the First-Time Homebuyer Tax Credit:

I mentioned earlier that I did not think the credit was affecting the Portland housing market as much as the media has reported, so I don’t think its expiration will matter much, either. That said, the credit is a real bonus to an eligible buyer, so best get on the stick if you hope to take advantage of it.  See our summary of the First-Time Homebuyer Tax Credit to learn a few twists on utilizing the credit.

3. So what will the Portland housing market do in 2010?
  • Unemployment will fall slowly but steadily throughout the year.
  • Interest rates will remain low for most of the year, but finally start creeping up as the economic recovery gains traction and the markets respond.
  • Portland median home prices will remain flat for several months, with a slight upswing later in the year. Monthly fluctuations will occur, but the overall trend will be fairly stable.
  • Several Portland sub-markets that have been excessively discounted (Forest Heights and parts of West Portland, for instance) will rebound towards the overall Metro Portland trends, giving the appearance of a spike in activity and prices. Of course, if your home is one that sells quickly for more than you expected, this correction will be more than just an appearance!
  • Several sub-markets (Lake Oswego for instance) that have resisted price adjustments will show either price drops or excessive standing inventory (again).
  • The Oregonian will report a lot of meaningless statistics, and will announce the housing recovery three months late.
  • Many buyers will look back at the bottom of the market and wish they had bought earlier in the year.
  • Just my opinions. Maybe I’ll be right!
4. Where are the opportunities in 2010?
Portland Housing Market: 2009 Review, 2010 Forecast
  • Monday – 2009 Portland Home Sale Prices: RMLS releases annualized 2009 data for Portland metro and sub-area markets.
  • Tuesday – 2009 Portland Home Sale Totals: What type and size homes have suffered the most?
  • Wednesday – Active Listing Inventory: Is it true that Portland is flooded with “For Sale” signs?
  • Thursday – 2010 Forecast: What we think it all means for the market value of your current or future home.
  • Next Week – Opportunities in 2010: There are unbelievable bargains out there, but they’re not obvious.