Last November, 2005, I wrote that I did not believe that a housing bubble existed in Portland and I predicted that housing prices would continue to rise for the foreseeable future. As I write this article in the beginning of November, we only have data from as recently as September. It takes the Multiple Listing Service more than one month to compile the current data and disseminate it to us. So let’s now take a look at the past year and I will again do my best to predict the short term future.

2005 set an all time record for real estate in Portland with a volume of $10.6 billion. Compared with 2004’s $8.1 billion that is an increase of 30.9%. 2006 is a slower year for sales but it is still one of the strongest years Portland has ever seen. Please remember, you can not have an all time record every year. So while newspapers, and other media, are still shouting about the cooling housing market, and the market is truly slowing down across the nation, Portland continues to be very strong. Let’s take a look at the closed # of real estate transactions through September (three quarters of way through the year) of the past decade to see how 2006 stacks up:

September 1997 18,018 closed sales
September 1998 19,425 closed sales
September 1999 19,413 closed sales
September 2000 18,490 closed sales
September 2001 20,652 closed sales
September 2002 20,641 closed sales
September 2003 23,357 closed sales
September 2004 24,784 closed sales
September 2005 28,724 closed sales
September 2006 25,185 closed sales

You can see that although the Portland real estate market is slowing compared with last year, it looks like it will be the second best year we’ve had in the past ten years. That’s not too shabby in my book!

As a reminder, I am not speaking about the national real estate market, only the Portland market. Some other markets are not doing nearly so well as ours and, of course, there are specific reasons why our market is doing better than the nation’s: our urban growth boundary, our local government’s policy of in-fill vs. sprawl, the desirability of our city, the growing population, and Portland’s modest growth rate during the real estate boom.

In the past 12 months (September 2006 to September 2005) appreciation rates for the average home in Portland went up 15.4%! The most popular areas of the, for our clients, appreciated:

North Portland 21.3%
Northeast Portland 16.8%
Southeast Portland 15.8%

Clearly, the 1st three quarters of 2006 has been tremendous for the Portland real estate market. So what is in store for the rest of 2006 and for 2007? In my opinion, the Portland market will continue to do well, although I do believe it will slow even more than it has so far, compared to the record breaking year of 2005. We are seeing the market slowing down, especially in the past three months. How this continues will depend upon: the local and national economy, if new jobs continue to grow or decline, the pressure of increased energy costs and the costs of the war in Iraq. We will have to see what the Feds will do about raising short term interest rates. They have finally taken a pause and not raised rates at their last three meetings. If the Feds continue to stop raising short term rates – and inflation seems less likely, as it does – then the market will continue to be strong as it was in 2001, 2002, 2003 and 2004. If, however, short term rates go up so that mortgage interest rates get to 7.5% or even 8%, then the market will begin an even larger slowdown. I do not believe that interest rates will go above 7% before the end of 2007. As a matter of fact, current mortgage rates have been going down for the past 6 months. I believe that appreciation rates will come down to around 10% for 2007, which is still very strong. Of course, these are only my opinions and there is no way to know if I am correct or not until I write to you again next year. However, I am a big believer of buying Portland real estate and holding on to it for a long time, ten years and longer. If you take the long term perspective in buying real estate, I can not imagine any other outcome other than your extreme satisfaction.

If you, or anyone you know, are looking to buy or sell Portland real estate, please call us at 503-238-7617. Portland’s Alternative Realtors have now closed nearly 1,000 real estate transactions. Let us put our experience to work for you.

Steve Bennett, Principal Broker, GRI, CRS