Portland Market Trends – 2006 Forecast

October 26th, 2005

I recently attended a 2006 Portland real estate forecast keynote delivered by Jerry Johnson, a principal at Johnson Gardner, LLC (a Portland-based real estate and land development consultancy). He provided some interesting insights looking forward, including a fairly bullish outlook on PDX’s residential real estate future.

Portland’s Economy Growing….Slowly
Johnson commented that Portland’s general business cycle runs a little behind the national average. In the areas of unemployment and wage growth, Portland is improving, but very modestly. Portland’s unemployment is still 1.5% higher than the national average. New jobs have come in the information services, high tech, and education/health services in particular, but again have grown only 2% from May 2004 to May 2005. And due to the higher unemployment numbers, 2005 is the first year that wages have shown positive growth since 2001. Metro area population growth in 2005 will be around 1.6%.

Affordability and Home Ownership
As seen throughout the local press, Portland continues to be an attractive place for out-of-state real estate dollars due to its affordability index. With a median price of $233,800, Portland ranks as one of the more affordable communities on the West Coast (the national average is $212,000 and $302,000 along the West Coast). Right now, nearly 67% of Portland’s residents own homes, the highest range since 1991. However, as interest rates rise, Johnson expects home ownership to settle in around our normal average of 65%.

Note to investors: A rise in interest rates could offset much of the low-end home purchases, thereby increasing the popularity of renting and providing the first real rent stability seen in the last few years.

Potential Threats
Despite the modest growth of Portland jobs and wages, real estate activity has been very strong. Johnson attributes this to the low interest rates have that have offset this gap in buying power. Between 2000 and 2005, although the median household income rose only 3%, a 30% decrease in interest rates provided additional mortgage dollars in everyone’s budget. And there lies perhaps the top threat to PDX’s real estate market. Johnson’s example of rates rising to 7.5% would increase the mortgage payment by 26% for a median home in Portland. Johnson also called out exuberant speculative appreciation expectations (remember the 2000 Stock Market?), as well as inflation concerns and the rising costs of oil as other potential drags on the economy.

And the forecast….drumroll please
Johnson was optimistic about Portland’s residential real estate market, including a potential revival for rental property. The economy is growing, jobs and wages are improving, the metro area is expanding (albeit modestly), and demand still outstrips supply. Good news for most of us in 2006.

Source: Jerry Johnson, Principal, Johnson Gardner, LLC.

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Entry Filed under: Forecasts