Housing market outlook cools a bit

Economists expect interest rates to slow escalating home prices and construction, but they still foresee a solid year ahead

Friday, December 10, 2004
DYLAN RIVERA
The blazing pace of home price appreciation and housing construction should ease next year as climbing interest rates constrict demand, three economists forecast Thursday in Portland.

But none predicted that the Portland-area real estate market will decline in 2005.

With slightly more than 10,000 residential permits expected for new houses in 2004, the year is looking like the best for builders since 1996. However, permits for new single-family homes may drop 5 percent to 10 percent next year, said Jerry Johnson, principal of Johnson Gardner consulting in Portland.

"So you may be going back to 2002 levels, but for most builders 2002 was a great year, so it's not a disaster scenario," Johnson said.

Portland-area home sales through October averaged $244,600, nearly 10 percent higher than the average for all of 2003, according to the Regional Multiple Listing Service. But Johnson said 2005 would probably see a boost of about 5 percent.

Such predictions formed the main presentation at an annual forecast event at the Oregon Convention Center sponsored by the Home Builders Association of Metropolitan Portland. Johnson gave a local prediction; Michael Carliner, staff vice president of economics for the National Association of Home Builders, discussed national trends; and state economist Tom Potiowsky reviewed Oregon's economy.

All agreed that interest rates will gradually rise during the next year, dampening rates of home building, sales and price appreciation. But each hedged on how much the rates would drop in light of factors as wide-ranging as energy prices, business spending and the national debt.

"There's no housing bubble in Portland that's going to burst," Johnson said. "But there's going to be a slowdown now."

The historically low interest rates for 30-year fixed home mortgages that fueled home buying in recent years are disappearing. They reached a record low in June 2003 of 5.21 percent, then hovered around 6 percent this year, according to weekly surveys by mortgage giant Freddie Mac.

Those rates probably would rise to 7 percent by the end of 2005, Carliner said. Interest rate increases to higher than 7 percent would hold down real estate sales -- and price increases -- by disinclining prospective buyers from trading up on housing. Many will not want to give up 5 percent to 6 percent mortgage rates they have on their current homes, the economists agreed.

The sober forecasts didn't appear to worry housing industry executives.

David Dresser, senior vice president of Action Mortgage in Lake Oswego, which lends to homebuilders, said interest rates are still low by historical standards. Dresser said he remembers double-digit mortgage rates in the early 1980s.

"I'm looking at interest rates I thought we'd never get to," said Dresser. "If people want to buy a house at 7 percent, they'll figure out a way to do it. It's 12 percent that killed us."

Marcia Kies, a real estate agent for more than 20 years, said rising interest rates could provoke emotional reactions from buyers.

"They either panic and don't buy for a while because they're freaked out by it, or they realize they have to get it before it gets worse," said Kies, a top producer with The Hasson Co. in Lake Oswego. "After a while, it becomes the status quo."

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Belmont is a Pearl in the rough Condos going up in Southeast Portland herald a new wave of gentrification, yet stir worries

Friday, November 12, 2004
TIM SULLIVAN

To evaluate different areas of a city, Randy Rapaport has something he calls the pussycat test.

"If a cat is comfortable hanging out there, it's probably a good thing," says Rapaport, a school psychologist-turned-developer. "Southeast Portland is full of that."

Southeast Portland also soon may be full of the kind of building Rapaport is erecting on Southeast Belmont Street and 35th Avenue to tower above the cats. The Belmont Street Lofts will be a four-story, wooden-clad "boutique condo loft building." It's the type of project more often found in the Pearl District, where Rapaport lives in a loft.

But with perhaps more pussycat appeal, infill possibilities and increasing popularity, developers think Belmont and other emerging Southeast corridors such as Hawthorne Boulevard are ripe for urban-style condominiums. Construction isn't finished, yet 25 of the Belmont Street Lofts' 27 units have been reserved.

Other project under way

Within a half-mile of the Belmont Street Lofts, two similar projects are under way or have been completed in the past year by similarly small-time developers and designers seeking something new. And although the often-modern mixed-use condo buildings present jarring visual changes and parking challenges to these old neighborhoods, many see them as the area's next wave of the gentrification.

The Belmont Street Lofts "are going to be a trendsetter in this neighborhood to see how (condos) are going to do," says Paul Loney, the land-use chairman for Sunnyside Neighborhood Association. "If they do well, we'll probably see a lot more of them."

Ten years ago, Sunnyside did not have cachet with Portland's most urbane home seekers. A rash of mixed-use condo buildings probably wouldn't have penciled out, many developers say.

But in 1996, the Belmont Dairy condos and apartments -- a pioneering eastside project -- helped to push up property values. In 2003, six blocks away on Hawthorne Boulevard, rose The Hawthorne -- a sleek glass, steel and brick building that houses retail spaces on the ground floor and 16 condos on top.

"I think it's sort of what's going to happen in Southeast," says Pam Coven, owner of Imelda's shoes, The Hawthorne's first retail tenant. "This is the next growth to the gentrification."

Developers pleased

Apparently, it's a step that a few folks were waiting for. At Southeast 42nd Avenue and Belmont, Jerry Haase's new Andria Condominium building is just a hole in the ground, but five of its 30 units have been reserved. Haase says the first purchaser was driving by, saw the newly erected sign and called him to reserve a unit.

Like Rapaport, Haase has a background in Northwest Portland -- he traded a smaller parcel there for two larger ones on Belmont. Haase thinks that condos that would be commonplace and expensive in the Pearl District offer an alternative in the Southeast for those who don't want an apartment or a yard -- and could be a good deal. The Andria's units range from $170,000 to $440,000.

Those reserving units in these buildings range from empty-nesters looking to downsize to younger professionals. Rapaport says that of his buyers three are from the Bay Area.

Reminiscent of home

Brooks Jordan, one of the first to reserve a unit in the Belmont Street Lofts, likes the building's design and says the area reminds him of his native Berkeley.

"The Pearl is attractive in some ways, but the Hawthorne-Laurelhurst-Belmont area mixing the old community with the new bohemian, it has a freshness," Jordan says. "I feel that I can get the Pearl and even better in that building."

But for many in Sunnyside, having their neighborhood equated with the Pearl District is not a good thing. Loney, who also leads Southeast Uplift neighborhood coalition's land-use and transportation committee, says some aspects of the new buildings are difficult to get used to. They rise above much of the streetscape. They bring more traffic and pose parking problems. Some of them, he says, "are just plain ugly."

And because the buildings fit within the zoning and design requirements, the neighbors first learn about them when they're being built. Loney says his neighbors understand the sprawl abatement such dense housing provides but thinks the city should give the neighborhood a better way to cushion the changes the condos bring.

"It's a switch to more urban living, but there should be a trade-off," he says.

Loney hears that there could be more condos coming to Belmont. He's right -- Haase says that if his building sells well, he plans to build a spitting image of the Andria across the street.