Portland is right in line with the national average of housing prices

Sunday, July 17, 2005
BRIAN PIENOVI
The Oregonian

Newspapers across the country plaster one story after another on the mania-driven real estate market.

While some of what's going on in other markets is happening in the Portland area, there's a fundamental difference -- Portland hasn't had the huge appreciation of other markets.

Homes in the Portland area appreciated by 12.9 percent from May 2004 to May 2005. That's not eye-popping. Just take a look at these numbers:

The average one-year change for the U.S. housing market is 12.5 percent, right where we are.

Most major West Coast cities jumped in excess of 20 percent. California, already known for its pricey real estate, appreciated 25 percent. That's a gain of 2 percent a month.

Nevada, home of sage, desert and glitzy casinos, increased a whopping 31 percent.

Looking eastward, average home values jumped more than 22 percent in the District of Columbia and 21 percent in Florida.

No, Portland-area homes aren't risk-free. But if there's a correction in housing prices, we should experience a softer landing, and we're more likely to see prices level off than decrease.

The Portland market has been its most active in a quarter-century. CNN recently featured a story on our attractive housing prices in comparison to other major West Coast cities, saying we were the most looked at. As a result, investors and home buyers from Southern California, Seattle and Vancouver, B.C., are poking around Portland.

We're popular, for good reasons.

While the rest of the country's recovery began a couple of years ago, Portland -- and Oregon -- have only recently enjoyed a decline in unemployment rates. An improving job market will help keep real estate prices from softening, avoiding that much-debated "bubble burst."

Some equate the housing market's fast rise to the dot-com stock market bubble that burst in the '90s. But there are some important differences. Stocks are an abstract, a piece of paper. You can see real estate, pound a nail in, live in it.

And don't forget all those CEOs in handcuffs. Stock market losses outpace housing market headlines as CEOs caught for their greed-driven manipulation of stock prices are sentenced to prison. Just last month a jury found two former Tyco executives guilty on 44 counts of fraud and related law-breaking.

That and a string of other high-profile CEO convictions, at least for a while, will keep people out of the market or cause them to judiciously diversify instead of keeping all their money in stocks. Reasons for real estate I recently met with a soon-to-be-retired school principal and his wife, a teacher, who live in Southeast Portland. They're interested in buying a downtown rental property instead of taking the same money -- $40,000 to $50,000 -- and plunking it in the market.

For this couple, the attraction was control, visibility and tax incentive. They can see, touch and manage their rental. Over the long haul, they realize real estate has contributed to more wealth than just about any other asset. First-time buyers The free enterprise system seems to always have checks and balances in place. Now we're seeing the "would-be renter becomes buyer" phenomenon. Low interest rates, 100 percent financing and a healthy real estate market have prompted many would-be renters to become first-time home buyers.

That leaves apartment and rental homeowners fewer tenants to choose from, so rents have decreased.

Given lower rents, people will soon have less incentive to buy. That means they won't be contributing to the so-called housing bubble. And if investors and other buyers aren't continuing to feed the bubble, it's less likely to burst.

Again, the Portland area's relatively low appreciation rate and stabilizing economy point to the likelihood of a soft landing -- if there is a market correction.

And, of course, don't forget the newspaper factor. Papers' constant coverage of real estate trends will help avoid a bubble burst. Increased awareness finds buyers more cautious, less willing to chase the market and trade on their emotions. As irrational buying decisions wane, our market will stabilize and become more balanced.

Since prices in certain markets have climbed at unprecedented rates -- often fueled by speculation -- common sense tells us those markets are more vulnerable to declining prices. The Portland area's 13 percent rise over the past year hardly qualifies.