Housing sizzle showing slight sign of cooling

Real estate - Prices in the Portland area peg their 20th straight notch in double digits

Friday, June 16, 2006
TED SICKINGER
The Oregonian

Homebuyers shrugged off rising interest rates, whipped out their checkbooks and pushed the Portland-area's median home price higher in May. Again.

The metro-area's median home price increased to $275,000 last month, according to the Regional Multiple Listing Service.

That's 19.6 percent higher than the same month last year and marks the 20th consecutive month when the year-over-year percentage appreciation has been in double digits. The median price is the point at which half the homes sold for more, and half sold for less.

Yet there are also signs -- albeit fuzzy -- that the market is cooling from last year's blistering pace and that a further chill may be in the air.

For starters, the number of closed sales in the Portland area declined 6.6 percent from a year ago to 3,054 in May, according to RMLS numbers. Pending sales fell 5.1 percent. And new listings continue to rise, increasing nearly 28 percent in the last year.

That's a long way from a buyer's market. Indeed, the inventory of unsold homes stood at 2.3 months' supply at the end of May, given the month's rate of sales. That's up from the supply at the end of May 2005 -- 1.6 months -- but it remains anemic by historic and national standards, which suggest that a balanced market has at least five months' supply.

"From a buyer's point of view, they have a little bit more to pick and choose from," said Sherry Francis, an agent with Hasson Company Realtors whose territory runs from Portland's West Hills to Hillsboro. "My take on this is that we're going back to a little more balanced market. Last year was an anomaly, but the market is still active."

Francis says she's seeing fewer out-of-state investors speculating in the Portland market this year and more owner-occupied sales.

The big question is how much of an impact increasing interest rates will have on housing.

Nationally, the average rate on a 30-year fixed-rate mortgage increased from 5.87 percent in May 2005 to 6.75 percent at the end of May 2006, according to HSH Associates, a financial publisher. During the same period, a one-year adjustable-rate mortgage went from 4.53 percent to 5.92 percent.

Those increases can have a serious impact on affordability. And with inflation on the rise, the trend isn't expected to go away.

May's consumer price index, released Wednesday, showed that the nation's core inflation rate, excluding food and energy, was running at a 3.1 percent annual rate during the first five months of the year. That's a level likely to encourage a new round of rate increases when the Federal Reserve Bank's open market committee meets at the end of June.

"So far, I'm not seeing anybody really stressed about interest rates," said Steve Gray, an agent on Portland's west side with John L. Scott. "People are talking about gas prices and in some cases making some location decisions based on them. But they're not complaining about interest rates."

Conventional wisdom is that Portland lagged the run-up in prices in other markets and that it may be able to pull off a soft landing now.

Housing construction has been one of the chief drivers of Oregon's economic recovery and strong job growth. Tom Potiowsky, the state economist, says that nearly one-third of the state's employment growth during the last three years was related to housing construction and that building permits declined 8.9 percent in the first quarter of 2006 compared to a year earlier.

"If you have that driver soften, we expect the economy will soften as well," Potiowsky said. "The general consensus is that the housing market is slowing down. But it's a mild correction rather than a bubble."