Steady Growth in Portland Real Estate

Portland, Oregon real estate offers stability and affordability
Published on: Wednesday, January 16, 2008
Written by: Melana Yanos

Real estate in Portland, Ore., is arguably one of the West Coast’s best-kept secrets. In addition to ski resorts and coastal areas within driving distance, Portland real estate has median housing prices more affordable than most other major cities in the Western U.S. What investors find to be most remarkable about the real estate market in Portland, however, is the fact that it is growing, in spite of the subprime disaster sweeping the country. Its hardy performance begs the question: What exactly makes Portland so special?

A “softer landing”

“Portland’s [real estate] market did not have the massive appreciation that some of the markets that are hurting now did,” Charles Turner of Prudential Northwest Properties, and author of PortlandRealEstateBlog.com, said. “The result is that [the market] has experienced a much softer landing.”

And, unlike housing bubbles that eventually popped in other major U.S. cities, growth in Portland’s real estate market has been largely contingent on population and employment, Max Sinclair, a real estate broker and Realtor who specializes in luxury and investment properties in Portland area, said. This has lent itself to steady growth in Portland, in spite of a potential national recession.

“Oregon has one of the lowest foreclosure rates in the country,” Sinclair said. “The market [should] continue at a steady rate of growth of 5 to 7 percent during the economic recovery period.”

Impressive job growth in Portland is likely to maintain a healthy flow of residents to the Portland area. A recent projection by the Oregon Employment Department estimated an increase of 240,000 jobs over the next decade—an increase of 14 percent compared to the last 10 years, Sinclair said. Furthermore, it appears that Portland is becoming an alternate hub for technological companies in California.

“Intel has some of its biggest plants in Hillsboro, a suburb of Portland, [and] Yahoo! also selected Portland for its customer service center,” Sinclair said.

Growing demand for Portland real estate is compounded by a limited supply of properties within the city. This is because local authorities maintain some measure of control over real estate inventory by limiting the number of allowable property developments within the metropolitan area.

As a result of enforcing an urban growth boundary, “Portland [is] in a better position to weather the ups and downs of real estate investment over the long run,” Sinclair said.

In addition, Portland presents an affordable option for real estate investment in the western region of the U.S. The median cost of housing in Portland is $283,000, according to the most recently published NAHB/Wells Fargo Housing Opportunity Index for 2007; this is a great deal cheaper than the median price in its larger Pacific Northwest counterpart, Seattle, which is estimated at $380,000. The difference is even more dramatic when comparing Portland with major cities in California; median home prices in Los Angeles and San Francisco are $515,000 and $770,000, respectively.

Predictions for a buyer’s market

The real estate market in Portland may have weathered the subprime storm, but the investment climate has nevertheless been changing. Sluggish demand for single family housing in recent years has driven the switch from a strong seller’s market to one that favors the buyer, Turner said. Specifically, sellers did not act quickly enough in adjusting sale prices and had difficulty capturing buyers as a result.

“In a slowing market, [sellers] have to get in front of today’s market price, not chase the market down,” Turner said.

Consequently, the affordability of a buyer’s market opens up the opportunity for investors to make significant gains. Single family homes in Portland still present the best potential for return as long term investments, with appreciation in values that is typically higher than that of multi-family complexes, according to Sinclair. Further, rental of single family homes offers strong potential for cash flow, fetching lucrative rates in times of high demand.

In addition to the buyer’s market for single family homes, a new surge of condos in Portland will have a significant impact on the future of the overall real estate market. Although it appears the market for single family homes will remain somewhat strong, the plethora of newly constructed condos in recent and oncoming years is likely to weigh down other “strengths” in the market, Turner said.

“I think we’ll see [Portland] real estate going back to being a long term investment,” Turner said.

In terms of location, the most dramatic growth is predicted to emerge from places in the inner city, specifically in areas of Southeast and Northeast Portland in close proximity to downtown. Real estate prices are still relatively low—between $200,000 and $400,000—in these areas, and will rise relative to the demand for properties within the urban growth boundary, Sinclair said.

As for the suburbs, properties in the area of Lake Oswego, which has “the absolute best school system in the state,” should experience the highest rate of appreciation, Sinclair said. Because Lake Oswego has been developed to its near conclusion, the limited availability should drive a boost in property values.

Investment strategies

Experts have found the combination of rehabilitating and flipping properties to be a particularly successful strategy for investment in Portland real estate. For example, Turner and his wife, who invest in real estate personally, have employed a general strategy of purchasing single family homes that are intended for remodeling but are also in adequate “rent now” condition. Last year, the couple sold their first rental through a 1031 exchange and bought two more, both of which are being rented. They plan to remodel those to showroom condition at some point before reselling them.

“Rehabilitating and flipping projects that pencil out before appreciation [are] a sound investment,” Turner said. “Appreciation should be considered the bonus, not the driving factor when investing in real estate.”

Sinclair has noted investment strategies that capitalize on the transformation of undesirable neighborhoods. During the last five years, he observed many investors “flipping from one neighborhood to another,” particularly in areas that combine homes built between 1900 and 1940; these areas include Alameda, Irvington, Laurelhurst, Sellwood and Eastmoreland.

As these neighborhoods become less affordable, investors are venturing into less desirable areas, such as the Alberta Arts District, Sinclair said. Another area that offers opportunities for flipping is the St. Johns neighborhood in North Portland, an area that has not previously been considered a first choice among buyers. However, when it comes to making a profit from flipping, “affordability is the key,” Sinclair said.

It’s easy to see why, as the demographic of “very wealthy” people in Portland is considerably smaller than that of California or Washington, Sinclair said. Thus, “any property as close to downtown Portland as possible under $400,000 can be a good candidate for flipping” as well.

Retail properties in the Portland area present an innovative opportunity for long term investment. As neighborhoods grow, so will demand for nearby goods and services, Sinclair said.

“A few years ago, investors from California asked me where they should invest,” Sinclair said. Among other things, he recommended investment in retail properties located along Southeast Division Street, near downtown. At the time, the location was underdeveloped for commercial properties and consisted of few shops and ample warehouses in disrepair—a desolate scene that stands in stark contrast to what visitors now find.

“That stretch of Division Street [has since become] a major commercial hub,” Sinclair said.

Retail properties can also provide an ingredient that many investment portfolios lack: diversification. Investors in only one type of property may not get far because fixed income return and appreciation go in opposite directions, Sinclair said. In other words, a market that yields higher rental cash flow is likely to yield lower returns.

“My advice is to...spread things out,” Sinclair said. “It can be in form of residential and commercial mix of portfolio, or in different markets altogether.”

Sinclair, who invests in real estate personally, takes his own advice to heart.

“I tend to select income properties in specific growth areas spread out in different cities,” Sinclair said.

Investors should note that retail properties require a different set of skills than traditional residential investments; investing in commercial properties requires more “business savvy,” Sinclair said. For instance, retail property owners need to assess the likelihood that a candidate for tenancy will be able to run a successful business.

A city of surprises

Those who dig beneath the steady numbers of Portland real estate may be surprised by what they find: a city, and its outskirts, becoming increasingly modern. In addition to job and population growth, Portland’s gradual transformation can be attributed to a trend of revamped neighborhoods stimulated by long term investments.

But not all of Portland’s surprises are pleasant. The city’s visible hand in controlling real estate supply can also be felt in changed regulations on party sewers, and as a result, is burning holes in some investors’ pockets.

“Sewers are becoming a major hot point in Portland,” Turner said. “Many of the buyers of yesteryear [who] are today’s sellers have no idea what their sewer is connected to.”

The city has mandated that if a party sewer line needs repair, connected lines must be separated and individual owners must foot the bill, Turner said. “A party sewer is the party that no one wants to be invited to,” Turner said. “[My company] just saw an investor foot the $7,000 bill to replace and disconnect the sewer line.”

Local housing market shows some slippage

ADAM PEARSON
November 25, 2007

The housing market slipped some more in Douglas County when comparing October listings and sales to the previous year at the same time.

Average market time also jumped drastically in October for the year-to-date, increasing by more than three weeks from 107 days to 131 days, according to the Regional Multiple Listing Service.

New listings in the county dropped to 196, from 246 in October 2006, with the median sale price also dropping to $165,000 from $194,900.

When comparing year-to-date trends for January to October 2007 to the same period in 2006, they show closed sales and pending sales decreased 17.5 percent and 20.5 percent, respectively.

By comparison, closed sales and pending sales during the same periods in the Portland area decreased 11.3 percent and 13.9 percent, respectively.

Sale's timing is gamble in housing

Buyers' market? - If the national slump continues, home prices could drop more but rates could rise
Monday, June 11, 2007
ALEX VEIGA
The Oregonian

LOS ANGELES -- Kurt Montufar isn't stressing about the housing slump. He's actually hoping things get worse.

Like many wannabe homebuyers who were priced out of the market during the last boom, Montufar spends time these days scanning real estate ads and news reports to determine if it's time to take the plunge and buy.

Foreclosures rising? Great. Cash-strapped sellers pressured into lowering prices because they can't find buyers? Even better.

"Somebody else's misfortune could be my happy ending," said Montufar, 27, a resident of suburban Los Angeles.

Indeed, the advantage is shifting to buyers in many previously high-flying housing markets, as homes take longer to sell and prices level off or begin to fall.

Modest annual declines have been seen in cities such as San Diego, Boston, Las Vegas, Phoenix and Honolulu, according to first-quarter data on existing single-family homes compiled by the National Association of Realtors. Meanwhile, price gains of just 1.4 percent or less were reported in New York, Chicago and Washington, D.C.

In the Portland area, home prices this year have maintained high single-digit gains over the red-hot 2006 market. The region's default and foreclosure rates have stayed well below national averages.

Those numbers have left many people trying to "time" the market to take advantage of the slump. But experts said that can be risky because there is little consensus on how long the current lull might last.

In addition, the market forces that helped drive the housing boom -- affordable financing and the alluring prospect of escalating home values -- are no longer a given. Potential price breaks could be wiped out if interest rates rise any higher.

"In general, it is very difficult to time the market," said Raphael Bostic, associate director of the University of Southern California's Lusk Center for Real Estate.

"The real problem with that is you don't know when the floor is until after it's passed. If the floor is right now, you missed it," he said.

Montufar, an asset manager and part-time real estate agent, has little choice about waiting for prices to fall further.

He would like to pay about $500,000 for a home in the San Fernando Valley. However, the properties he likes are still priced about $650,000.

"At this point, I've got no choice but to wait and see . . . how low they get, so that it gets to a point where I can afford it," he said.

Others have already seized opportunities to buy.

Melanie Scalice, 36, a seventh-grade teacher living in the Boston suburb of Arlington, Mass., saved for years for a home. She decided to jump into the market when local housing prices began to dip after years of double-digit percentage increases.

"The timing has been great," Scalice said. "With prices going down, there's so much for sale that I had a lot to choose from."

Still, she had to go to Fitchburg, some 40 miles from Arlington, to find a home that suited her budget and need for space. She settled on a $199,000 condominium.

Areas outside big markets might still represent the best option for finding an affordable home.

"There are areas where prices will, at worst, stay flat, but probably continue to go up," said Patrick Lashinsky, CEO and president of Emeryville, Calif.-based ZipRealty Inc.

Home prices haven't lost much steam in the Northwest. Seattle's metro area, for example, saw its median price soar 12.3 percent during the first quarter.

In California, where home values more than tripled since 1995, sales have been lagging and price appreciation has slowed or fallen in major metro areas.

Prices have declined sharply in regions that saw major home or condo construction in recent years, such as Riverside, San Bernardino and San Diego counties.

Even if prices fall further, it could be tough for buyers to find affordable financing if interest rates increase much more.

The Federal Reserve raised the federal funds rate from 1 percent to 5.25 percent between June 2004 and June 2006. The rate, which can affect mortgages, has held steady since then.

Meanwhile, the monthly average interest rate for a 30-year fixed mortgage crept from a low of 5.23 percent in June 2003 to 6.26 percent last month, according to mortgage giant Freddie Mac.

In addition, lenders have tightened standards in response to a surge in defaults by subprime borrowers, and a number of subprime lenders have gone out of business altogether.

A number of wannabe buyers are pinning their hopes on foreclosures, which some studies predict will explode during the next two years as adjustable mortgages reset to higher interest rates.

Foreclosure activity jumped 62 percent nationwide in April from the year-ago period, according to Irvine-based RealtyTrac Inc. Among the states with the highest foreclosure rates were Nevada, Colorado, Connecticut, Florida and California.

Gino Barragan of La Puente, Calif., a lifelong renter, was among the hundreds of people who attended a recent auction looking for a good deal on a foreclosed home.

Barragan, 34, was hoping to find a condo costing less than $300,000. He found only one that he liked within his price range.

"I am willing to wait, but I'm keeping my eyes open," said Barragan, a teacher.

Bruce Norris, president of The Norris Group, a real estate investment company, said now might be the best time to purchase a home, if the buyer plans to live there for 10 years.

"I'm not sure that I wouldn't rather pay today's price with today's interest rate than count on a big discount and the wild card that interest rates might be very different," Norris said.

"It would not shock me to have a 10 percent interest rate by the end of this negative cycle."

Portland still a seller's market, but barely, agents say

Real estate - Buyers rely more on agents' expertise as area homes sell more slowly yet continue to appreciate
Friday, April 27, 2007
DYLAN RIVERA
The Oregonian

As recently as a year ago, nearly any house with a for-sale sign received offers within a few weeks. And anyone with a pulse could sell a home.

Now, buyers and sellers are studying up on the Internet like never before, also seeking more advice from seasoned pros.

That's just one observation among many made by the Portland area's top real estate agents at the 2007 Portland Real Estate Summit on Wednesday. For the fourth consecutive year, Cornerstone Mortgage Corp. gathered top-producing agents from many residential firms for a wide-ranging discussion of the market.

At a time when the national housing market is mostly gloomy, the top agents said they're having trouble convincing clients that Portland's market is different. Here are excerpts of the discussion, including questions posed by The Oregonian, edited for length and clarity:

With all the news and data about a housing slowdown, is this a buyer's market yet?

Billy Grippo: I'd bet the seller's side -- just by a hair, though.

It's still better to be a seller, if you're not a desperate seller. And as long as you realize you're going to base your sales price and your life plans on your neighbor's house that sold last month, not last year.

Sherry Francis: And if you do your homework. You have to prepare your house to sell. You have to clean them, you have to paint them.

Brian Bellairs: There's a lot more homes on the market, a lot fewer homes in escrow, and yet prices are increasing.

That's a pretty big incongruence out there. Days on the market are growing so much, and yet there's pretty good growth in appreciation right now.

Kathy Hall: There's a lot of inconsistencies between areas, close in, farther out.

I'm seeing the $2 million-plus market very weak right now, but at the same time, under $2 million it's very strong, stronger than last year.

There's so many mixed messages going on out there to consumers, to buyers and sellers.

Kathy MacNaughton: We're finding, in the condominium market, under $2 million, it's very healthy. Over $2 million, it's a different world.

How has the slower market this year changed your relationship with your clients?

Peggy Hoag: Last year at this time, nobody would listen to us as brokers. They thought that we didn't know what we were talking about on price. . . . We were struggling with that.

Now, they're listening to us, and they're listening to the (comparable sales), and we can actually price homes at a price that they will sell.

Hall: They're asking me, "What price do I need to price my house at to get it sold?" They're asking me, they're not telling me.

MacNaughton: It's been fantastic, because what buyers want from me is expertise. They come to us as a trusted source of advice, and they didn't do that two years ago.

Mike Escobar: I deal with the Hispanic community. I can see a tremendous amount of people coming into the market with smart questions. . . . They go to the Internet and get a lot of information.

How are buyers' attitudes different now than before?

Todd Prendergast: There's been a big shift since October-November. Buyers were brutal. They were in the worst mood I can remember: very cynical, very negative. And that all shifted come January 1. If that hadn't happened we wouldn't be talking about a seller's market.

Francis: People get surprised because the house they were circling around on -- boom, it's gone.

Lee Davies: There is selection out there. It reminds me of the market from '95 to 2004. You'd want to go show someone five properties on Saturday, and they'll actually be there on Saturday to show.

But when you see it and you think it's good, you have to move, there's no doubt.

Have buyers' changing expectations complicated things?

C. Morgan Davis: Keeping a buyer and seller together is tougher. There's more of a tug of war after the inspections. . . . They're coming back with a lot more of a vengeance.

Grippo: Last year you could sell a broken sewer line, this year it's a lot harder.

M.J. Steen: I'm spending time with buyers. . . . They haven't had to negotiate before. Before, they could bid over it and walk away with it.

You've got to be pre-qualified. You have to have managed expectations going into the home inspection because they all want to renegotiate the price of that house after they've bought it.

Good agents can do that, but the younger agents that just got started don't know how to do that.

The mortgage industry is in turmoil. Companies are going bankrupt right and left. Are you seeing buyers in trouble because of this?

Bellairs: In Portland, I don't think it is that big a deal at all.

As a listing agent, if someone brought in a preapproval letter, last year I would have said "Great, they're preapproved." Now, I'm going to look a little harder at how much they're putting down.

If someone comes to me putting zero down or very little earnest money, I'm going to scrutinize the heck out of it.

Will Haskins: With a lot of lenders going down, it's important for the first-time buyers to know that they still can afford something.

That's going to be more and more important as there's more media coverage of these banks going under.

Exploring strategies to solve housing crunch

HENRY CISNEROS
GUEST COLUMNIST

A great city requires a mix of housing and a great city has responsibility for housing across an entire spectrum. This includes housing for the homeless, supportive housing, public housing, subsidized rentals, market rentals, home ownership and finally the move-up or dream home. Such an overall strategy is essential for a major urban center such as here in the Puget Sound area.

It is important to form partnerships, where developers, non-profit advocates, the private and public sectors work together across that continuum to collaboratively and creatively find the most effective solutions to the housing needs of this great community.

Seattle is a very special city that has garnered "the best" status numerous times. But, like cities all across the country, it has a housing crisis. Fewer than 50 percent of Seattle's workers live in the city, leading to many other urban problems. Sen. Patty Murray, D-Wash., is right in calling the lack of affordable housing in Seattle and elsewhere a "silent epidemic."

It affects everyone. I need not tell you what that does to the productivity of a worker -- say a single mother who commutes an hour or more each way -- when her child is sick or her house floods in a winter storm. Higher fuel and commuting costs mean middle-income families have less disposable income. Poor families have the choice of living farther away from the city or stretching budgets to pay for food, clothing and medical care because they pay more than they can afford for in-city housing.

In this region you have the expertise, political will, and a commitment to improving the quality of life for the whole community. In Seattle, you have taxed yourselves to create affordable housing. In King County, you have a commitment to end homelessness by 2012.

While HUD secretary and since, I have visited more than 200 cities and have seen some of the best, including Seattle's New Holly and High Point communities where HUD's HOPE VI program was used to combine rental and home ownership alongside new public housing.

Land is one of the biggest drivers of the ever-escalating cost of new housing development. Public sector leaders can make publicly owned land available -- vacant sites, underused sites, parking lots, lower density uses, surplus public land. A King County ordinance says, "Parcels which are declared surplus by the county should be reviewed as to whether they can be sold or leased for affordable homes." As a result, Woodinville has built Green Briar Heights with 170 affordable rental and home ownership units.

Another group that traditionally owns urban land is the faith-based organization. The Church Council of Greater Seattle is a driving force in efforts to end homelessness. Churches, temples and mosques may be major contributors to the development of housing. Imagine a community of town homes for homeless women and their children built above a large church parking lot.

Finally, with respect to making sites available, revising zoning policies changes the capacity of the land by increasing allowable densities and reducing minimum lot size. In the Williamsburg section of New York City, 10,000 homes were built; 3,500 were affordable through this strategy.

We are in a new time, with new imperatives, and it is worth looking at zoning with a fresh eye.

The second strategy is to reduce zoning barriers by encouraging zoning that supports a diversity of housing types, removes restrictions on multifamily housing, manufactured homes and accessory dwelling units. Many bugaboos against multifamily can be addressed with insistence on quality design. Multifamily housing units can blend into the neighborhood architecture or look like single family homes.

Noji Gardens, here in Rainier Valley, was cited by the Urban Land Institute, Fannie Mae and Homes for Working Families as one of the most innovative strategies for building housing that working families can afford. Creative use of modular housing can cut as much as 15 percent off construction costs.

On the money side, many communities are using tax increment financing to great success, although not currently allowed in Washington. A state constitutional change may take years to accomplish; however, this could become a key long-term strategy for Seattle and the state. Portland is using tax abatements for affordability. Seattle also has a tax exemption program, but it needs to be re-evaluated to make sure it reflects current market conditions. Housing trust funds are another option.

The next category is generating capital. Seattle has the Housing Levy funds, which is a great start, but many more resources are needed throughout King County. You also are blessed with a robust and cutting-edge philanthropy community. For all the important human services that are publicly and privately funded, the National Alliance to End Homelessness and others have adopted a Housing First strategy because having a roof over one's head is the first step to addressing other issues that might affect people. Funding in all communities that provides housing along that continuum from homelessness to home ownership is the first step.

The next category is inclusionary zoning. I know it's immensely controversial but it has worked in particular places. More and more cities will be recognizing inclusionary zoning is the only way to get the market to work, even those cities where public officials have traditionally been opposed.

Another set of strategies involves preserving the existing stock. As contracts end on project-based Section 8, and 20- and 30-year contracts end their affordable status, communities are developing ways to try to ensure that the units stay affordable. New York City has an ongoing effort by prioritizing use of tax credits, lending to owners for improvements and tax abatements.

Finally, on the buyer's side, cities are using strategies such as down payment assistance -- like here in Seattle -- loans or grants or forgivable loans or silent seconds, federal funds or locally derived funds, funds recycled to other families, and all kinds of strategies related to how to provide down payment assistance. Finally, homeowner education and foreclosure prevention strategies are a must in today's market.

It's hard to imagine a great city that doesn't have a mix of housing so that it can keep a mix of its population, its vitality, its vibrancy. More and more city officials are seeing this and acting. Constituencies are changing. Today, the constituency of people who feel they can only dream of homeownership, who are having to travel those immense distances, who are living in over crowded and substandard conditions, stand out and cry for action. From homelessness to home ownership at every step of the continuum, it is important to have governmental leadership of the kind you have in Seattle and King County.

Oregon, Portland feeling less of the shock of subprime loans

PORTLAND, Ore. (AP) _ Oregon and Portland have less exposure to subprime housing loans and are feeling less of the shock rattling other parts of the nation _ in part because rising home prices still provide cover for struggling families.

Subprime loans, generally at higher interest rates, accounted for 17 percent of new mortgages in Oregon in 2006, down from 20 percent in each of the previous two years, according to First American LoanPerformance. The figures include first and second mortgages, so some subprime borrowers with two mortgages would count twice.

Those percentages were below the national average each year by 4 to 6 percentage points, said Bob Visini, vice president of marketing for LoanPerformance of San Francisco.

''You have exposure, but your exposure on average is less than what the nation is feeling,'' he told The Oregonian newspaper. ''Is there still cause for concern? Sure, but at the same time you can feel good that you're not Michigan or Ohio.''

Among all outstanding mortgages nationally _ including those made decades ago _ almost 15 percent are subprime, according to LoanPerformance data for December. In the Portland area, the comparable figure was 9.8 percent.

Six years ago, the share was more like 2 percent nationwide, or about one of every 50 mortgages.

Nationwide, slightly less than 12 percent of subprime mortgages, excluding second mortgages, were 60 days late and considered in danger of default. In the Portland area, the figure was 6.9 percent.

Subprime lending began more than two decades ago as a way to increase home ownership, said David Botieff, a branch manager for Wells Fargo Home Mortgage in Clackamas.

Poor credit scores that had kept some people out of the housing market aren't necessarily the result of financial recklessness on the part of borrowers, Botieff said. A divorce, medical problems or sudden job loss can cause financial stress that shows up as a low credit score, he said.

Banker waxes confident on condos

Despite the boom in building, a Wells Fargo real estate manager is confident the Portland market is far from saturated
Friday, March 16, 2007
DYLAN RIVERA
The Oregonian

Even casual observers of Portland's high-rise condominium construction wonder when the air will drain from the urban condo balloon.

The answer to that question matters intensely to the bankers who have financed the condo boom with hundreds of millions of dollars in loans. Wells Fargo Bank, which has financed construction of 1,739 units since 1996, has the most on the line. Its construction loans and mortgages for urban condos in Portland total more than $1 billion during that time.

Nelda Scott Newton, Wells Fargo's manager of commercial real estate lending for Oregon and Southwest Washington, found in a recent market study that even with nearly 3,500 units in the pipeline, there's no cause for worry about a saturated market. Even if demand fell by half, she said, empty condos would still sell within about a year after completion, she believes.

Of course, bankers have been wrong before, most famously in the 1980s. Newton discussed her assessment of the condo market earlier this week. Excerpts are shown here, edited for clarity and length.

The condo market and the overall housing market have slowed down in the last year. Do you think we're overbuilding condos?

Well, the condominium market continues to absorb and do well. When one looks at all of those cranes throughout the downtown area, it's important to remember that there's a lot of product differentiation among the projects -- The South Waterfront, the Waterfront itself, the Pearl District, the Northwest, the Arts District (near Portland Art Museum).

There are studios, up to million-dollar-plus penthouse units. So there is a depth and maturity to the market that didn't exist five to 10 years ago.

What did you find in your recent market study?

Right now, there are about 3,500 units under construction or in planning. That is roughly half what was built in the last eight to 10 years, so it is quite a large number.

Developers typically start to market their projects about a year before the project is completed. In the past, these projects have been pretty much sold out by the time the construction is completed.

That changed with the last couple of projects that came into our market. That frenetic pace has slowed. And the rate of absorption of the units has slowed.

In this study, how deep a downturn did you assume the urban condo market would suffer?

Because we could ascertain there was a slowing, we assumed the market would slow 50 percent.

We assumed these projects would be 50 percent sold at completion, and instead of the units selling at eight to 10 units month, that they would absorb about three units per month. Our intent was to see how many units at one time, excluding resales, might be unsold and available on the market.

If new buildings are 50 percent unsold upon completion, who goes bankrupt? Does the sky fall?

No, we don't think the sky falls. Assuming that occurs, some time around the first quarter of 2008, we would have conceivably around 700 or 800 standing, unsold new units -- so very different than anything we've experienced to date. Also, this is a more conservative assumption than is likely to exist: We aren't predicting a 50 percent decline in the market.

We assert that there's a potential for a year of inventory under this 50 percent scenario. That's something that our market can weather, that our developers can weather. Interest rates are still at historically low levels, we still have good in-migration, and we have a nice quality of life. There are unique attributes to Portland, coupled with that being a manageable number that gives us confidence that the market will be fine for downtown housing.

Is the Portland condo market more risky, or less, than other markets? How does our market compare to other markets?

We've enjoyed a healthier market in large part because of the control by our local developers. We're a smaller market, so we haven't attracted some of the outside national capital that some of the larger markets have attracted. We also haven't had the level of speculation that other markets have seen. That's really a positive for us.

When there's too much speculative investment, it creates the appearance of demand that doesn't really exist. We estimate that the units that recently sold, about 15 percent have sold just for investment purposes. In some of the overheated markets, those figures are as high at 70 percent, and that makes a market that is not sustainable.

The fact that our market is returning to a more normal, sustainable pace is positive because that discourages speculators. So we haven't had an excess of speculators to begin with, but people are further deterred at this point from going out and selling their soul to buy two or three units to flip them and make a quick profit.

That, coupled with the fact that the developers have actively discouraged speculative investors, leads us to conclude from a pretty small sample that 15 percent plus or minus is what we might be experiencing in our market.

People tend to think that condominiums are more volatile than detached housing, in part because of a severe downturn in the 1980s. Do you think that's still the case?

In the last 10 years nationally there has been a trend toward downtown living and efforts by cities across the country to revitalize their downtown to make them 24-hour centers. There are many reasons people cite for the trend: demographics, baby boomers, people downsizing, lack of available land. So there are many variables that account for the booming condominium market.

We think that urban living is an established and desirable lifestyle choice that's not likely to just evaporate. Particularly, when we have a city like Portland that's really nationally and internationally recognized as a very attractive, vibrant community.

Certainly real estate is cyclical and remains cyclical, but we drew comfort from these numbers that indicate that we don't have an excess supply, we have a manageable supply, even with a downturn in the market.

There's a perception in the community that what's fueling the condo market here is Californians relocating with high equity from sales of homes there. Is that your perception of what's driving demand here or is it more diverse than that?

Yes, there are people who have moved here from out of state, including from California, Idaho, Washington.

Seven or eight years ago when we were financing these, the first response was "People from the West Hills will want to sell their homes and downsize." That has been some element, people from suburban areas, that has been an element, people who live on the coast and still want to have a tie to the city. . . .

We've derived comfort from the fact that there really is no single demand factor that can be compromised and undermine the health of the condominium market. We view it as very positive that there's not one single answer to where these buyers are coming from.

Housing sales decline in 40 states; but not in Northwest

By Martin Crutsinger
The Associated Press

WASHINGTON — The slump in housing deepened in the final three months of last year, with sales of existing homes falling in 40 states and median prices dropping in nearly half the metropolitan areas surveyed.

Although Washington state's sales of houses and condominiums declined 16 percent, prices continued to climb, thanks to a generally strong economy.

In the Seattle-Tacoma-Bellevue area, prices rose 11.3 percent in the fourth quarter compared with a year earlier, the National Association of Realtors reported Thursday. Spokane prices were up 12.2 percent, and Portland up 11.2 percent.

Formerly red-hot areas were among the hardest hit as the five-year housing boom cooled considerably in 2006.

While some economists think the worst may be over for housing, others predicted more price declines to come in some areas until near-record levels of unsold homes are reduced.

The Puget Sound area is not now reporting an excess housing supply.

At the end of January, King County had a three-month supply of unsold homes, according to the Northwest Multiple Listing Service.

Economically hard-hit parts of the country have a year or more backlog, and prices reflect that. In Detroit, for example, homes are available for as little as $1,500. Both jobs and buyers are scarce there.

The Realtors report, available at http://www.realtor.org, said the states with the biggest declines in sales from October through December compared with the same period in 2005 were: Nevada, down 36.1 percent; Florida, down 30.8 percent; Arizona, down 26.9 percent; and California, down 21.3 percent.

In all, the Realtors said sales declined in 40 states, six states showed gains and one state, Utah, had no change in activity in the final three months of last year. There was not enough information from Idaho, New Hampshire or Vermont to make a comparison.

Nationally, sales declined by 10.1 percent in the fourth quarter compared with the same period a year ago. The national median price — the point where half sell for more and half sell for less — fell to $219,300, down 2.7 percent from the fourth quarter of 2005.

In all, median home prices fell in 49 percent of the 149 metropolitan areas surveyed, the largest percentage of areas showing price declines in the 27-year history of the Realtors' price survey.

David Lereah, chief economist for the Realtors, thinks the report might represent the low point in the current housing slowdown.

"When we get the figures for the spring, I expect to see a discernible improvement in both sales and prices," he said.

But Mark Zandi, chief economist for Moody's Economy.com, predicted that home prices in many parts of the country would continue to be under pressure for the rest of this year as the market works through still-large inventories of unsold homes.

Portland housing bucks U.S. trend

13 percent rise in prices counters a national downturn

BY TIM FOUGHT
The Associated Press
December 28, 2006

PORTLAND -- While residential real estate prices have turned south in much of the United States, Portland's housing stock continues to appreciate, and by double-digit percentages.

Why? Young families looking for hip, yet livable, places. Retirees following their children around. Wads of cash inherited from the World War II generation. Tight supplies caused by the planning and zoning restrictions that lead to "livability." Easy terms for even first-time buyers. Relatively higher prices next door in California.

Explanations from those in the real estate business are abundant, which itself may help to explain the continued rise in prices.

The S&P/Case-Shiller composite index for 20 major markets in the United States released Tuesday showed homes in Portland, along with its bigger Pacific Northwest neighbor Seattle, posting strong gains, 13.2 percent in Portland, 14.1 in Seattle.

The average among the 20 cities, measuring annual rates through October, was 2.9 percent, and six markets showed declines, including markets as diverse as San Diego and Detroit.

Native Portlanders may be shocked at the valuations on their houses, but the surprise among people looking at the market from the outside is how cheap it is, said real estate agent Charles Turner.

"One of the prime reasons is still California," he said. "The difference between what their dollar buys down there and what their dollar buys up here is huge."

That attracts not only retirees looking to "cash out" of pricey homes in California, but also comparison shoppers in the rest of the country looking all along the West Coast.

Portland's reputation as heavy on brew pubs, bicycling, high tech and outdoor recreation attracts young people. A 2004 study, titled "The Young and the Restless," by two economic consultants identified Portland as among half a dozen U.S. cities gaining population among young people 25 to 34 years old, key to building high tech and "knowledge-based" businesses.

"I think one word: hip," said broker Francine Corriere. "I really think our Gen Y'ers want hip."

But they want hip on traditional terms, she said. Coming out of college, grad school or house-sharing with other young people, many are nesters.

"They want bungalows," she said. "They want neighborhoods, they want strollers."

Portland's tradition of planning and protecting neighborhoods plays into that demand, she said.

And many young people, she said, come with enough cash to handle expensive houses and payments, from parents of the World War II generation handing down "the largest volume of money that's ever been moved from one generation to the next."

Even those who don't come with lots of cash still find "very easy terms" for buying, said broker Fred Montgomery. "There are actually lenders that will do 100 percent financing," with no down payment, he said. "In some cases, they'll get their closing costs financed also."

Montgomery said the metropolitan economy has come back from a tough recession, led by high tech and apparel companies.

The state's chief economist, Dae Baek, noted in his recent forecast to legislators getting ready for the 2002 session that he expects housing prices statewide to continue rising even as the housing industry slows in 2007.

Real estate agents said that's because of the state's land-use planning laws, long known as the toughest in the nation. To protect farmland, they restrict growth to the inside of what's called a city's "urban growth boundary," and a restriction in supply tends to push prices up.

That's not likely to change, despite Measure 37, agents and brokers said. The measure was designed to allow longtime owners of farm and timber lands to develop their property for residential uses despite more recent land-use regulations.

But much of their land lies beyond the reach of city water and sewer systems, broker Eric Garland said, and uncertainty about legal and bureaucratic issues surrounding Measure 37 means "there are so many hurdles a builder and developer has to clear."

Copyright 2006 Statesman Journal, Salem, Oregon

Freddie Mac: Worst of housing slump has passed

Portland Business Journal - November 17, 2006
Freddie Mac says the biggest slowdown in the housing market may be past, and falling mortgage rates should help stimulate the market.

The mortgage giant's weekly mortgage rate report shows 30-year fixed-rate mortgages fell to an average 6.24 percent this week, below year-ago levels.

One-year adjustable-rate mortgages fell to 5.53 percent, although adjustable-rate mortgages remain higher than year ago levels.

"We've probably seen the worst of the housing slump, although it may not have entirely bottomed out yet," says Freddie Mac Chief Economist Frank Nothaft. "Lower mortgage rates should help stimulate activity in the housing market."

Lenders, real estate agents and potential buyers will be watching for a report on October housing prices this month from the Office of Federal Housing Enterprise Oversight.

Renovations, better mix could enliven downtown, experts say

Thursday, November 02, 2006
The Oregonian

If light rail ever does come to Forest Grove, the city's downtown might be more of a destination by then -- if the city heeds a couple of experts who visited recently.

A Downtown Resource Team from the Oregon Downtown Development Association spent three days exploring the city, then offered broad suggestions and sketched upgrades to current buildings. Its members also collected information for a market survey. The visit was paid for largely by Oregon Housing and Community Services, a state agency.

In addition to face-lifts for three downtown facades, Eric Matthews of Portland's Surround Architects suggested redeveloping the Times Litho building at the corner of A Street and Pacific Avenue into a three-story combination: first-floor retail topped by two floors of condominiums, with solar panels and eco-lawns on top.

Downtown housing could help keep the street active at all hours, particularly with a market open 24 hours a day, said Brad Sinn of the Downtown Development Association.

Sinn and Matthews are working on two other sites they identified for potential redevelopment on the block bordered by Main and A streets and Pacific and 19th avenues.

A subcommittee of the local chamber of commerce could best lead and coordinate efforts to renovate downtown, Sinn said.

Right now, each business is trying to act as a destination on its own, Sinn said. Ideally, he said, the right mix of shops, users, hours, activities, events and entertainment could make the whole downtown a place where people "park once, shop often."

Retail stores need to cluster more, Sinn said. Downtown is currently full of "dead zones" -- flat, boring facades that do not entice walkers to keep going.

And the city could use someone to recruit attractive businesses, such as a high-quality restaurant.

"People will drive far and wide to destination dining," said Sinn, who remembers helping an art gallery in McMinnville and discovering that "gallery numbers went up or down based on what restaurant was across the street."

It might make sense to declare the downtown an urban renewal district, Sinn said. That could provide money to help make some changes happen.

-- Jill Rehkopf Smith

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."

Million-dollar location, location, location

With more homes in the $1 million to $1.3 million range, high-end buyers go for bigger houses on larger, outlying lots

Thursday, March 30, 2006
RUTH MULLEN
The Oregonian

Brad and Lisa Graff are part of the Portland area's house-buying elite: They bought a home for just over $1 million last year.

But when the two Intel managers settled on a house befitting such a price tag, it wasn't in one of Portland's silk-stocking neighborhoods. It was a nearly 5,000-square-foot beauty on a secluded acre in Cedar Mill, an unincorporated area of Washington County.

Everyone knows that money doesn't buy what it used to in the Portland area's booming real estate market. But a comparison of home sales in the $1 million to $1.3 million range over five years shows, in fact, that it buys far less and that many properties are not in the traditional high-end areas.

Although these buyers make up only a sliver of the market -- less than 0.5 percent of 2005 sales in the four-county area -- a look at their home-buying patterns shows some overall trends and satisfies voyeuristic interests for those who can't afford a seven-figure house.

These facts emerge from property records in four counties -- Multnomah, Washington, Clackamas and Clark -- as well as data from First American Real Estate Solutions for houses sold to individuals in the $1 million to $1.3 million range:

From 2000 through 2005, the median house size in the four counties shrank by about 600 square feet, and lots went from nearly three-quarters of an acre to less than half an acre. Last year's buyers still got four bedrooms and three baths, the same as in 2000.

Multnomah County still had the largest number of such sales -- 56 homes and 16 condos -- in 2005. Clackamas County was a close second with 56 houses, and Clark County had 21 houses and one condo. Meanwhile, Washington County went from zero in 2000 to 14 sales in this range in 2005.

Buyers, on average, got more house for their money in Washington County in 2005. The median there was 5,437 square feet, with four baths on nearly half an acre. By contrast, Multnomah County buyers of a house -- not a condo -- got 3,946 square feet, 3.5 baths and one-third acre.

The Graffs, like most homebuyers, were looking for specific amenities, and they wanted to get the most value for their investment. They found what they wanted in Washington County.

"We're new-house people," says Lisa, who moved here with her husband from the San Francisco Bay Area. "We love high ceilings, big windows and land."

And like many buyers, they logged countless miles comparison-shopping. Most close-in Portland neighborhoods, they found, didn't meet their desire for ample square footage and a large, level lot.

And while there is no exodus of high-end buyers from the city, the Graffs are in good company.

"People get disenchanted with the old houses" in Portland, says Ann Spanish Manion, who works out of RE/MAX's Northeast Broadway office. "They want better schools, a little more land, a little more house for the money."

Change in Portland

Five years ago, a buyer could pick up a $1 million home in Portland's West Hills with all the amenities that such a price implies: a true estate property with stunning views, an impressive lot and generous square footage. It made news back then when the $1 million marker crossed to the east side of the Willamette with the sale of a grand old home in Irvington.

Not anymore. Today, neighborhoods on both sides of the river boast $1 million properties that could be described as very nice, but not luxurious.

Last year, 130 residential properties sold for $1 million or more in Multnomah County compared with 27 five years earlier, according to calculations by the Regional Multiple Listing Service. Of those, fewer than half were at the low end -- in the $1 million to $1.3 million range.

Today $1 million secures a spacious upper-floor condo in the Pearl with high-end finishes and parking, but it no longer guarantees the penthouse. Or, in venerable Portland Heights, it buys you a charming old Craftsman or Colonial Revival that may need some work. If you prefer new construction, Forest Heights still offers plenty of house for the money.

"In Forest Heights, you can ask for quite a bit for a million dollars," says Nathalie Kuehl of Coldwell Banker. "People expect the houses to be done. They want the granite, the bonus room, the master suite with the Jacuzzi tub and the two-headed shower."

Regardless, a close-in address with $1 million price tag still guarantees an exclusive neighborhood, along with community, culture and architecture with a capital A.

"But five years ago, you were able to get the big house on a double or triple lot," says agent Billy Grippo of Windermere. "Now we're seeing million-dollar houses on 50-by-100 lots."

Same story in suburbia

The suburbs are not immune from such trends.

Realtor Clint Currin of RE/MAX, who specializes in small acreage and estate properties, says land and pastoral views are driving $1 million sales near the high-tech center of Hillsboro.

Five years ago, Currin could sell a nice home on 30-plus acres in Helvetia for $1 million. Now that once-princely sum buys you a custom home of 4,000 to 6,000 square feet on five acres or less, he says.

"You'd think it would buy you a glitzy house and an absolutely pristine piece of property," he says. "And that's not the case anymore."

Data from First American Real Estate Solutions and county records show the same trend in Clackamas County. There, the buyer of the median-size house in the $1 million to $1.3 million range got 4,642 square feet in 2000, but had to settle for about 500 fewer square feet in 2005.

Almost all of the $1 milllion Clackamas County homes sold in 2000 were in the old-money enclaves of Lake Oswego and West Linn. But in 2005, some homes were sprinkled around more rural and less opulent addresses, from Oregon City to Damascus and in hot new ZIP codes around Happy Valley.

When empty-nesters Eva and Michael Leech of Happy Valley decided to upsize from their 3,200-square-foot house, they checked out more than 100 properties, including several in Lake Oswego and West Linn.

But they ultimately found their dream house back home in Happy Valley: a 5,000-plus-square-foot custom-built home with an open floor plan and floor-to-ceiling windows that capture a breathtaking view of snow-capped Mount Hood.

"It's the last home we're going to buy before we scale down sizewise," says Eva Leech. "If we stay in shape, we can probably live here another 10 years."

In Clark County, the buyer of that median $1 million house got nearly 1,500 fewer square feet in 2005. Collectively, more of the buyers settled in smaller communities -- Battle Ground, Camas, Ridgefield and Washougal -- than in Vancouver.

But medians -- or the middle of the pack, as opposed to the average -- don't tell the whole story, particularly when the number of sales in this range -- 21 houses and one condo in Clark County -- is relatively small.

Consider Kurt and Debbie Kujovich.

In 2005, the Vancouver couple and their two children moved into a 6,300-square-foot custom-built manse, which includes a guesthouse, a heated outdoor pool and an indoor regulation racquetball court. There's also a hilltop view of Mount Hood and the Columbia River, not to mention a professionally designed landscape with several ponds, oodles of rockwork and a cascading waterfall.

The cost: A cool million.

"We were looking for something where people would walk in and say, 'Wow,' " says Kurt, who works for Oracle, a software giant based near San Francisco. "There's nothing more I could want in a house."

By living in Washington, he keeps his wages free of Oregon's income tax, and he has an airport just six minutes away. Those advantages -- plus what they consider a superior school system -- made it easy for the couple to justify traveling a few minutes to restaurants and night life in Portland.

"This house has characteristics you'll only find in a handful of houses in Vancouver," says Kurt. "It's an investment, and we're going to get it back."

Where it all starts

Driving it all, of course, are soaring prices at ground zero -- Portland.

For couples like Kelly Tweeden, 36, and Michael Shea, 45, a charming old house in the heart of the city is exactly what they want -- even if it means a commute to their jobs at Nike in Beaverton.

Last year, they snared a historic home in Irvington on six city lots for $1.3 million. The impressive, mature landscape anchored by a 100-year-old grape arbor drove up the price considerably, and it gives this early 1900s home the feel of a country manor. But as with many vintage homes, the kitchen needs work.

"We love it as is," says Tweeden. "It's really a special place. I feel like I own something that is part of Portland history."

Across town, the Pearl District also is seeing some downsizing.

Of the 17 condos in Multnomah County that sold for $1 million to $1.3 million last year, 12 were in the Pearl District. The midrange condo cost $1.1 million and had 2,326 square feet, according to county tax records.

"For that price, you'll get outdoor space, but it won't have that oversized terrace where you can host an outdoor party for 20 guests or more," says agent Erin Livengood of Windermere.

"Down here the square footage drives the price quite a bit," adds Realtor Maxine Cracraft of John L. Scott Real Estate. "If you need three bedrooms and two baths, you're going to pay a lot of money."

So, while many can envy what the buyer gets for $1 million, some say that's not real luxury anymore -- whether it's in the Pearl or in the suburbs.

"Almost every home we're doing in the next two years is in the $2 million to $5 million dollar range," says Jeff Haggart of Haggart Luxury Homes, which won the People's Choice Best of Show award with a $4.1 million house in the Northwest Natural Gas Street of Dreams in 2005. "The whole market just shifted up a level."

Housing market will slow, but stay strong

By Joe Harwood
The Register-Guard
Published: Sunday, February 5, 2006

Economists predict the red-hot pace of new home construction in Lane County will cool a bit in 2006 as mortgage rates inch upward. But demand for single-family homes is still expected to remain strong by historical standards.

Builders in Lane County last year took out permits for 1,526 new single-family homes, up 13 percent from the heady levels of 2004.

The Register-Guard's Board of Economists forecasts a 4.9 percent dip in Lane County housing starts this year compared with 2005. The estimated 1,451 new home permits that builders are predicted to apply for in 2006 suggest a healthy market leveling off after a series of record years.

"I think we'll see a leveling out in prices and slower appreciation," said John Mitchell, a regional economist with US Bank in Portland. "Oregon and Lane County are going to continue to grow, but a little more slowly."

Population growth and mortgage interest rates are two big factors governing home construction volumes and home price appreciation.

"The big question is when and how much long-term interest rates are going to rise, because that affects development projects at all levels," said Brian Rooney, regional economist for the state Employment Department in Eugene.

"My guess is interest rates are going to rise," Rooney said. "And both residential and commercial development will slow because of that."

Among the more important indicators for economists is the yield curve of interest rates. A flattening or inversion of the curve means short-term rates on instruments such as three-month Treasury bills exceed longer-term rates on, say, 10-year Treasury bonds. Flattening or inversion of the curve signals inflation in interest rates.

The yield curve started softening in mid-2005. If the trend continues into this year to the point of an inverted curve - signaling a tight money supply - the corresponding hike in the cost of borrowing will impact all aspects of development, economists said.

"Look what happened (in 2005) and how the flattening of the curve took away some of the things people were doing with adjustable (rate mortgages)," Mitchell said.

"That takes away some of the affordability," he said. With rates increasing on adjustable rate mortgages, buyers who are on the cusp when it comes to qualifying lose that flexibility, Mitchell said.

Price appreciation on new and existing homes combined with higher interest rates reduces the pool of potential buyers who can qualify for home loans. On the brighter side for buyers, however, home appreciation rates are expected to moderate in Lane County and throughout the nation.

The Register-Guard Board of Economists expects the average home price to increase only 3.2 percent in 2006 to $230,445, well below the double-digit increases in 2005 (17 percent) and 2004 (13 percent).

And Mitchell is more optimistic in his 2006 outlook for Lane County specifically, and Oregon in general, than many of his peers.

"I believe we are going to get slightly higher (mortgage) rates," he said. "But Oregon might be the exception (to the predicted national housing slowdown) and Lane County may hold up better than the state."

David Seiders, chief economist for the National Association of Home Builders, said 2006 will feature "a simmering down process" toward more sustainable levels of home sales, home building and price apprecia- tion.

"In terms of single-family sales and starts, we'll basically be retracing the increases we saw in 2005 (and) heading back to 2004's very healthy levels," Seiders said.

If the Federal Reserve raises short-term rates slightly - as expected - to keep inflation in check, Seiders said he sees the average rate on a 30-year fixed mortgage inching up to about a 6.6 percent average for 2006.

The Mortgage Bankers Association reported Jan. 25 that the average rate on a 30-year fixed mortgage was 6.04 percent, the third consecutive weekly decrease.

Doug Duncan, the association's chief economist, said long-term rates will increase a bit, but will remain relatively low. "Housing will decline modestly from the fifth consecutive record year in 2005," Duncan said. "But will remain robust historically."

Bill Conerly, an economics consultant based in Lake Oswego, said 2006 isn't likely to be the year the housing bubble bursts, but there could be a fizzle. "I do not expect prices to fall on average," he said. "But some people who paid too much for their house might find they can't sell it for as much as they bought it for."

If Lane County builders and developers are sensing a slowdown during the next 11 months, they certainly aren't showing it, given the number of new subdivisions in the pipeline.

Here are some of the larger developments expected for 2006:

• MountainGate in the Thurston area of Springfield, which could someday hold as many as 700 homes and apartment units. The first two phases, totalling 71 lots, already sport homes under construction. About 45 lots of the third phase will come online this month, with another 65 ready by mid-summer. The 130 lots for the fourth phase are expected to be completed by the end of the year.

• Timberline Hills, the final phase of the Breeden family's massive housing development in Eugene's southwest hills. The 255-lot Timberline Hills will cap the roughly 1,100 homes built thus far.

• The 99-home first-phase of the Oaklea Meadows subdivision in Junction City is expected to begin this year. The developer of another proposed Junction City subdivision, Prairies Meadows, is seeking approval for 130 residential lots.

• The developer of the proposed 112-lot Westwind estates subdivision in Springfield is seeking approval to build the lots on 23 acres south of Daisy Street, north of the Union Pacific Railroad line.

• Work on the 101-lot Filbert Meadows subdivision south of Jasper Road in Springfield is expected to begin in April.

• With the 42-lot first phase of Hawthorne Estates sold out, the developer of the subdivision off Crescent Avenue in north Eugene already has started on the 47-lot first addition. Another 31 lots are planned if the market stays healthy.

• Developers in Veneta, Lane County's fastest-growing city for the past two years, have filed proposals for 672 new homes since 2000. A Redmond-based developer in late 2005 submitted a proposal for up to 629 homes on 128 acres west of Territorial Road.

Office presence grows in suburbs

Thursday, January 26, 2006
DYLAN RIVERA
The Oregonian

When Portland-area companies added office space last year, nine times out of 10 the space they added was in suburbs rather than downtown.

Central Portland captured 10 percent of the net growth in office space leased in the region, a pace at which it would take more than 12 years to reach what researchers generally consider to be "full" occupancy, according to figures released this week by Colliers International.

Employers leased 1.3 million square feet of net new office space in Washington, Clackamas and Clark county buildings in 2005, compared with slightly more than 150,000 square feet in Portland's core.

"It's basically not growing" downtown, said Gordon King, a veteran broker with Colliers. "The growth is in the suburbs, and it's spilling into downtown."

The suburbanization of job growth has been especially contentious in recent years, as Portland and Multnomah County have added taxes that some say have contributed to business flight to the suburbs. The trend also runs counter to the region's efforts to limit sprawl.

Portland-area developers, brokers and researchers say several factors -- including the trend toward campus-style office environments and high-tech companies' demand for flexible low-rise space -- are hurting downtown's competitiveness, on top of the traditional differences such as taxes and land development costs.

When King entered the field in the early 1980s, he said, downtown and central Portland accounted for about 60 percent of the office space in the metro area and normally captured about half the growth in leased space, known as "net absorption" in industry parlance.

Today, central Portland accounts for about 44 percent of the area's office space yet absorbed less than 25 percent of the net growth in leases over the past three years.

"I don't think it's healthy for the business center of the biggest city in the state to be growing at one-eighth the rate the suburbs are growing," King said. "It's just not healthy and it merits debate on what kind of community you want downtown."

The Portland Development Commission, the city's economic development arm, is actively promoting downtown as a retail and office destination, as well as a housing market, said Bruce Warner, executive director.

Warner, who started the job Aug. 1, said he's not familiar with the absorption figures, but said he wants to learn more about the issue.

"We need to have diversity in terms of growth and development that we have downtown," Warner said. "If we have things that stand in the way of that, we need to find out what they are and plan solutions."

To be sure, downtown's office vacancy rate has fallen to about 12 percent since posting highs of about 16 percent in 2002. And measured by vacancy, downtown office owners are faring better than those in the Sunset Corridor, where developers far overbuilt in the late '90s high-tech boom and now face 25 percent vacancy.

The availability of space can also make absorption figures look low in markets that are strong, said Mike Williams, senior research associate for the Portland office of the Cushman & Wakefield brokerage. For example, Lake Oswego's Kruse Way recovered from the recession faster than Portland's central business district and enjoys lower vacancy rates and higher rents.

"Net absorption isn't going to be very good in Kruse Way next year and the reason is that you don't have a lot of space to lease," Williams said.

Portland doesn't appear to be lagging because of any lack of space. In many ways, it's battling the same issues as other downtown areas across the country.

"The same general trends are occurring in Seattle as well," said Pat Callahan, Equity Office's regional manager for Portland and Seattle. The Bellevue area east of Seattle has performed far better than downtown in recent years.

Downtowns across the country are suffering from a loss of major tenants. Consolidation of the banking industry has shrunk the number of banks and cut their presence in downtowns, Callahan said. Computers have allowed law and other service firms to squeeze far more revenue per employee than they have in the past, reducing the need for new employees and more office space. And growing clusters of high-tech and other companies in suburban areas have created new competition.

"The trend you're seeing out in Portland is more exaggerated than you're seeing in other downtown markets," Callahan said. "The challenge we have as a community is to figure out why that's occurred."

A variety of factors could account for the low share of the region's growth occurring downtown, he continued. The city's business income tax is probably a factor, but Callahan also cited the loss of corporate headquarters for companies such as Louisiana-Pacific, Willamette Industries and Fred Meyer. In addition to their own employment, those corporate bases tend to generate demand for other downtown services, from law to accounting to catering.

The business community should commission a study on the suburbanization trend, Callahan suggested. Brokers and analysts from different parts of the region see pieces of the puzzle, but nobody has put all the pieces together in a single place.

In the meantime, the condo boom downtown and in the Pearl District could help provide the kind of high-end housing that corporate decision-makers look for close to work, Callahan said. A north-south light-rail extension through downtown will help, as will renovations to the transit mall.

"A lot of cities' downtowns are in really bad shape, and