Portland Real Estate Bubble – Housing Crash 2023

I’ve been selling in the Portland real estate market since 2003, and writing about it since 2008. Each year I write an article like this one, to gauge the level of likelihood of an upcoming Portland real estate market crash. The Portland real estate market, did bubble up in the past, and crashed in 2008-2011 or so. Will it crash again in 2023? In order to answer this question we will look at some economic fundamentals. Although, I must say to start, from 2012 to early 2020, there were almost no signs of a slowing market or a bubble, until we hit 2020 and prices went haywire.

There are two fundamental questions we have to ask to determine if the real estate market will crash in 2023 or not. The first is, how hard is it to buy a home? This question is answered by employment, wages, interest rates, and housing affordability. The second is, how hard is it to sell a home? This question is answered by inventory, home equity, population growth or decline, and the cost to sell a home. If all the answers to these questions are negative, then a crash is certain. If all of these questions are positive, a crash isn’t possible.

Ability to Buy a Home in Portland in 2023

Portland Employment Rates – √

Employment is an obvious key factor to purchasing a home. Currently at the end of 2022, Portland remains at an extremely low unemployment rate, below 4%. Numbers from the Bureau of Labor. Portland’s unemployment rates are back to where they were prior to 2020, if not even a bit lower. Certainly, with all of the economic uncertainty we are facing right now, the unemployment rate in Portland could increase in 2023, but it would be starting from a near historic low in 2022, and is unlikely to be a factor in any sort of real estate crash (if there is one) in 2023. Unemployment rates are equally low across the United States, currently around 3.3%.

Portland Wage Growth – √

Portland wages have been increasing at a steady rate for many years now, including a significant jump from 2020 to 2021. The 2022 numbers aren’t out yet, but there is no reason to expect the consistent trend hasn’t continued, and won’t continue into 2023, given the extremely low unemployment rates in Portland.

Portland Rent vs. Buy a Home – √

A homeowner is better off financially than a renter after three years and six months. This is still the case, even with higher interest rates (and now lower prices), due to the fact that while prices have dropped, rental lease amounts haven’t (yet). See our full 2022 Portland rent vs. buy analysis.

Portland Real Estate Affordability – X

Affordability isn’t simply housing prices plus interest rates. It is housing prices, plus interest rates as compared with average wages. While Portland wages have continued to increase, and housing prices have started to drop, current interest rates are high enough to outweigh those positives. Portland homes haven’t been this unaffordable since sometime before 2013, we don’t have older data than that. According to RMLS, the average income household right now can only afford 83% of the average priced home in the city. That’s not good! The only good news here, is the only problem with affordability right now is interest rates, since prices are dropping and wages are still increasing. If interest rates drop, homes will become affordable again.

Ability to Sell a Home in Portland in 2023

Inventory (Competition) – √

Inventory hit historic lows in 2020 and is still lower than it was 2017-2019 on average. New home construction (single family, condos, and townhomes), is really low in Portland as we move into 2023 (full report here). The chart below from Fidelity, shows thousands of homes in the vertical column over a horizontal timeline. As you can see, inventory is dropping fast as we approach the holidays, a seasonal effect that helps our local real estate market every year and makes the spring months the best time to sell a home (full report) every year. Inventory will not be a housing market problem in 2023. Less homeowners are putting their properties on the market right now, and inventory is expected to remain low through 2023.

Population Growth – 0

No major new research reports have been released, but recently numerous sources have confirmed Portland city proper decreased in population in 2021 while the suburbs (all of them) continued to grow. Once the numbers come out, no one is expecting a population increase in Portland in 2022 or 23, not the city proper. However, it is likely the suburbs will continue to grow. While we are expecting continue population decline, it is will be at a tiny rate, or close to flat.

Home Equity – 0

Okay, so prices still increased from January 1st 2022 to the end of the year 2022. While the double digit pricing increases we saw in spring of 2022 have been eliminated but fall and winter price drops, there is still a tiny single digit overall increase in housing prices throughout most of the metro. Home prices are still actively falling though and will likely continue to do so for a bit longer, before the early spring market (likely starting in March) stops all price drops and potentially even increases housing prices for a short period of time in 2023. Yes, those people who purchased in spring of 2022 might not be able to sell in 2023, but that would only represent a tiny portion of the overall housing market. Below is a price per sq. ft. chart for Portland from 2019 to the end of 2022.

Home Selling Costs – √

National real estate commission costs averages are now below 5%. We charge 4% total commission (includes the buyer’s agent fee) in the Portland metro and SW Washington. Seller closing costs in our area are not bad and haven’t increased much over the last few years. We’ve complied full seller closing costs reports here.

What about Foreclosures or Short Sales Crashing the Market?

Won’t happen, at least not in 2023. Read our full report on why not here.

Will the Portland Real Estate Market Crash in 2023?

No, it won’t. But that doesn’t mean it will be pretty. Housing prices are likely to drop in quarter 1, stay steady or increase a little in quarter 2, then drop again in quarter 3 and 4 of 2023. Many are predicting that housing prices will rebound 10% or more in 2024 when interest rates are finally expected to drop. This means 2023 might be the best possible year (for a decade or more to come) to buy a home or invest in another property. Read our full report on why we expect 2023 to be a golden year to invest in Portland real estate.

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