2014 Portland-Metro Sales Stats: Good News Except For Inventory – What’s Up?

Chart02Portland-Metro’s 2014 RMLS™ stats bested 2013’s numbers in all metrics:

  • New listings (37,654) were up 5.0%;
  • Pending sales (28,220) were up 4.3%;
  • Closed sales (27,752) were up 3.6%;
  • Average price ($333,000),was up 7.2%;
  • Median sale price ($285,500) was up 7.7%;
  • Average market time dropped from 83 days for 2013 to 70 for 2014, reduction 15.5%;
  • Inventory in Months[1] began at 4.1 and ended at 2.3.[2]  

The Take-Away.  What do we make of this? It’s slow and steady growth; all good – except for the inventory numbers. They are unnaturally low. A “healthy” marked is generally regarded as 6 to 8 months.[3]

Currently, there are 6,000+ Realtors® in the Portland-Metro area today.  If inventory was likened to a cherry pie, it shrunk 44% in 2014. Complicating the issue, in 2014 there was an inordinate number of new Realtors® coming into the business.  One has to wonder whether some will go through 2015 without getting a slice of that cherry pie.

The Big Question is, what continues to keep inventory so low?  It has been this way for the last two years.  One would think that sellers with equity watching from the sidelines, would be rushing into the marketplace. Further, it would seem that with increasing prices, folks with negative equity in 2011 – 2012, would have begun seeing increasing market values exceed their mortgage balances. They too, should be coming into the marketplace. Further, as more distressed properties come out of foreclosure, inventory numbers should be improving.

And lastly, after five years of buyer demand being in the doldrums, more first-time buyers and empty-nesters should be entering the market.  All of this should be driving up demand, encouraging homeowners to list and builders to build.

While all of these indicators suggest there should be higher inventory, the fact remains, it has not improved – it’s gotten worse.  My sense is that many other parts of the country are experiencing the same phenomenon – low inventory. How can this be, as the Great Recession recedes into the rearview mirror?

The answer is likely due to lingering collateral damage from the financial crisis.

  • New construction is not even close to returning to normal levels. Builders have been chastened, as have the regional banks that made them loans.  While in-fill construction is thriving, great swaths of newly constructed subdivisions appear to be – for the time being, at least – a thing of the past.[4]
  • Until fairly recently, bank lending remained very conservative, with only the most qualified borrowers obtaining loans; FHA became the “new subprime.”  Recently, the federal government, which was complicit in encouraging the loose lending and low downpayment loans of the past, has now concluded that it’s time to open the spigots.  The result, amazingly, is that Fannie and Freddie’s regulator, the FHFA, has decided to compete with FHA, and offer 3.00% downpayments and lower insurance premiums. Minimum FICO scores have now dropped to 625.  The not-so-subtle intent is to draw first-time buyers from the sidelines; and the best way to do that is to make it easier for them to obtain residential loans.  [The  fact that a minimal drop in housing prices could turn these new buyers’ investment into an albatross around their necks, preventing them from selling or refinancing out of their negative equity, seems to have been lost on the Brainiacs of the Beltway.]
  • Although unemployment has ostensibly been going down, some folks who seem to know what they are talking about, including Gallop’s CEO, believe the figures quote by the Labor Department are a “big lie,” and that the real numbers of unemployed and underemployed, are far higher than announced. If this is correct, as many believe, it means that millions of potential buyers, qualified by the title of “employed,” are merely onlookers.
  • Lastly, there is the intangible factor of “consumer confidence.”[5] There is no doubt that this metric is improving.  It is certainly seen in the numbers of new car sales for 2014.  However, buying a car versus buying a home, are markedly different propositions. Since the federal government has ignored the subprime market for automobile financing, that industry is thriving.  Housing is a different story, thanks to the Dodd Frank Act, and the handwringers at the CFPB, who, in the interest of consumer transparency, are turning home loan financing into a Kafka-esque paper chase that is anything but transparent.

So, despite the more tangible metrics that would seem to point to an increasing inventory of homes, it appears that for less tangible reasons, we are not seeing a “healthy,” i.e. balanced, marketplace of home sellers and buyers. Logic suggests this should not be so, but emotion prevails. ~PCQ


[1]According to the RMLS™: “Inventory in Months is calculated by dividing the Active Residential Listings at the end of the month in question by the number of closed sales for that month. This includes proposed and under construction homes.”

[2] Here is the monthly breakdown of inventory in months for 2014: January 4.1; February 3.9; March 3.1; April 2.8; May 2.8; June 2.8; July 2.9; August 3.0; September 3.1; October 2.8; November 3.2; December 2.3.

[3] This means that there are a sufficient number of available buyers and sellers, such that the market is not skewed toward one side or the other.  For example, with low inventory, sellers can, in theory, drive harder bargains, since there are more buyers vying for the same property.  Anecdotally, this was borne out in 2014. There were many homes for sale that received multiple offers, with the final sale price closing above the listing price. If inventory was more balanced, buyers might have two or three other alternative purchases, and could afford to walk away from sellers driving too-hard bargains.

[4] In the Portland-Metro area the Urban Growth Boundary (“UGB”) has played a significant role in the scarcity of developable land.

[5] A huge drop in the price of gas recently has been a wonderful confidence booster for the middle class.  But is it driving them to buy new homes or dine out more often? I suspect the latter, as the gratification is much more immediate, enjoyable, and risk-free.