June 2022 Housing Data: Is Life in the Fast Lane Coming to a Screeching Hault?

The June 2022 Portland Metro Real Estate data was released a few days ago.?The questions I am asked are more and more is something to the effect of “Is the Sky Falling?”, “Do I think the Sky will Fall?”, or “When do I think the Sky is Going to Fall?”?

I've told many Chicken Littles more than once – returning to a ‘normal’ housing market, may feel like an emergency – because we haven’t felt ‘normal’ in a while, but there isn’t a reason to contact the Town Crier just quite yet.

You’ve learned from my previous articles that the National Association of Realtors considers a healthy market (where neither the buyer nor the seller has a competitive advantage in an average negotiation) has 6 months of inventory currently available for sale.?Meaning, if not a single other house was listed - and the spigot turned off , it would take 6 months for all of the inventory that is currently listed for sale in Portland to be sold.?In Portland, that number has risen to 1.9 months of inventory.? Just taken just in this context – you probably think to yourself, “Wow! Portland is out of whack!?It’s a sellers’ market, and homes are moooooving FAST!”

The reason why (if you live here in Portland) you feel like we may need to rush Chicken Little to the town square is because we are only a few months removed from the sell through inventory being at 0.9 months.?Earlier this year, there literally wasn’t enough inventory on the market to last an entire month.?That was our "normal".?We were used to a “normal” that was not sustainable.?The engine was running at 10,000 RPM’s in the fast lane - blowing through every speed limit sign with no Highway Patrol in site. That is what we were used to.

We are still in the fast lane; we are still blowing through speed limit signs with a full tank but now only going 75 miles per hour for some reason feels ‘tortoisely’ slow.

In Portland, Average Home Sale Prices are UP 6.1% vs. June of 2021. Yup, that's right. Homes still cost more. Inflation is NOT the reason, and this number is not surprising - because it is still a seller’s market.?We aren’t back to the 6 months of inventory, but we are (finally) starting to trend to see more inventory hit the market.

The number of homes listed for sale in the Portland Metro area, increased by 1.1% vs. June of 2021. More people are selling. Compare that to the number of homes sold in the Portland Metro area... that number decreased by 14.7% vs. June of 2021. ?With more homes coming for sale, and less people entering the market to buy a home you can expect the inventory to keep increasing slowly be surely.?Remember though, we have a long way to go to get to 6 months of inventory.?WARNING: When we get back to driving the speed limit, it may feel like we are going no faster than a tricycle heading north on I5 in Friday afternoon rush hour traffic.

Source:?Portland Metro RMLS Data June 2022

Q: So now, what about this recession, and will that accelerate the deceleration (see what I did there?).?

A: I do believe that a recession is coming.?A reminder though, the definition of a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.?Inflation can cause a recession. Today (June 13, 2022) it was announced that inflation rose 9.1% vs. June of 2021.?That is the highest year over year increase since 1981.

How that might push us towards a recession? For example, I’ve been wanting to buy a brand new 2022 Toyota Tundra since last December. I'd love to drive that with a boat attached to the hitch in the fast lane. BUT,?the price on a brand new “Just About Anything With 4 Wheels” has gone up substantially this year.?I’m holding off on buying because my payment would be higher than where I thought it would be because of interest rate hikes and that higher price vs where it was at last year.?Because, I’m not making that purchase, there is less income to the salesperson at the Dealership, its less revenue to the Dealership itself, and ultimately the dealership may need a lay off a few people because less people are buying and financing their “wants”, but they keep buying their “needs” (Higher gas prices haven’t kept people off the roads for example).

Bank of America announced today (https://www.bloomberg.com/news/articles/2022-07-13/bank-of-america-economists-forecast-mild-us-recession-this-year) they think unemployment will rise to 4.6% (vs. 3.6% where it is now) by years end. Take away the pandemic, and that will be the highest rate of unemployment since…

Source: Bureau of Labor Statistics?

...February of 2017.?Sorry Chicken Little, there still isn’t a reason to call on the town crier. What were people doing in February of 2017??Buying homes.?Buying cars.?Going on vacations.?So, if that 4.6% rings true, the recession is mild.?If the Federal Reserve can get inflation under control, which most economists now concur that we have started on that path (despite today’s report) the economy has a chance to get back to a healthy spot and we are driving “normally” again.

Remember, going 10,000 RPM's at 95 miles per hour (even though we’ve been driving that way for a while now) never was normal.?Also, what happens to a car if it stays at 10,000 RPM’s for too long??Yup, it blows up.?So taking the foot off the gas – even though there are some consequences to it (like taking out some of the ‘fun’ factors of driving fast) is good for the longevity of the vehicle.

FINAL THOUGHTS: Don't believe the extreme headlines you read. As of today, I don't think we are headed for an extreme recession - but I do think our car is headed to the shop for some minor repairs - which as stated in previous articles likely still sees interest rates go up probably through winter. When our car gets out of the shop, the lesson learned will be that we need to drive at safer speeds. Not doing so once back on the freeway could have catastrophic results further down I-5.

Disclaimer:

My predictions are my own and based on individual research and don’t reflect that of C2 Financial Corporation.?If there are 36 super computers predicting the weather, just imagine how many there are used to predict economic conditions!?And still, they aren’t always right!?Do not use this article as a basis to make financial decisions in your investment portfolio.?Only do so with the guidance and advice of a licensed Financial Advisor.

Eric Simantel is a licensed Mortgage Originator and Branch Manager at the Ryder Mortgage Group, located in Portland, OR.?He holds an MBA from the University of Oregon (2002).?The Ryder Mortgage Group closed well over $170,000,000 in total loan volume in 2021.