The average and median home price in the Portland Metro both fell over 2% in July. The inventory of homes also rose to 2.8 months so we are now almost in a balanced market. The Portland housing market cooled faster than anticipated last month. One day buyers were walking through open houses and the next day they weren’t. I know of several listings in Beaverton and Tigard that a single buyer didn’t walk through during the first week on market in July. That being said, my team participated in bidding wars but only at price points under $425,000. We had a listing come on in the high $600,000’s in Murrayhill a couple weeks ago. Around 35 groups have walked through so some listings are certainly getting attention even if no offers have come in yet. The 30 year fixed mortgage rate averaged 6.47% across the United States last week after falling dramatically on August 2nd. We could see a very active market in the fall if mortgage rates continue to decrease.
The US economy grew at a 2.8% annualized rate in the second quarter. While this indicates that the economy was still growing in Q2, the Federal Reserve are now walking on a high wire. Following their meeting at the end of July, the Fed held the benchmark lending rate steady while indicating a rate cut in September was likely coming. On August 2nd, it was reported that the unemployment rate rose 0.2% to 4.3% in July. The unemployment rate has now increased 0.5% over the last 3 months which is a very strong leading indicator of a recession. Mortgage rates immediately plunged and we saw increased volatility in the stock market. Frankly, the Fed should have cut rates after their most recent meeting. I bet the moment when they saw the July labor market and manufacturing data they realized this as well. Tech stocks have dropped substantially over the past few weeks with the Nasdaq entering correction territory right after the unemployment report was released. Some people missed the opportunity to get out of tech stocks at potentially the peak but valuations are still lofty at present. When the Tech Bubble burst in 2000, it took 3 years for tech stocks to bottom out as they lost 70% of their value. A 10-20% fall in stocks is nothing compared to what can happen when the winds really shift. For example, Lam Research is now down almost 30% from it’s recent highs. It appears that it was the correct call to sell Lam Research stock at $1000/share to buy real estate as I had suggested in March. Thankfully, multiple clients followed that advice.
If we do see a recession, it will be bad for stocks but it will be positive for housing since home affordability will improve as mortgage rates fall. What the average consumer doesn’t understand is that it isn’t the actual act of “the Fed cutting rates” that lowers mortgage rates. Mortgage rates are determined by how the bond market bets on rate cuts occurring. Specifically, how many rate cuts and how quickly they occur. Currently, three rate cuts are priced in by the end of 2024 with several additional rate cuts priced in next year. This means mortgage rates could be lower now than when the Federal Reserve actually cuts rates in September if their guidance doesn’t match the expectations of the market. The bond market was completely wrong about predicting rate cuts in January but this time around it doesn’t appear the Fed has a choice. Right now, we are in an interesting window where mortgage rates have dropped substantially but fewer buyers have entered the market than I would have expected. I have heard some are waiting for the Fed to cut rates before they start looking. It’s not certain whether that will be too late or not to take advantage. I know lenders who are offering mortgage rates under 6% right now. This is a good time to shop rates.
The prediction from my market update in January that 2024 could resemble 2020 for housing might become reality. In 2020, we didn’t see the typical seasonal weakness in the fall and winter as home prices continued to appreciate through December. This was due to pent-up demand for homes coupled with actively falling mortgage rates. We have pent-up demand and falling mortgage rates again as we head into the fall. On August 3rd, I saw a graph showing that the 30 year fixed rate had dropped 0.6% in 24 hours. That’s a massive move. Intriguingly, I realized that mortgage rates had spiked by around 0.4% on August 2nd in 2023. Last year, this signaled mortgage rates were on the rise with the 30 year fixed rate eventually testing 8% in October. This time around, given the amplitude of the drop, maybe mortgage rates can fall to 5% by year’s end. It’s definitely a possibility. The fact that mortgage rates collapsed at the exact same time they skyrocketed last year is definitely an interesting indication of what is to come.
