When I came to Portland nearly five and a half years ago, it was to escape the unsustainable cost of maintaining a home in Manhattan as I neared retirement. That was in 2009, when the economy collapsed as a result of the sub-prime mortgage scandals that exposed the real greed of Wall Street. Not that Portland in the go-go years of 2002-2007 was immune to soaring real estate. When I arrived one could still hear some locals complain about all the out-of-towners moving here and pushing real estate prices out of the reach of the state's natives. Still Portland was the last major west coast city to watch the price of a home soar out of control, like San Diego, San Francisco and Seattle. But as the city culinary reputation soared, its easy, casual lifestyle appealed more and more to beleaguered city types fed up with over-priced real estate, and clogged traffic. I was certainly one of those people.
The crash of the American economy was, I thought devastating and surely could not be repeated again. Well silly me. I have been helping a friend who just moved here from Seattle, lured to new job. He and his wife had what I called a solid budget for a home here of between $375,000-$425,000. I had sent them up with a really knowledgeable real estate agent, and with a clutch of listings, the search was on. Now three months later, he had made five offers, the last one $27,000 over asking price and has been beaten out all five times. There's been story circulating on TV and at dinner tables all over town about a couple who had made sixteen offers and lost every bid for a house here. My friends wanted a walkable neighborhood. He wanted to bicycle to and from work, and hills were not a problem. They wanted a three-bedroom, two-bath house with a low-maintenance garden, a roomy dining room with an open floor plan where they could cook and entertain guests within eyesight. A basement was desirable for his wine collection of about 1,5000 bottles. We began searching through the listings on Redfin, and found all sorts of fine looking contenders in all major neighborhoods of the city: Reed, Woodstock and Sellwood in the South East; Multnomah Village, Burlingame in the SW; University Park and St. John's in North Portland; Overlook, Kenton, Alberta, Irvington, Hollywood, Rose City, and Laurelhurst in the North East.
As I toured many of these houses, and viewed hundreds of homes on Redfin, the greed and the cynicism behind this latest "hot market" began to appall and dismay me. Like in New York City, people simply took it for granted that what they had to sell was of value, no matter how small, how dilapidated and unimproved the property was. It became clear immediately that the list price was only the starting point. No offers were considered before an Open House where on a typical Saturday or Sunday, you could bump into as many as fifteen different people looking at one house at the same time. I saw houses that no amount of staging could hide their mediocrity. $400K could get you a master bedroom with ceilings so low you couldn't stand up straight. Some steps were so steep they were dangerous and had no handrails. Kitchens were woefully outdated with shabby appliances. Tiny dining rooms were advertised as gracious spaces to entertain your family and friends. Old wood floors were scuffed, their finishes worn off years ago. All too often a house that had three or four bedrooms had only one bath, which was fine, I guess, when I was growing up in the 50s, but are impossible for families to do without these days. I wouldn't look at a house without a garage when I was looking, but my friend was willing to consider homes without them.
To be fair it was often a pleasure to encounter an older house that had been lovingly restored with well-considered fixtures, innovative kitchen designs, updated and well-lit bathrooms and if a house didn't have two bathrooms, it almost always included a powder room. Old windows were replaced. Leaded windows were repaired. These houses often featured new HVAC systems, central air conditioning, crown molding, new wood flooring, walk-in closets and newly-designed landscaping.
Smart, think-ahead types who had bought their homes and lovingly restored them, hit the jackpot as they entered this buyer's market. But did we really learn anything from the 2008 meltdown? This current seller's boom has ominous signals about the future. During the recession, lots of people bided their time, stockpiling their savings and waiting for an opportunity. But inventory is very low (we didn't build any housing for about seven years and it will take a few more years for that lack of building to catch up to the market demand). This means higher prices for homes fueled by cash sales, thereby averting mortgages and appraisals which could temper the market's impulses for reckless spending and over-inflated housing costs. The result is an expensive housing market that shuts out new buyers with less cash.
At the same time, my twin brother was looking for a new home in the suburbs of Portland. He and his partner were lucky. They made two offers on two houses. The first house was a bank-owned house in King City, near his fiance's job. It was a nice-enough house--big and airy, with a three-car garage, soaring ceilings in the living room, and a charming back yard. The bank had paid for a new roof, new paint throughout the house, and new wall-to-wall carpeting. But the gutters leaked badly. The kitchen had no refrigerator, the stove and built-in microwave were filthy and badly aged. The dishwasher was fairly new, but it was stainless steel while the leftover appliances were black. The cabinets were old and in bad shape. The dated surfaces were tile with filthy grout. The two and a half-bathrooms all featured old brass fixtures. The hot water heater and air conditioner was shot, and the inspection revealed some problems with the furnace. The enclosed back yard had one side with the fence yanked out, and the yard itself with a water feature, needed some expensive repair work. Yet the bank priced the house as if it were new and used the comps from the surrounding homes to establish the price at market value. There was at least another $100,000 in upgrades needed to bring the property up to the neighborhood standard. When my brother got the inspection report, he priced all the improvements and sent the estimates to the bank, which declined to answer the demand.
House number two, a sweetly modest California-style modern home had 4,000 less square feet. It was priced at $375,000--yet the home inspection revealed the need for a brand-new roof--it's cedar shake shingles were rotting. Other problems brought the demand for a $16K reduction in the cost of the home, which the landlady was gracious enough to acknowledge and agreed to lower her asking price. I didn't go with them to view houses, but my brother and I would review homes he was looking at on Redfin. What emerged as a surprise to me is that homes in the suburbs are almost always higher priced than in the city (I'm referring to three-bedrooms, two or two-and-a-half baths, garage, etc.). The attraction of these houses is their relative newness and easy access to freeways for commuting and shopping. For all the complaints I hear about taxes in Portland proper, they seem about the same in the suburbs.
This newly hot real-estate market will probably continue to grow as demand grows. Lots of people are moving to Portland every day, according to local news outlets. This demand is going to be sustainable as the economy continues to grow, which means housing costs are going to be relatively good in this early part of the current boom. Four years from now, those who bought during the recession are going to be very happy with the value of their homes, while those who are still looking to get in the market will feel the pinch. Meanwhile, the city of Portland is in the midst of a vertical building expansion. There is a huge demand for smaller one and two bedroom condos and apartment rentals which are clogging up neighborhoods such as Clinton-Division and Hawthorne in the south east part of the city. Restaurants on Division between SE 20th and SE 40th Avenues, are drawing lots of willing customers, which must be trying to the local neighborhoods with snarling traffic and lack of parking.
Did we learn anything from the previous real estate bubble? I say no.