
How Cash Sent the Portland Home Market Spinning - gammarator
http://www.invw.org/cash
======
kyledrake
I've lived in Portland for several years, and I know the business landscape
here pretty well. I've helped build a few companies, back when Portland was a
place investors wrote off as a joke. I've been watching in amazement over the
last few years as this has really gotten out of control.

The Portland metro region is a great place, and there's a lot of potential.
But frankly, it doesn't have the economic infrastructure to justify $600k
1200sqft houses in the neighborhoods, triple-increased in price within the
span of 5 years with appraisal rights waived. It's definitely gone up in
value, but that's a ridiculous increase that's really hard to justify when
contrasted with the fundamentals.

You can try to blame some specific group, but really I see this ultimately as
an unintended consequence of QE, ultra-low interest rates, and the subsequent
global currency war it appears to have triggered. When there's a pile of cash
floating around and nothing returning interest to put it into, it moves into
other devices. The stock market is an obvious example (with plenty of bad
consequences), but real estate is far scarier, and far more insidious. It has
a tendency to rip up cities.

~~~
pjc50
Global inequality has a part to play here as well. But yes, it seems to be an
almost deliberate plan to reinflate asset prices. And raising housing cost
while wages are flat just exacerbates inequality.

~~~
kyledrake
Yes, exactly this, thank you for bringing this up.

Wages are flat across most sectors, and Portland's job market for supporting
higher wages has not improved much. There's been some growth in tech
(Disclaimer: I'm very much in Portland tech), but the jury is very much out on
how stable this is going to be long-term, as much of this growth is
investment-driven and not profitable. Beyond a few small IPOs, there's been
unusually large growth of what I could try to describe as artisinal
restaurants, food carts and other craftswork type businesses. It's not a bad
thing at all, but it simply isn't going to justify these outlandish prices.
The skyrocketing cost of living is a serious threat to the businesses and
people that made Portland unique and interesting in the first place.

To give a contrast, I have friends in Minneapolis/St. Paul who were able to
find very good 2k+ sqft homes for around $200k, in good neighborhoods within
Minneapolis proper. This region ranks first among the 30 largest metropolitan
areas in the number of Fortune 500 companies per capita, across highly
diversified sectors. Within that stable jobs infrastructure, housing has not
tripled, and they still use appraisals. Something is definitely not right
here.

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throwaway1979
As a datapoint .. we're from the Toronto area ... we looked for renting a home
in a remote community - a few hours away from Toronto. I am shocked to see how
urban prices have creeped into the area. 450K for a nice house in the boonies?
Also, rents are through the roof. All the landlords we spoke to who weren't
professionals seemed to have 1 main home in the community and two or three
others that they bought and renovated.

As someone who doesn't own land and was hoping to do so later in my career, I
am scared. I knew I was priced out of major cities where the good jobs are
(e.g. for my spouse). Since I can theoretically work remote for the most part,
I thought .. it'll be okay. Now, I am getting a feeling of dread that I have
been priced out of a huge chunk of the market.

I am beginning to think that a rise in interest rates won't dampen property
prices where there has been significant foreign investment. It'll hurt the mom
and pop landlords but not the foreigners putting up all cash.

Here is the frustrating part .. this chain of logic says I need to buy
something right now ... buy into the bubble! (Housing in Toronto and Vancouver
is widely considered to be a bubble). I've essentially held out for 7 years
and it is getting to the breaking point. If I had bought into the same (but at
that time smaller) bubble, my "investment" would have doubled.

Am I screwed?

~~~
FiatLuxDave
I was in a similar situation a few years ago, before the 2008 housing bubble
crash. I grew up in a beachside Florida town, where the prices had literally
never gone down since the founding of the town. I was worried that I would
never be able to buy here. I was really worried that what looked like a bubble
in 2003-2007 was going to turn out to be permanent, and lock me out of owning
in my hometown forever. I felt stupid for not buying into the rapidly rising
prices as early as possible. But I worried and waited, and rented and saved.

It turned out I was correct to do so. The housing market crashed and I was
able to pick up a large house in a great neighborhood for $200k. The two
things that really convinced me that the real estate bubble was indeed a
bubble were these: a) I had friends who were able to make a better living
flipping houses than I did as an industrial physicist, and b) the rental rates
were not growing nearly as fast as the housing prices were, which indicated
that all those houses bought as investments were unlikely to pan-out as good
investments long-term.

I don't know much about the Toronto market. But I'd recommend keeping an eye
on the difference between growth in rental prices and growth in property
prices. They are rarely the same. Yes, foreigners are willing to take some
losses to keep their money safely out of their home country, so the situation
isn't the same as in 2007. However, the purpose of their investment is to keep
their money safe, and so like all bubbles, when the prices start to fall there
will be a rush to another safer asset class.

So, you probably aren't screwed long term, just short term. If you see the
bubble, so does (almost) everyone else. You can buy and try to time the market
if you want risky returns. Or you can rent a house for now and then buy a
nicer one after the crash if you want to just get a good deal on housing for
your money.

~~~
GFischer
This article purports to have some tools to predict the bubble:

[http://www.dce.harvard.edu/professional/blog/how-use-real-
es...](http://www.dce.harvard.edu/professional/blog/how-use-real-estate-
trends-predict-next-housing-bubble)

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forrestthewoods
It could be worse. The Chinese could be buying everything like they do in
Vancouver and are starting to in Seattle. I believe the number I heard was 1/3
of Seattle 1 million plus dollar homes in the east side was Chinese. I have
more than a few friends renting condos which are owned by Chinese buyers who
bought sight unseen.

It'll get worse before it gets better, unfortunately.

~~~
iaw
Citizenship requirements to own property, like Mexico has, would be
fantastically appropriate.

~~~
stretchwithme
Taking away citizens' right to sell to whomever they wish is not a moral
solution.

~~~
paganel
You're being donwvoted for not sure what reasons, but it baffles me that
almost 200 years after we found out that things like the Corn Laws do not
actually work (quite the contrary) there are still smart people who think the
opposite.

~~~
david_b
Corn Laws - what do they have to do with selling real estate internationally?

> Taking away citizens' right to sell to whomever they wish is not a moral
> solution.

[http://en.wikipedia.org/wiki/International_Traffic_in_Arms_R...](http://en.wikipedia.org/wiki/International_Traffic_in_Arms_Regulations)

We do regulate to whom we sell specific things (real estate is obviouly not
exactly the same) but allowing international kleptocrats to launder / hide
their money in western cities is hardly the most moral choice one could
propose.

edit: I'm not opposed to such legislation on moral terms but I don't think I
can trust the state with enforcing legislation like that - finding a good way
of treating real estate investment funds or long chains of shell companies
seems extraordinarily difficult (it already is pretty hard to trace who owns
what internationally).

~~~
paganel
It's about imposing tariffs on across-the-border transactions.

> but allowing international kleptocrats to launder / hide their money in
> western cities is hardly the most moral choice one could propose.

This would be a political decision which should be treated as such.

~~~
pjc50
Corn can be transported across the border. Real estate cannot.

The real estate market needs slightly different analysis from normal free
market dogma because it's subject to the constraints of physical space: you
can't just make more of it. If high prices increased the availability of plots
in downtown Portland then the problem could solve itself.

~~~
paganel
They were saying the same thing about corn and other agricultural products,
even more so, as people lives' literally depended on them. This was of course
before the "green revolution" when, as you said, they couldn't just "make more
land" to grow extra corn. It turned out things were better for both consumers
and producers once cross-border transactions of corn were liberalized.

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kisstheblade
What does "all cash" mean? Surely the buyers never start paying loan payments
to the former owners... At least where I live all transactions for houses etc
are always "all cash", even when the buyers have gotten a loan from the
bank... Ie. it doesn't matter to the seller where the money comes from, they
get their money as "all cash" either way. Maybe this is some US terminology
thing.

 __* Ok, read a little further:

"When sellers have a choice, they prefer the sure thing. Unlike cash,
financing can fall through, especially in a market with tighter credit. Buyers
who turn up with a check rather than a pre-approved loan are more likely to
complete the transaction –and sellers know it.

To compete, some buyers are simply borrowing cash from friends and family and
financing their houses after closing — bout 14 percent of cash buyers in the
greater Portland area between 2011 and the end of 2014, in fact, according to
RealtyTrac."

Well, here if you make a binding offer for a property, you pay 10% upfront to
the seller. If you don't complete the transaction you lose that money. And all
buyers always have a "pre approved loan" (which is binding from the bank, they
can't reneg it).

~~~
tsotha
>And all buyers always have a "pre approved loan" (which is binding from the
bank, they can't reneg it).

Yes they can. I've never seen one of those "pre-approved" loans that was
actually contractual. All they really mean is, based on the numbers you've
provided, the bank thinks you can afford a house that costs X. That's to keep
people who don't have enough income from wasting everyone's time. But it
doesn't put them on the hook for actually providing the loan.

~~~
imroot
To combat that, some banks are offering "Guaranteed pre-approval," but that's
the bank underwriting the loan during your pre-approval paperwork, so that you
can close in 72 hours as long as the titles clear.

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steveax
As a long time PDX resident (not "native" but Portland has been my home for 25
years) the current housing market alarms me. It's like 2006 all over again.
The usual NAR "go go go!" cheerleaders, bidding up way above asking prices and
as usual no one is asking "who in Portland can afford a $600k house?" I do not
think good will come of this.

~~~
santaclaus
At least there seems to be more housing stock going in. North East Portland is
a giant construction zone, at the moment. Stand on any corner of Mississippi
or Williams and you see mega apartment complexes going up. Hell, they are even
building new housing in the wasteland that is Lloyd center!

~~~
limaoscarjuliet
Which really means that when it crashes again (and it will one day), it will
be deeper than before.

I own a house in Atl that I bought while it was still in a slump. It's value
went up, so I should be happy, right? I guess I'm stupid, but something tells
me this is not good. Affordable houses are a good thing. High prices mean kids
will not be able to afford anything.

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venomsnake
Sometimes QE land where they don't belong ... The global economy is having a
glut of cash right now.

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intrasight
Interesting article, but they could have said what they wanted to say in 1/3
the number of words. When we visited Portland a couple years ago, my wife's
comment was "gritty city with low-quality housing stock and no obvious
economic base". I said "everyone is in the business of selling food and beer
to everyone else". I vote bubble.

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davidw
Reining in sprawl is probably a good thing, but US cities are very much 'not
dense'. Increasing density would help with supply. It also makes a place more
friendly to walking, cycling and public transportation if done in the right
way. Compare and contrast the average European city with someplace like
Portland.

Not everyone wants dense, but I don't think someplace like Portland is going
to turn into Hong Kong over night, or ever, really.

I'm currently in Boulder, interviewing and looking to relocate here, and this
place has the same problem in spades.

It's really an "iron triangle" situation:

* A. Cheap housing.

* B. A desirable place to live.

* C. No growth (be it outward or upwards).

Pick two. Places like Boulder seem to be opting for B and C, but then wring
their hands about the lack of diversity. They've also created a situation
where a lot more people are driving into town from further out where it's
still affordable, rather than living closer and riding bicycles or taking
public transportation.

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klochner
Investment is not a bad thing. The underlying problem is artificially
constrained supply. In a healthy market, increased investment leads to
construction and lower costs for both renters and buyers. (/cc san francisco)

~~~
tadfisher
SF snark aside, there are some parallels. Portland Metro's urban growth
boundary[1] has both reined in sprawl and reduced the availability of cheap
land for development. Combine this with horrendous traffic on the major
suburban arterials (I-5, I-84, OR-26, I-205) and you have a sustained demand
for close-in residential properties.

You could call this an "artificial constraint", but it's also part of what
makes the Portland metro region a desirable place to live.

[1] [http://www.oregonmetro.gov/urban-growth-
boundary](http://www.oregonmetro.gov/urban-growth-boundary)

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MichaelCrawford
There are 4,000 homeless people in Portland.

~~~
tadfisher
There are. However, I doubt they were in a position to purchase a home even
before the market started bubbling, so what is the relevance to this article?

