High-end real estate brokers filed into a breakfast meeting for Windermere Real Estate’s Premier Properties program last month, eager to hear statistics and insights into a luxury market that has taken off over the last year. I had the pleasure of sharing my take on the rapidly growing market with the brokers; here’s some of the information they walked away with.
First of all, what is luxury real estate? The definition varies from region to region. In the Portland area, Windermere brokers base their luxury qualifying price on variables such as condition of the home and grounds, history of the home, architectural significance, location and more. Listing prices for luxury homes in Portland typically start between $750,000 and $1 million. To qualify for Luxury Portfolio International, a division of Leading Real Estate Companies of the World, home listings must be priced at or above $899,900.
This same group details the recent increase of luxury market activity, reporting that 25 percent of the U.S. wealthy plan to purchase luxury real estate over the next three years. Further, a whopping 45 percent of the global wealthy plan to purchase during the same period. This is already manifesting in Multnomah County — largely as a result of the increase of wealthy, international tech buyers flocking to the area — where transactions above the $1 million price mark increased 21.5 percent from 2015 to 2016 and transactions above $800,000 increased 27 percent over the same period. Among those high-end transactions, average sales prices skyrocketed nearly $50,000 over the course of the year.
I predict the luxury market will continue to increase moderately year-over-year. Further, job growth in the area should continue to support higher home prices as demand continues to exceed supply. Average listing prices on luxury homes in Portland are reaching $900,550 — well short of other major markets in the west, such as Seattle, San Francisco, Los Angeles and Salt Lake City. With home prices expected to increase 7.9 percent in Multnomah County over the next year, now is a great time for buyers to enter the luxury market and watch their investments quickly appreciate.
Some may fear that all of this increased market activity signals a housing bubble, but I would be quick to dispel that apprehension. Housing prices continue to increase, but home values are protected by controlled national mortgage debt. This total has only jumped one percent since 2012, even when paired with the surge in home price growth. Stringent credit requirements also signal the absence of a bubble. In 2008, the loan qualifying process was fast and easy, but now banks are lending much more conservatively. So I would turn away from the fear of a bubble forming, but perhaps keep an eye on Portland’s housing affordability and accessibility.
The uptick in luxury market transactions is encouraging, but we want to make sure the average Joe can continue to afford real estate as well. While home prices begin to climb, they still vastly outpace income growth. As a result, average Portlanders are having a tougher time affording housing near their workplaces. Since businesses pay close attention to how much it will cost their employees to live in a given market, I worry that high housing costs could price Portland out of business.
There is much for Portland’s housing market to look forward to as we head into the summer months. The luxury market is inspiring for buyers who want to make a high-end purchase soon. However, they’d better hustle before the near-eight percent value increases set in. While I am encouraged to see that we are not on the verge of a housing bubble, we must be wary of housing affordability or risk the chance of Portland experiencing a stall in economic growth. With any luck, Portland will meet its continued expansion head on.