Potential homebuyers are increasingly being pushed out of the housing market, mainly by mortgage interest rates that have doubled in the past six months.
Numbers published Tuesday by the Oregon Office of Economic Analysis showed rising mortgage rates and rapidly rising home values have made homes unaffordable for a growing swath of the population.
State economist Josh Lehner estimated that the price of at least 168,000 Portland Metro homes has been taken off the market since December.
And between other major Oregon cities such as Salem, Eugene, Bend and Medford, another 69,000 homes have been taken off the market in the same period.
Since the end of 2021, 30-year mortgage rates have increased from 3% to over 6%. With the rise in prices, Lehner wrote, the cost of paying a mortgage has increased by 40% to 50% over the past few months.
As a result, less than 1 in 5 households in the Portland area can now afford to buy a home. It is comparable in Eugene, Medford and Salem.
It’s even worse in Bend, Lehner said, where only 1 in 10 can afford a home.
Lehner said the rise in mortgage rates in such a short period of time has made it difficult for the market to adjust.
“It’s one thing if we went from 3% to 4% to 5% over the course of the year. I think the economy could handle it,” Lehner said. “But 3% to 6 percent over a period of about six months.” %, I think there is such a huge growth in such a short time that the results are going to come.”
The reduction in affordability could have an impact on the housing market. This is likely to lead to a lower demand for buying homes and an increase in the supply of housing for sale. Over the past few months, Portland has seen the lowest list of homes for sale on record.
Still, Lehner said, homebuyers may struggle to find affordable homes until interest rates or prices start to drop.
Young and first-time homeowners will feel the biggest impact, he said, as they try to finance the home purchase.
Lehner said higher interest rates will drive more home buyers back into the rental market. But the Portland area is still reeling from rental shortages. The construction of new apartments has slowed down despite the hike in rents.
Lehner said it is not yet clear whether the reduction in demand from homebuyers will prompt developers to start building more rentals. But the construction of new homes is key to improving the situation for both tenants and potential owners.
“The long-standing concern of our office has been the lack of our housing production,” Lehner wrote. “Worse affordability affects Oregon homes every day, and could slow future economic growth as fewer people are able to move here and increase displacement risks.”