Prospective homebuyers are rapidly being pushed out of the housing markets, largely by mortgage interest rates that have doubled in the past six months.
Numbers published Tuesday by the Oregon Office of Economic Analysis showed that surging mortgage rates and rapidly increasing home values have made homes unaffordable for a growing swath of the population.
Josh Lehner, a state economist, estimated that at least 168,000 Portland Metro households have been priced out of the market since December.
And between other major Oregon cities like Salem, Eugene, Bend and Medford, another 69,000 households have been pushed out of the market in the same period.
Since the end of 2021, 30-year mortgage rates have climbed from 3% to just over 6%. Combined with price increases, Lehner wrote, the cost of a mortgage payment has increased 40% to 50% in the past few months.
As a result, less than 1 in 5 households in the Portland region can now afford to buy a home. It’s comparable in Eugene, Medford and Salem.
It’s even worse in Bend, Lehner said, where only about 1 in 10 households can afford to buy a home.
Lehner said the rapid escalation 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 this year. I think the economy could have handled that,” Lehner said. “But 3% to 6% in about a six-month span, I think that is such a large increase over such a short amount of time that there are going to be repercussions.”
The decrease in affordability may have ripple effects in the housing market. It will likely lead to less demand to buy homes and an increase in the for-sale housing supply. Over the past few months, Portland has seen some of the lowest inventory of homes for sale on record.
Still, Lehner said, would-be homebuyers are likely to struggle to find affordable homes unless interest rates or prices start coming down.
Young and first-time homeowners will feel the greatest effect, he said, as they try to finance home purchases.
The high interest rates will drive more would-be homebuyers back to the rental market, Lehner said. But the Portland area is still in the grip of a rental shortage, too. Construction of new apartments has slowed even as rents have climbed.
It’s not yet clear whether the decrease in demand from homebuyers will lead developers to instead start building more rentals, Lehner said. But the construction of new homes are key to improving the situation for both renters and prospective owners.
“Our office’s long-standing concern is our lack of housing production,” Lehner wrote. “Worse affordability impacts Oregon’s households every day, and could slow future economic growth due to fewer people being able to move here and increase displacement risks.”