When Will the Housing Market Crash (and Housing Prices Drop) in Oregon?

Last Updated January 3, 2024

What is a Housing Market Crash, and What Happens When Housing Markets Crash?

Traditionally, real estate has been viewed as a safe but low-performing investment. Up until the 90s, overall real estate appreciation only slightly outpaced inflation.

That began to change in the years leading up to 2007, when the housing market reached its peak and real estate became an increasingly popular vehicle for speculative investment.

In order to meet this new demand, new construction surged to levels that hadn’t been seen since the 1970s. Buyers were snapping up new homes as fast as they could be built – and in many cases, they were doing so with minimal financial qualifications.

Rising home prices did play a part in the story of the 2007-08 financial crisis. The main contributing factors, though, were irresponsible lending practices coupled with poor oversight of the financial industry.

Low money down and zero money down loans were extremely widespread. These bad loans, subprime mortgages included, were packaged together and then sold and re-sold on the secondary mortgage market.

Adding fuel to the fire, many investment firms’ portfolios were overexposed to these toxic assets in the form of poorly-regulated credit default swaps.

The whole situation was a huge house of cards, and it was only a matter of time before the whole thing came toppling down.

That collapse had ramifications across the entire U.S. and global economy. Equities, commodities, and real estate markets all crashed more or less simultaneously, unemployment spiked, and many people could no longer afford to pay their mortgages.

Many homes went into foreclosure, causing inventory to build up and housing prices to plummet. It’s important, though, to qualify what we mean by a “crash” here.

Home prices nationwide bottomed out in the first quarter of 2009, reaching a median of $208,400. That’s about 19% lower than 2007’s peak of $257,400.

That may seem like a lot, and it was, especially if you needed to sell your home but couldn’t break even. By comparison, though, the S&P 500 index lost 46% of its value between late 2007 and early 2009.

So, the housing market actually fared relatively well in the midst of broader economic turmoil.

Some real estate markets were hit much harder than others, though. That actually brings us to our next topic – housing market bubbles.

What is a Housing Market Bubble?

Asset bubbles are a little bit difficult to define. The basic recipe is that market conditions lead to overexuberance, which leads to inflated values. Then, when market conditions shift, valuations come crashing back down to earth.

In reality, “bubble” is a label that can only be applied in retrospect. Even then, it’s tricky.

The housing market crashed in 2007-08 – and so did equities and commodities markets. Home valuations were connected to the global financial crisis, but they didn’t necessarily cause it.

Many housing markets got hit incredibly hard, however.

In Las Vegas, home values dropped by about 60%. The situation was similar in other Sun Belt cities like Phoenix and Orlando.

In all of these markets, investor speculation led to an unprecedented housing boom. Prices surged in the years leading up to 2007, while a glut of new construction kept the music going.

Unsurprisingly, when the financial crisis hit, these markets ended up with the most surplus inventory. That caused prices to drop much further than in other, less overheated markets.

In hindsight, it’s all too clear that these markets were fueled by a speculative bubble.

By the first quarter of 2013, home values had more or less recovered nationwide. Since then, national median sale prices have surged all the way to a median of $450,000 in 2023.

That’s a more than 60% increase in less than 10 years, and a big portion of those gains came just in 2020-22. Four main factors drove housing high price appreciation nationwide in the aftermath of the COVID-19 pandemic.

First, mortgage rates hit record lows, encouraging more buyers to enter the market. Competition was high, and bidding wars became the norm in many markets.

Second, equities markets saw exceptional appreciation during at least part of this period. Flush with capital gains, investors pulled out their winnings and purchased new residences or investment properties.

Third, construction costs skyrocketed due to supply chain issues. Lumber prices were an order of magnitude higher than they were pre-pandemic.

Fourth – and perhaps most importantly – markets nationwide have faced extremely constrained housing supply due to a lack of new construction.

Will history regard current market conditions as a bona fide housing bubble? Well, that will depend in part upon how the factors above shape out.

We’ll take a more detailed look then move into the specific factors affecting Oregon’s real estate markets.

Could the U.S. See Another Housing Crash in the Next Several Year?

When we initially published this article, we wrote that the most likely scenario for 2022-23 is that the housing market would cool and home values would begin to flatten.

That’s just what happened. Values did drop in many places, but in our local Oregon markets, 2023’s median sale prices were just slightly lower than 2022’s median sale prices. That’s in spite of significantly higher interest rates.

It’s still worth asking, of course: if the housing market were to crash, what might precipitate it?

Simply put, widespread economic instability is the most likely – and probably only likely – catalyst for a housing market crash. And by “widespread economic instability,” we mean something on par with the 2008 financial crisis.

The threat of recession still lingers heading into 2024. But even a recession following on the heels of a market that may still be overheated shouldn’t create the conditions necessary for a bona fide housing market crash.

Still, it’s worth looking at other factors that might affect housing prices.

Warning Signs that Could Dampen the Housing Market – Maybe

Above, we identified four different factors that drove rapid price appreciation in real estate markets across the country between the third quarter of 2020 and the first quarter of 2022.

Several factors have combined to keep housing prices high even as mortgage rates surpassed 8% in the Fall of 2023.

In early 2022, new listings were already at their lowest point in 5 years. In 2023, however, Oregon’s new home listings dropped another 14.2%. Therein lies the crux of the matter: even with less buyer demand, there still aren’t enough homes to go around.

It doesn’t help that construction costs have continued to increase amid continuing supply chain issues. There is a silver lining, with lumber futures showing price drops on the horizon. But builders have been hesitant to ramp up new construction with higher mortgage rates and a possible recession looming.

To be clear, housing inventory is definitely on the rise in markets across the country, and in some markets, it’s rising faster than in others.

Real estate is local. Barring an economic event with national or global ramifications, local housing supply and price dynamics are the two factors that will determine whether or not home values are likely to decline.

Will Housing Prices Drop Soon in Oregon?

Home prices have dropped in Oregon, at least relative to the peaks we saw in 2022. But the trendline doesn’t necessarily point toward further price declines.

It’s typical for sale prices to drop somewhat in the colder months. Part of the reason for that is that sales of higher-end homes tend to drop off more dramatically than homes in the lower and middle ends of the market.

More inventory increases, of course, could drive further price reductions. But it’s typical for new listing activity to drop off in the late summer before slowing dramatically in the winter.

Leftover properties get bought up at a discount, and housing supply continues to drop leading into the spring buying season. That drives prices down relative to their summer peaks, but it’s a matter of lower quality inventory (and cloudier skies) rather than market weakness.

Again, we’re talking about typical market dynamics. In 2020 and 2021, demand remained strong through the fall and winter, and prices continued to go up. But what we’re seeing now indicates a return to normalcy.

To reiterate, all signs point to a flattening rather than a bubble.

That picture could conceivably change. Homeownership is now out of reach for many Oregonians, and higher mortgage rates don’t help. But there are still plenty of people willing to pay the premium to live in Oregon.

Speculative investment isn’t the driving force that it was leading up to the 2008 financial crisis. Instead, quality of life – and low inventory – are the big factors leading to rising home prices in Oregon.

Potential sellers are choosing to stay put rather than put their homes on the market and move elsewhere. That’s meant less activity overall, but it hasn’t been particularly weighted toward the seller side.

Nothing we’ve seen so far indicates a selloff happening anytime soon, which is what it will take to catalyze a bona fide housing crash. But are there any other warning signs?

Is a Housing Market Slowdown Inevitable?

Between the summer of 2020 and spring of 2022, Oregon’s real estate markets – and markets across the country – became overheated. Since then, a slowdown has indeed been inevitable. But it’s important to qualify what we mean by a “housing market slowdown.”

A slowdown is not a crash, just as a hot market doesn’t necessarily indicate a real estate bubble.

In Oregon, prices are down somewhat from all-time highs, and housing supply is back to where it was before the pandemic in most markets. But home values are still much higher than they were pre-pandemic throughout Oregon.

Even if you bought at the very top, your equity is far from at risk, so long as we don’t see global financial instability on par with the Great Recession.

How to Recognize Signs of Housing Market Strength

As we mentioned already, the markets that fared the worst following the 2008 financial crisis had several features in common.

First, rampant investor speculation drove values sky-high. Second, builders swooped in, creating more inventory than a weakened market could bear.

So, what kind of markets fared better in the wake of the Great Recession? Simply put, the best-performing markets were markets where growth wasn’t defined by future speculation but by people wanting to live there.

In the wake of the pandemic, more and more people suddenly had the opportunity to work from home and therefore choose where they lived. That was one factor driving outsized appreciation in markets like Bend, Oregon.

Bend is an interesting case study because its market got hit relatively hard following the 2008 recession. In January of 2010, homes sold for a median of only $181,000, a decline of almost 50% compared to three years earlier.

In the years leading up to the 2008 recession, Bend’s market, like many others, was driven by investor speculation. Between September 2005 and September 2006, inventory increased from 2.9 months to 8.44 months.

In retrospect, it’s obvious how a glut of new construction set the scene for significant losses.

The situation in 2024 is very different. There simply hasn’t been any similar building boom.

Bend’s inventory has remained very low, even with interest rate hikes putting a damper on buyer enthusiasm. It’s hard to envision a scenario where Bend’s market will have anywhere near as much surplus housing supply as it did in 2006-07.

Prices haven’t increased because people think Bend will be a destination at some point in the future. It already is. Bend’s transformation over the past decade has been remarkable, but in some sense, it wasn’t until the pandemic that it truly “arrived.”

In other words, even in the event of a recession and/or further mortgage rate increases, Bend’s market, and Oregon’s markets in general, are in a much better position than they were 15 years ago.

Things to Know Before Buying or Selling Property in Oregon Today

Even if you’ve followed us up to this point, you may be thinking, “Okay, that all sounds reasonable, but so what?”

Maybe you’re potentially looking to buy a home in Oregon, but you’re wondering whether or not now is the right time. Or maybe you’re considering selling your home, and you’re wondering if it’s now or never in terms of netting the most money.

It’s important to consider your options carefully and balance them with the reality of the market.

In a climate of economic uncertainty, it’s easy for the imagination to run wild about what might happen. But that often leads to poor decision-making.

It’s true that Oregon’s markets have changed since the beginning of 2022. But the kinds of considerations you need to make as a buyer or seller haven’t fundamentally shifted.

Here’s what you need to know. We’ll begin with sellers.

What Sellers Need to Know About Oregon’s Markets in 2024

If we were only able to offer a single piece of advice to sellers, it would be this: don’t overprice your home.

That was true even when housing supply was at its most contstrained in Oregon. Setting an overly-aggressive listing price harms your bottom-line, period.

At best, it keeps prospective buyers out of your home. At worst, it causes your home to linger on the market, shifting all the leverage to the buyer’s side. With inventory levels on the rise, that’s a scenario many sellers now face.

Sometimes unscrupulous agents will offer an inflated opinion of value in order to secure a listing. It’s important to interview multiple agents and apply scrutiny to their numbers. Don’t simply go with the agent who promises to fetch the highest sale price for your home.

With that out of the way, you’re probably wondering whether now is the right time to sell or not. The answer is: well, it depends.

In many ways, it’s a question of whether or not you’re ready to buy. When Oregon’s markets were at their hottest, it was extremely difficult to get into contract with an offer that was contingent on the sale of an existing property.

Now that inventory levels are up, sellers are much more willing to accept contingent offers. You’ll just need to be able to demonstrate to the seller (and their agent) that your home is priced appropriately and will go off the market quickly.

Housing supply should drop somewhat during the winter months, but we expect that new listing activity will ramp up quickly. Depending on when you list, you may face more competition than you would right now.

Broadly speaking, sellers will continue to have the advantage for the forseeable future. Competition – and compromise – will be harder to escape, but those are facets of normal, healthy real estate markets.

Certain kinds of properties will always be hot tickets regardless of market conditions. But if your home is less unique or maybe doesn’t show as well as competing properties, you’ll need to carefully consider your approach.

Talk with more than one agent, and be clear about your specific goals. Make sure your agent is on board for the whole process and not just telling you what they think you want to hear.

What Home Buyers Need to Know About Oregon’s Markets in 2024

If you’ve been waiting for prices to drop, our advice is to stop waiting, assuming you have all of the other necessary pieces in place.

We are already in the midst of a correction. Home prices, though, are higher relative to the value of the dollar than at just about any point in history.

It’s tempting to envision a crash, especially if you’ve watched with dismay over the past several years as homeownership has gotten increasingly out of reach.

But the difference between now and 2007 is that this time around, high prices are basically a matter of supply-and-demand.

There just aren’t enough homes to go around, and that’s particularly true of inexpensive, so-called “starter homes.” The economics of new construction have long-favored middle and higher-end homes.

To combat the current housing crisis, we need more housing of all kinds, including middle housing like townhomes, multi-plexes and backyard ADUs (“additional dwelling units,” AKA “in-law units.”)

Oregon’s Housing Bill 2001 is a step in the right direction. Still, change will be incremental.

We’re hoping as much as anyone for a future in which housing isn’t treated (or priced) like a scarce commodity. But, looking toward the more immediate future, it’s important for potential buyers to maintain a realistic perspective.

We’ve outlined what we see as the most likely scenario for Oregon’s markets. That doesn’t mean we can predict the future.

Your decision-making process needs to be your own, but we’re here to help add our informed perspective.

We’re happy to answer questions or talk in more detail about your particular situation. Just drop us a line by clicking the contact form to your right, and feel free to leave your comments or feedback below.