Like most of the country, 2021 was a year to remember for single-family real estate in Clark County as record-low housing inventory and rock-bottom interest rates pushed demand and home values into the stratosphere. But now, with interest rates on the rise and price growth slowing, people are wondering what’s in store for Clark County real estate for the remainder of 2022.
In short, I anticipate that the local market will still remain strong this year, buoyed by first-time buyers and growing work-from-home opportunities. However, it won’t be free of challenges, particularly when it comes to affordability.
Home Sales Will Continue Increasing
As the pandemic set in and many people realized they could work from almost anywhere, home sales in the suburbs started to surge — and Clark County was no exception. Buyers from the Portland metro area saw homes in Clark County as more affordable than in their own area, and were also drawn in by the benefits of Washington’s tax structure.
Last year alone, Clark County added almost 10,000 new residents, with a full 90% of the growth coming from in-migration. Those new arrivals created additional demand in an already tight market and, as a result, the average sale price of an existing single-family home rose by $96,000 (or 20.8%) between 2020 and 2021, a stronger pace of appreciation than seen in Washington and Multnomah counties, and matching that seen in Clackamas County.
In 2022, I anticipate that demand for housing in Clark County will continue to exceed supply, which will allow prices to continue rising at above-average rates, thanks to the area’s relative affordability when compared to the Portland-metro area. With mortgage rates expected to continue trending higher as we move through 2022, buyers will react to rising finance costs by shopping for new homes sooner rather than later. They’ll also be particularly interested in homes with work-from-home-friendly amenities such as dedicated office space and high-speed internet access. Sellers who can offer these features will benefit.
There Will Be More First Time Buyers
Home sale growth has been fueled — in part — by a dramatic nationwide increase in first-time homebuyers. This isn’t really a surprise, as millions of millennials (now the largest living generation) have begun aging into adulthood. Last year alone, nearly 5 million millennials turned 30, the age when people typically start thinking about homeownership for the first time.
Just as this large cohort of new buyers entered the market, mortgage rates dropped to the lowest level in history. The ability to work from home further fueled demand, as urban renters now had an opportunity to find homes they could afford that were further away from their workplace. If first-time homebuyers can continue working from home in 2022, I expect they’ll still gravitate towards houses in the suburbs and areas away from high-density neighborhoods.
It is worth noting that Clark County is home to over 94,000 millennials and, in a similar fashion to that seen nationally, I expect them to be a local demand driver too.
Affordability Challenges Will Worsen
While the suburbs will remain attractive to first-time buyers in the coming year, rising prices and mortgage rates will make it even more difficult for them to find a home they can afford. Using certain assumptions regarding household income and down payment, Clark County has been technically unaffordable for first-time homebuyers since 2015.
The Washington Center for Real Estate Research at the University of Washington provides robust data on affordability. Their Q4 2021 housing report suggested that a first-time buyer could afford a home priced at or below $335,000. Unfortunately, Clark County saw just 119 single-family and multifamily homes came to market in the fourth quarter that met that criterion, equaling a paltry 6.2% of all new listings.
It is clear that Clark County needs to increase its supply of affordable homes to keep up with growing demand. However, high construction costs will keep many builders from entering this segment of the market, leading prices to continue to rising due to limited supply, and excluding many eager buyers entirely.
Zoning Policy Discussions Will Pick Up Steam
Many of the challenges around affordability in Clark County come from a lack of developable land. Oregon has struggled with this issue for years, as stringent land-use policies restricted new construction and drove price increases.
Recent legislative changes in Oregon are set to relax single-family zoning and allow for development of duplexes, triplexes, fourplexes and cottage clusters inside existing single-family zoned locations. While Washington does not have similar legislation in the works, legislators have been trying to implement plans to increase housing density in order to increase inventory and improve affordability; however, their efforts have yet to be successful.
Good Things Are on the Horizon
Despite the challenges of increasing housing supply to improving affordability, I still expect that Clark County can look forward to another fruitful year in residential real estate. Home values will continue growing, which benefits local homeowners, and a rising residential population will bring an infusion of new money into the local economy. We will not match the heat of last year’s market, but home sales will continue to burn bright throughout the coming year.
About the Author: As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.