The Northwest is one of the fastest-growing parts of the country, with home prices soaring as the supply of housing hasn’t kept up with demand.
Investing in such a rapidly changing environment is a challenge because we know from experience that such surges in growth never last. At some point demand will ebb, supply will increase, and prices (and rents) will level off—or even fall.
The area around Seattle has seen the most spectacular growth because of the expansion of the information technology sector—Amazon, Microsoft and many others. This sector now provides 6% of all local jobs, grew 7% in the past year, and provides 23% of local wages because of the high average annual pay, over $250,000.
Oregon and Idaho have had growth on a scale that’s only smaller in comparison, but that leads to similar problems for investors.
The best way to assess these markets is to first see where they are in the price cycle—that is, are they already over-priced? Is there a greater risk that prices will at some point actually come down? If so, your investment will need to be defensive as much as an opportunity for good returns. The table shows that in Seattle, Salem, Bend and Boise, prices are already more than 25% higher than the ‘income’ price. This means they’re over-priced. Another half dozen markets are in the 15% to 25% range, and at the rate prices increased in the past year they’ll soon be there as well.