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In Some Markets, Home Prices Rise 5 Times Faster Than Inflation

It should come as no surprise that home prices continue to soar as the economy improves and more people enter what increasingly seems like an elbow-throwing, cash-hurling scuffle to secure the few homes available for sale.

But one region is seeing particularly dramatic gains. In the Pacific Northwest, homes are appreciating several times faster than inflation.

Nationwide, home prices jumped 5.3% in February compared with a year ago, according to the most recent data from the S&P/Case-Shiller Home Price Indices. But they remained relatively flat from January. The report looked only at existing, detached, single-family homes and not newly constructed residences.

“In a number of markets, especially in the Pacific Northwest, prices are rising quite rapidly—four to five times faster than inflation,” says David Blitzer, managing director of the index committee. “They have not much [housing] supply and not much new construction.”

The problem? Folks aren’t putting their homes on the market to trade up to nicer, larger ones because they don’t think they can find—or afford—a new abode, he says. That means there are fewer properties on the market for first-time buyers without deep pockets. And there aren’t enough newly constructed dwellings to make up for it.

The largest year-over-year hikes were in Portland, OR, where the cost of an existing home shot up 11.9%.

“I’m seeing a lot of frustration on the buying end. People are putting in six to 10 offers before they find one that will stick,” says Portland real estate agent Amanda Haworth of Living Room Realty. “On the selling end, however, it’s a pretty [good time]. They’re getting at least 10% over their asking price.”

First-time buyers are clamoring for properties in the $250,000 to $400,000 range, which is still considered at least somewhat affordable in the booming city.

But the only sellers Haworth is seeing are moving either out of the state or to a more rural area.

“During the recession, people were really hesitant to make a big purchase, and now they’re feeling more secure in their employment,” Haworth says. “But the market isn’t sustaining the number of buyers because of the low inventory of homes for sale.”

She doesn’t expect the prices to level off any time soon, as more people continue to move into the increasingly popular city, known for its nearby outdoor attractions and quirky attitudes satirized in the TV show “Portlandia.”

But the cost of homeownership in Portland is relative.

“If you’re living anywhere in California [such as Silicon Valley], the prices in Portland seem very reasonable,” Haworth says.

Seattle wasn’t far behind Portland’s cost hikes, as buyers paid about 11% more on their residences in February than a year ago, according to the report. And prices in Denver went up 9.7%.

Blitzer believes the market will have to eventually plateau, as prices can’t increase at this rate forever (although most sellers probably wouldn’t mind).

“It’s going to be at least a year before things get back to numbers that don’t shock people,” Blitzer says.

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