Real Estate Trends

The Portland Market Action Report for the month of June just came out, and Scott wrote his take on the situation. It’s posted in the Portland Market Statistics page on our site, but here are some highlights for you on the blog.

Inventory has inched up again from 9.2 months in May to 9.5 months in June, but we are at least seeing a continued decrease in listings down 16.3% from June 2007; we do however need to see a greater decrease in listings.

Looking at 2nd quarter comparisons we see a 34.7% drop in sales from the same quarter last year, a 31% drop in pending sales and only a 8.1% drop in listings, we need that last number to get much larger than it is to really start to see some significant improvement in the market.

Yes we’re losing the zero down 100+% financing etc…Well, those are gone already and the very little (3%) down FHA programs & down payment assistance programs are an endangered species at this point as well…but these programs are not representative of a normal real estate market anyway. You use to need 20% down and really REALLY good credit to buy a home at 10%+ rates. We still have next to nothing down programs with not so perfect credit requirements at 7% and less. Home prices are about as low as they are going to get…If you’re waiting for “bottom” and keep waiting, you’re going to miss it. The media won’t be talking about a confirmed “bottom” until it’s 6 months gone.

Our advice, don’t be a contributor to the problem, be part of the solution, get off the fence find your home and buy it. A recovery will not happen until those on the fence buyers step off the fence and step up to the plate.

One of the country’s leading Real Estate Trends experts gives his assessment on the Portland Real Estate Market. He says the market has remained stable. Dr. Lawrence Yuni was also interviewed for this story, which we thought was very positive.

I hope to see these good news begin to make big headlines!  What I have found over the last 6 months here in Portland is that majority of the homes hitting pending status are those priced right for the first time buyer at around $230,000 and under…… but even more recently I’m finding the price point of pendings moving up to just under $300,000.  There has been a lot of inventory so these homes are sitting on the market longer, yes, but it’s picking up…. and buyers in this price point that have become used to taking their time to find just the right home (and in many cases are overwhelmed by the options) will soon find they’ll need to move quicker.

We normally don’t just re-post articles, but this has too much depth to try and summarize. And we don’t want the link to expire which tends to happen with Wall Street Journal articles from time to time. The article is from the May 6th article, which was written by Mr. Moulle-Berteaux who is a managing partner at Traxis Partners LP, a New York hedge fund firm.

“The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.”

According to an April 16 article in the Wall Street Journal, 77 percent of the wealthiest people think that real estate presents a “real opportunity” right now. And 40 percent of those said they are in the market to acquire real estate right now. As we’re heading into the busy real estate season, these are very positive news, especially in conjunction with Portland’s still strong  market.

The Oregonian is running a very positive story on the investment opportunity of Portland Real Estate.

The Daily Astorian ran an interesting article today encouraging people to not believe the Gloom Merchants. The article points out that Oregon and Washington didn’t experience the excesses of house speculation that are now hindering real estate growth in places like California, Nevada, Arizona or Florida. And our economic conditions aren’t nearly as bad as what has been happening in states such as Michigan and Pennsylvania. So, while it might take a little longer to sell your home and it might be a little bit harder to get a loan, overall we seem to be in a good situation here in the Pacific Northwest.

We initially posted a summary style comment/blog entry on the article “Portland Home Values Take First Dip” that was on the front page of the Oregonian on March 26th 2008. I want to further comment on this. Specifically I want to address, or rather point out, the media’s effect on the market and how this article is a great example of the problems we’re seeing.

As Realtors in Portland, we work with other Realtors, lenders and other real estate industry professionals every day. Whenever a conversation turns to the current market conditions we find most of us hold the same opinion about the media’s role in this market; they are a big part of the problem.

Is inventory high? Sure it is. Are prices falling? Sure they are. Nationally it really is a tough market, locally in Portland the real estate market is down, but not out. And thus what we hear from the media both locally and nationally is “the sky is falling!!!”…it’s not.

We are in a market that’s not good for sellers, prices are down, inventory is high, homes aren’t selling like they use to - all bad right? Wrong…bad for sellers, great for buyers!

The media is just hammering the presses with bad news piled on bad news with regards to the real estate market and the “mortgage meltdown” when in reality that is only half the truth and only covers half the activity in the market. What we aren’t hearing from the media is that rates are low, the selection of homes is excellent, first time home buyers that have saved up a little cash still have a good selection of loan programs to choose from, prices are low…All of these conditions make for an ideal buyers market. Unfortunately we are not hearing that from the media.

The doom and gloom reporting the media is currently engaged in is scaring buyers away, it’s translating to “stay away from real estate or else…” at a time when we need to be encouraging buyer activity to reduce the inventory. To balance a high inventory market we need to increase demand and the media is working against that goal.

If the media wants to see this real estate market slump continue then they are doing a great job to that end. If, however, those in the media would like to see the market, and our economy, recover faster they should consider becomming part of the solution. There is good news out there to be shared, report it.

We just read the Oregonian story titled Portland House Prices Show Slight Dip and it has some interesting insights coming from Standard & Poor’s/Case-Shiller reports. Prices in January 2008 fell a half percentage point compared with January 2007. During the nationwide real estate boom (2004 - 2006), Real Estate prices in Portland Oregon increased by about 36%. While mortgage rates were favorable, these kind of price increases presented a real challenge for first time home buyers. Especially since median incomes weren’t rising at near that rate ( until the boom, on average a real estate purchase equals about 3 times annual income). These boom times also presented opportunities for spotty homebuyers who ended up buying properties they really couldn’t afford as well as homeowners who took more equity out of their homes than financially responsible.

Here’s our take. Right now is a good time to buy for qualified home buyers, especially if it’s in a promising neighborhood. And there are many good neighborhoods in Portland. Plenty of our clients have experienced significant gains in market value even while the market has been supposedly down. As long as you’re smart and financially responsible about your real estate decisions, we really believe that real estate is always a good investment, especially in the long run.

More and more we are hearing from our lenders that loan programs, especially for first time home buyers, are disappearing. 100% financing, 95% financing, even stated income programs are becoming endangered if not extinct. Don’t let this prevent you from taking advantage of the current buyer’s market; there are still great programs available. Although the 100% financing options have disappeared, in it’s place we have the revived FHA program without the strict qualifications and requirements it demanded years prior, when combined with the down payment assistance program you essentially have the same 100% financing. Even an FHA loan without the down payment assistance program is still a great option, with only 3% down compared to the 15%-20% down payments we saw required years prior. Although lending options are changing almost daily, there are numerous programs available that include both low rates and fixed interest.  

If you are a first time home buyer, now is your time. No one can predict when the loan programs we’ve been seeing over the last few years will be available again, it’s been decades since we’ve had programs even remotely close to these, so an educated guess is it could be a VERY long time before we see these programs again.

Now is the time to make your move~

Ok, I might be slightly biased but I just read a good entry on the Investor Centric Blog, which was called Investing in Portland Real Estate Isn’t A Bad Idea.

Here are the main points of the article.

• The Portland Real Estate market has kept moving its prices along, while most of the country’s markets have been on the decline.
• Portland’s public transportation system is superior to Seattle, the big brother up north.
• Last but not least, Portland is just as beautiful, has better infrastructure and still is more affordable than Seattle.

Good news for us Portland Real Estate Brokers.

Some good news for the Portland Real Estate Market by the Office of Federal Housing Enterprise Oversight. While nationally declines during the fourth quarter erased earlier gains, pushing U.S. housing appreciation into negative territory for the year for the first time in 17 years Portland’s home value and appreciation are continuing to hold up. Nationwide, prices were down 1.3% compared with the third quarter, the OFHEO said, and down 0.3% from the fourth quarter of 2006*. But in Portland/Vancouver/Beaverton (which by the way ranks number 61 in national home price appreciation), home values actually increased by 0.30% in the fourth quarter. Our one year gain in home appreciation is 4.24% while over the past five years home values have appreciated by 66.54%. The fact that market prices are still increasing coupled with low interest rates is good news for prospective Portland home buyers. Read Home prices by city.

*City rankings are listed by metropolitan areas. The OFHEO’s House Price Index is published on a quarterly basis and tracks average house-price changes in repeat sales or refinancings of the same single-family properties. The index is based on analysis of data obtained from Fannie Mae and Freddie Mac from more than 30 million repeat transactions over the past 30 years.

While home swaps have always been a popular solution for vacationers to save money while staying out of bland hotel rooms,  the idea of permanent house swaps is starting to gain in popularity. With far more home sellers than buyers in the market today some entrepreneurs have come up with web-based ways of putting sellers together with other sellers in hopes of meeting the needs of both. Four house swap sites that we ran across were GoSwap.org, DaytonaHomeTrader.com and DomuSwap.com. Last but not least, the popular Craigslist.org also is listing thousands of home swaps.

In our opinion, it remains to be seen if house swaps have a permanent place in the real estate market as there seem to be limited options for specific geographic regions. Even if you’re willing to move outside of your current market, you would still have to find a house you love and a homeowner wanting to swap and move.