Portland Real Estate Market Today vs 2006
By Charles TurnerClearly the Portland real estate market has changed in the last year. The question has been “how much?” The table below is data culled from RMLS. It compares January 2006 to January 2007.
Area 141 = North Portland, 142 = NE Portland, 143 = SE Portland and 148 = West Portland (both SW and NW).
| Total Sold | Avg Selling Price | Avg DOM | |
| 2007 | January | ||
| 141 | 76 | $ 255,830.00 | 60 |
| 142 | 194 | $ 284,241.00 | 59 |
| 143 | 192 | $ 261,842.00 | 56 |
| 148 | 180 | $ 390,856.00 | 62 |
| 642 | $ 298,192.25 | 59.25 | |
| 2006 | January | ||
| 141 | 89 | $ 238,853.00 | 41 |
| 142 | 176 | $ 277,757.00 | 36 |
| 143 | 298 | $ 229,712.00 | 42 |
| 148 | 169 | $ 429,947.00 | 51 |
| 732 | $ 294,067.25 | 42.5 |
Southeast in 2006 had a stellar month. In fact, in 2007 more homes sold in NE and West Portland than in 2006. Overall though, Jan. 2007 saw 13% few homes sold than in January 2006 and time on market was 60 days compared to 43.
Different areas faired differently as far as appreciation:
| Average Selling Price | ||||
| 141 | 142 | 143 | 148 | |
| 2007 | $255,830.00 | $284,241.00 | $261,842.00 | $390,856.00 |
| 2006 | $238,853.00 | $277,757.00 | $229,712.00 | $429,947.00 |
| 107% | 102% | 114% | 91% | |
This is a look at two months a year apart. It may be too short of a period to give an overall picture of the market. This year’s snow shut down real estate for almost five days.
We’ve yet to feel the effects of credit tightening that has begun in earnest in the last few weeks in response to the high default rates in the subprime mortgage market. Coupled with ARMs resetting higher this is going to lead to more foreclosures. More foreclosures means more inventory. Tighter borrowing standards means less buyers. The 20%+ appreciation rates we saw for the last 5 years or so couldn’t last forever…
Well, here it is… and only a few hours after posting the other comment about tightening: Freemont stops funding 2nd mortgages effective today (2/12/2007)… no more 80/20 deals. Two sources:
http://calculatedrisk.blogspot.com/2007/02/fremont-lending-changes.html
http://www.brokeruniverse.com/grapevine/thread/?thread=360194
…this is beginning to look ugly.
Great stats and information, we do very similar table for our area Bellingham, Washington. The snow was an issue here as well,glad to hear it wasn’t just us. Hopefully with the weather starting to turn sunny, so will the market!
TiP wrote the above on http://www.rgemonitor.com/blog/roubini/177395/ and has been very polite on our blog and has practiced what is being preached. It is true that I really don’t follow the subprime mortgage market. Perhaps I should but it is just one (though important) factor in the overall health of the real estate industry. TiP is right that it could shake up the market. How much, no one can quantify and I am not qualified to argue either way. Maybe I am just an optimist. My “shaky anecdotal evidence” cited is experienced based (admittedly I didn’t reply to TiP’s comment about where those listings were in the previous posting (Council Crest (client lost), Lake Oswego (client got), SW Portland (client got))). The actual post title was a question: Portland Real Estate Market Warming?
As for “really just a marketing organ for a real estate agent,” it is true that the blog earns us clients. I don’t post our available listings, I don’t advertise with Google banners or anything else. Not only does the blog hopefully educate others, it makes me educate myself. Topic and content don’t just fall from the sky and I don’t think I need to apologize for writing what is hopefully useful content. We practice what we preach too when it comes to our real estate investments. The content is strong enough to rank, without paying a dime on the front page of a Google or Yahoo search, on the front page of search results for “Portland Real Estate.” Would I write the blog for kicks and giggles if it didn’t get us clients? Probably not. It’s a lot easier (and a lot better use of time) to be able to refer a client to a post that answers their question than reinventing the wheel each day.
Well, at least you’re reading Roubini’s blog. It’s been very educational over there.
If you’d like to learn more about what’s going in in the subprime mortgage market, how it’s leading to credit tightening and what that will likely mean for real estate markets all over the country, take a look at the following blogs:
http://calculatedrisk.blogspot.com/
http://www.housingwire.com/
For a look at how prices are falling in the So. California market largely due to the subprime debacle, take a look at this one:
http://piggington.com/
There’s also an interesting article on BusinessWeek’s site today entitled “A Sinking Sensation for Subprime Loans”:
http://www.businessweek.com/investor/content/feb2007/pi20070214_954191.htm
I was someone who was seriously considering buying a 2nd home in the Portland market last Fall, but after looking into what’s happening in the credit markets I decided that it would be much better to wait it out. I became suspicious when I started talking to mortgage brokers in the Fall who seemed quite willing to get me into all sort of exotic loans ( 100%LTV, 80/20 piggyback, no money down, interest only – the list goes on and on). That got me to wondering how much ‘shady’ lending was going on out there, so I started digging a lot deeper into current mortgage industry practices – which seemed a lot looser than they were when I bought my first home in 1990. That made me very worried that maybe a lot of folks were getting loans that probably shouldn’t be and as I dug deeper it turns out there are a lot of folks out there who were thinking the same way.
I think there will be some great deals coming up in six to nine months when a lot of these aggressive loans blow up on people and the foreclosures hit the market. So, no, I’m not bearish on real estate in general, just in the short term. Longer term (like this time next year) , if you’re buying a house to live in and you’re willing and able to put down 20% cash, I think there will be good deals out there. But for now, it seems that a lot of corruption needs to be shaken out of the mortgage lending system and it seems that prices need to come back in line with how much money people make. The lax lending standards allowed people to buy what should have been unaffordable to them (why else were people encouraged to get ARMs in 2004 when fixed interest rates were at historic lows? ). That larger number of buyers led to the unsustainable runup of prices. The best thing that could happen at this point is a 20% correction as that would allow more people back into the market without the mortgage funny-business we’ve seen the last few years. Then we can get back to more sustainable growth.
My question to TiP is how you see all of this applies to the Portland real estate market, not the national market? For every report that says the Portland market bucks the national trend (Case Schiller), I am sure there is another saying it is overpriced (Smart Money).
We personally didn’t see a lot of the “exotic” loans that were required for the purchase of wildly priced California real estate. We personlly did’t work with buyers using crazy loans. I am sure they were out there but I can’t presonally see it killing our market.
Charles, to answer your question, I think we in Portland are often late to a lot of parties
By that I mean that often trends start elsewhere and then spread here later. Look at the tech bubble: we recovered here later than most other areas of the country. (I’m an engineer and I work in technology – in 2003 it seemed that close to half of my engineering friends didn’t have steady work. It wasn’t till mid-to late 2004 that things seemed to start to recover here)
The reason I think we’ve been almost untouched by the falling home prices that have hit in other parts of the country was primarily that Portland was the cheapest city market on the West coast. However, now that many parts of California are getting hit with falling prices and high foreclosures that will impact us here. Money often flows from California up to Oregon.
Also, while we may be lower priced than the rest of the West coast cities, we also have lower incomes here as well. When I bought in Beaverton in 1990 the house price to my income ratio was about 1.6. Now if I were to buy that same house today (fortunately it’s paid for!) that ratio would be closer to 3. In other areas of town it’s very much up into the 3.5 to 4.0 range. I’m not sure how people starting out in their 20′s now can afford to do it, especially since the good paying jobs just aren’t as common here as they are in Seattle, for example.
About 40% of loans in CA in the last year have had no money down and a large percentage (I think it’s in the 20% range) were subprime.
Bottom line: I think we need to be watching what happens in California because we’ll see similar things here after some lag time. Also watch what’s happening in the Seattle market.
http://seattlebubble.blogspot.com/2007/02/guess-what-inventory-up-sales-down.html
As for ‘crazy’ loans (or subprime loans) being able to ‘kill’ the market here: Even if there weren’t a lot of subprime loans made here, we will still be effected by the credit tightening that is currently starting in the mortgage industry. The first signs could be that you’ll find that people who were easily getting their loans funded a year ago are now having problems. They may run into problems with doing 80/20s or they might find that they will pay higher rates if they want to do something like that. Perhaps your clientele is of a higher calibre and you won’t notice much change, but the tightening will remove a certain percentage of buyers from the market who would have been able to buy last year.
Charles, thanks for not deleting my posts. I think a lot of agents wouldn’t allow these kinds of comments to stay on their blogs. It’s great that you allow opinions that are not exactly optimistic
Oh, one more thing: I think a very positive effect that the credit tightening is going to have (and is probably already starting) is that it will put an end to a lot of the ‘flippers’ – you know the ones. They heard an ad on the radio about how they could make big $$ in real estate. They buy houses and give them a coat of paint and a bit of clean up and then turn around and put them on the market for $100K more than they bought them for. Often any remodelling work they do is very shoddy. I can’t tell you how many ‘flipper’ homes I saw when I was looking a few months back. When you look on zillow.com and notice that the house sold six months ago for about $100K less than they’re asking now it’s a sure sign of a flipper.
This is anecdotal, of course, but I talked to one flipper guy who had 7 houses going. He was pretty desperate to sell this place I was looking at in November. After I got to talking to him some, he confided that he had a 9% loan on that place that he bought in May of last year. You can bet he had a subprime loan, especially at that rate.
The only posts I delete are advertising related or purely commercial. I’d much rather have an interesting debate than sit around coming up with blog topics on my own. I’m not pious enough to think that I am always right or that everyone should see it as I do. If someone gets into a real estate transaction just because of what they read here it may not be pretty. Start here and think. Don’t start here and spend.
You couldn’t be more correct about the flow from California to Oregon. Two of our clients this weekend are from the Bay Area. One thing that people lose sight of here is that just because there is a California buyer who just sold their home for over a million dollars doesn’t mean they have a penny of equity to their name. Lending has allowed this to happen. We work with a lot of California buyers and probably 95% finance their purchase.
There is a good chance that your 9% flipper bought on contract (would that be considered subprime?). One feature of an attractive flip property is that they are in too bad of condition for a conventional (or any bank loan). Sellers usually can demand and get higher than normal conventional rates even when the buyer has a stellar credit rating.
Here’s the latest from the Bay Area:
Slowest sales in 11 years. Prices down 4.1% compared to Jan 2006.
This train wreck is just beginning. Credit tightening is going to get much worse.I wouldn’t be surprised if 5% or even 10% down comes back as the standard. We will see record high foreclosures before this is over. There was and still is a lot of fraud going on…This April we will start the real decent, and I see 2008/2009 winter being the bottom.
Once again, Oregon is caught relying on one industry to keep the economy moving…too many people are working in RE…just like there were too many people in tech…and too many people in timber…
Bear,
Not sure that I follow you down the same track to a train wreck. All we can do is predict what the market is going to do. I see otherwise.
Here’s an honest question: are foreclosures bad for the real estate market? They typically sell for less than market value and that allows people who have been priced out and are qualified under today’s standards to enter the market. Those that made risky investment moves are forced out.
What sort of fraud are you referring too?
There are 1.7 million people in the Portland metro area according to the Google search I just did. There are about 7400 members of the Portland Metropolitan Association of Realtors. There will be even fewer by the end of the year when some of the marginal are forced out by a tightening market.
Anyone who looks at real estate as an investment based on appreciation is a speculator. If there was no risk involved or nobody willing to take it, it wouldn’t be a market, it would be a store.
Nor is it all doom and gloom in CA:
http://www.marinij.com/marinrealestate/ci_5239069
“The median price of a single-family home in Marin increased 7.6 percent last month – to $935,000 – over the previous January, even as prices remained flat across the nine-county Bay Area, a leading research firm reported Thursday…The median price is the point at which half the homes are more expensive and half less. Marin’s record median for single-family homes was $979,000, set in April 2006.”
Prices have declined but are edging up in Marin.
Lots of good info in this article on the Charles Schwab site, entitled “Housing: Suspended Animation?”:
Even has some mentions of Portland (inventories were up 76% at the end of 2006 over the end of 2005).
RE Bear: do you have any numbers on the percentage of people who are employed in the RE industry in Oregon (Portland in particular)? While it seems like in the last few years everyone and their sister has either become a real estate agent, or a mortgage broker, I’m still not sure it’s a significant percentage of the population such that we’re dependent on RE like were were on tech last time around…. but I suppose if you throw in all those folks who install granite counter tops… well, maybe it is pretty significant. Just would like to see some numbers.
Charles: but Marin seems to be the exception rather than the rule. Marin is at the high end of the market; maybe analagous to the West Hills or posh parts of LO here. The average for the whole bay area was down 4% last year. I wonder if a lot of SF stock brokers buy in Marin – a lot of them got big bonuses at the end of last year. Similar to what is happening in NY City: brokers are taking their very generous bonuses and buying real estate which has propped up prices in NYC. Now if only everyone got such huge bonuses…
Here’s an interesting article from the Orange County Register where a real estate investor has decided to sell his house because he thinks prices are going to drop further and he wants to capture some gains:
http://blogs.ocregister.com/lansner/archives/2007/02/riverside_investo.html
The non-prime sector of the mortgage industry is not that large. In fact it is a tiny fraction but it is all you hear about in the media. The vast majority of loans are still prime with sizeable down payments. Should ALL sub-prime mortgages default, which will not happen, it would be a small wave break…not a tsunami. Subprime lenders are closing their doors…great. That does not mean the whole sector is going under. There will always be non-prime loans. I am of the persuasion that there will be no doomsday of “resetting” mortgages. People are not stupid and they know to refinance or work with their lender. Lenders HATE foreclosures and will do anything to avoid them. Plus when houses get foreclosed upon with someone who had a 100% mortgage, you think the bank is going to sell it at a loss? I think not. It will be priced appropriately for the market. I work for a major direct lender and I can tell you our foreclosed homes are not smoking deals and right now we only have two in the Portland area. The zillow price, and I know it not fully accurate, is well below the asking price for our foreclosures. The Portland market is very stable with very few outside investors, comparatively speaking, and we will have robust growth for years to come. We might slow down in the next year or two but it will not negatively affect anyone living anywhere close to the city…unless you rent.
ALN said: “We might slow down in the next year or two but it will not negatively affect anyone living anywhere close to the city…unless you rent.”
What’s the threat to renters? The difference between rental payment and mortgage/tax/insurance payment is still pretty large. If anything, there is less threat to renting because there is less motivation to turn apartments into condos now.
Perhaps your ‘soft landing’ scenario will be correct. Even if the subprime market is as small as you say it is, that doesn’t mean that the worry it has induced in the MBS markets isn’t going to have an effect in other areas of the Mortgage market. There already seems to be a move away from 80/20 piggyback loans that became popular of late (anyone else think that those were fraudulent the first time you heard about them? My first reaction upon hearing about 80/20 loans about a year ago was: “You’ve gotta be kidding”). And now there’s talk about the subprime instability spreading to Alt-A…
Can 4% of homeowners sink the whole market?
http://www.oftwominds.com/blogfeb07/pareto-housing.html?ref=patrick.net
No sooner had I mentioned “instability spreading to Alt-A”…
Listen to the chatter on brokeroutpost.com, the place where mortgage brokers discuss the biz:
http://forum.brokeroutpost.com/loans/forum/2/96730.htm#381078
Oh, and it looks like the ABX BBB- contracts from the 2nd half of 2006 have gone to zero (!):
http://calculatedrisk.blogspot.com/2007/02/bbb-abx-contracts-are-going-to-zero.html
…and the higher rated tranches are heading in that direction too.
It’s getting real ugly out there.
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Tip said:
I’m not sure how people starting out in their 20′s now can afford to do it, especially since the good paying jobs just aren’t as common here as they are in Seattle, for example.
I am one of those people you are talking about here and let me assure you, much as my fiance and I would love to buy a condo downtown or close-in in Portland…well, it seems to be impossible since we are not wealthy. I guess us we will just have to keep renting until the condo prices come down.
“The Portland market is very stable with very few outside investors, comparatively speaking, and we will have robust growth for years to come.”
I am hoping someone can help me make sense of this report which says 53% of Portland Homes are occupied the owner and 42% are *owned but rented*. If it is not speculators/investors who own these properties and rent them…who then?
The link to the stats is here:
http://www.bestplaces.net/city/Portland_OR-4159000031.aspx
The site also states the median income in Portland is $46,450 with 73% of the total population making less than 75K. I would guess that at least 61% of Portland residents can’t afford a median price home in their own City.
So if this 61% want to get on the housing ladder, how would they do it. I think the answer for most would be an “exotic mortgage”.
The link to the above stats is here:
http://www.bestplaces.net/city/Portland_OR-4159000021.aspx
So with credit standards tightening and exotic mortgages going the way of the dinosaur, how will the majority of people living and working in Portland OR ever afford a home? I don’t see how this is possible.
Prices are down, foreclosures are up, the sales are increasing. Any coincidence?
http://www.mostlyforeclosures.com/
PDX Renter said: “So with credit standards tightening and exotic mortgages going the way of the dinosaur, how will the majority of people living and working in Portland OR ever afford a home? I don’t see how this is possible.”
Well, as predicted, lending standards are tightening – and quite a lot depending on your FICO. To answer your question: at this point there are two alternatives that will allow people to afford to buy: 1) rising wages… OK, like that’s going to happen in this age of outsourcing, so on to 2) falling prices. I think we’re just starting to see falling prices. They’ve been seeing them in places like San Diego and Florida for about a year now. House prices tend to be sticky on the way down I expect as we see the market freeze-up* it could take a few months before you actually see some significant movement downward.
Then there’s the foreclosure wild card. So far, I don’t think we’ve seen anything yet in terms of foreclosures.
*what do I mean by ‘market freeze-up’? There’s lots of talk in blog-land about this now: Since most people who are first-time buyers tend to fall into the subprime category (esp. given the prices of houses now) and since most of that subprime money has basically gone away in the last month it means that the low-level buyers will largely disappear because they can’t qualify. The next tier of people who want to sell to move up to a pricier house will have more trouble selling their entry-level homes and so on to the higher levels. This could lead to a ‘freeze-up’ in housing markets until prices start falling or until credit loosens up again. It’s a bit like the situation in the early 80′s, but then the issue was very high, double-digit interest rates which kept people from getting loans. Now the issue is that there is much less credit available. And it looks like Bernanke doesn’t want to help right away; today he said in a speech that FannieMae and FredieMac need to tighten up standards to avoid trouble.
Very interesting comments from all! I haven’t heard any specific comments on the projected trend on prices low-to-mid condos and SFR’s over the next few years. Of course, it’s anyone’s guess, but does somebody know what will happen to those of us owning in that category? Your thoughts much appreciated TiP, Bear and others.