Sep
17
2007
Oregon Real Estate Roller Coaster- RMLS Market Action August
By Charles TurnerTwo sides to every coin. Last week, the Oregonian reported “Oregon Home Prices Lead in Growth”. Today’s RMLS Market Action for August is a little less rosy. Inventory continues to climb (up to 6.2 months). 
Appreciation is still up over 8% for the last twelve months but we have discussed the effect of the high appreciation numbers at the end of last year countering the not-so-hot numbers in recent months.
Needless to say, everyone has their own motivation for either entering, leaving or watching the market.
“Appreciation is still up over 8% for the last twelve months…”
I didn’t see anything about the 8% appreciation (YOY) in the article. What is the source of the 8% claim?
Yes, what is the source of that number. I interpret the following:
Median August 2006: $275,000
Median August 2007: $300,000
Year-over-year Appreciation: 9.09%
From the text:
Appreciation:
Using the average and median sale prices for the twelve months that ended with August
compared to the twelve months ending in August 2006, the average sale price appreciated 7.8% ($337,400 v. $313,000). Using the same formula, the median sale price appreciated 8.1% ($285,000 v. $263,700).
Oh, so are the median and average sales prices pushed up because a only the higher valued homes are selling? I would guess, but I don’t have sufficient data, that the subprime mess is felt at the lower end much more than the upper end, so a greater number of sales are made at the upper end, given the current situation. Also how about the volume? If the volume is much lower, then this might suggest the situation described. It might also be intersting to see how many homes are listed below the average/median sale price. If this number is high, then it would further suggest that higher priced homes are selling, but lower priced homes are not, so we would expect a higher average/median sale price even if each and every property was priced lower.
YoY:
Pending Sales: -18.05% (2447)
Closed Sales: -13.10% (2554)
August 2007:
Average Sales Price: $366,900
Median Sales Price: $300,000
JP
“It might also be interesting to see how many homes are listed below the average/median sale price.”
The site below will take you to a graph showing the distribution of sales and listings in August by price. To your question, over 58% of homes listed are at a price above the median sales price. Note also the ensuing problem in the $500,000+ market. 23.6% of listings and only 14.9% of sales displays that some sellers need to find reality.
A roller coaster would be the wrong analogy. What the Portland housing market is on is a nosedive followed by a very ugly crash. The whole country is on that ride.
blaknecr-
Do you have the data for last year? My claim is that last year there were larger numbers on the bottom end.
JP,
I think this is what you are asking for. It shows the distribution of active listings in August of 2006 vs. the distribution in August of 2007. Unfortunately, the data does not support your contention. In 2006 roughly 38% of listings were below the $300,000 level vs. 41% today. However, this differential is very small and the distributions have not changed all that much over the course of the previous 12 months.
More fallout from Portland’s slowing real estate market: The Wyatt will now be rentals instead of condos (http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/1190168743118860.xml&coll=7)
That’s the second casualty so far (Ladd Tower was the first). I wonder if The Encore is next. Presales look just as slow as they did for the Wyatt, and Hoyt Street Properties is arguably positioned better to manage rentals than Robert Ball.
Portland is looking and more and more like other parts of the country did 9-12 months ago. Real estate may be local, but finance is global …
Leo,
I agree. The condo market in Portland is going sour. Failed projects are converting and the ones that are making it are facing large price drops. Look at the Multnomah Village Lofts which have lowered prices by over 15% to 20%
“Look at the Multnomah Village Lofts which have lowered prices by over 15% to 20%”
How do you know this? I didn’t realize that 20% price reductions were already happening in some areas of Portland.
Realistically, I don’t expected prices in places like the Pearl to drop more than 20%. That would bring annual appreciation down to something like 3-4% per year over the last seven years, which is probably appropriate, given that the neighborhood has more amenities compared to seven years ago (although most condos now have inferior views) …
Leo,
Regard the Multnomah Village Lofts, I simply looked at their change in listing prices on same units. For example, their 1-bedroom units started off in the Base $300k to $310k range are now selling at $265k to $269k. The drop is even higher for larger units.
I don’t think prices will drop too much in areas like the pearl either. But projects in outlying neighborhoods like M.V.L. could see some losses. I personally have thought that projects like Beaumont Village and some of the SE stuff could never sustain $350+ psf for long. Some of these projects think they could get better than $400 psf with no real amenities. Asinine.
What is really asinine is the enormous number of cheap condo conversions. I just don’t see what will prevent a significant fraction of these from ending up in foreclosure. Because many of the conversions are not listed in the MLS (FSBD) these stats do accurately gauge the local condo market.
Makes me wonder whether some of the fancy local banks (e.g. Umpqua) are going to face *issues*.
Getting back to rentals. Although I acknowledge that many condos will *eventually* end up as fair-market priced rentals. This will only occur after years of riding the market down. (This is exactly what happened [is happening] in DC and San Diego.) Given that large number of people reluctant to buy a home, there is a shortage of affordably priced rental. The CRE market is tanking and this further lowers the cost of rental development. I just don’t think that condo conversions will be able to compete economically.
How many families renting for a few years care whether their rental comes with pregraniteel (pergo, granite, steel). Certainly they will not want to pay an extra $500 a month for these luxury amenities.
You’re dreaming if you think prices are only going to drop 20%. That is progress though since for the longest times Portlanders said they wouldn’t experience any drop in prices!
Condos could easily drop by 50% or more. They did in the 80s.
I think everything will drop, but the size of the drop will depend on the neighborhood. The 20% number was my guesstimate for Pearl District, which would bring prices down far enough so that annual appreciation would only be 4-5% since Y2000. I think 4-5% is on the high side historically, but arguably, Pearl District amenities have improved significantly since 2000, so I think this rate may be appropriate. On the other hand, prices could *over*correct compared to this metric, so I guess larger drops are possible.
I think drops in South Waterfront will be even larger. They are already trying to charge Pearl District prices, except without any of the amenities. Once the expectation of outsized future appreciation has disappeared, why would you live way the heck out there instead of downtown proper? SoWa won’t be able to compete with Pearl District/Downtown/NW 23rd once the prices start to drop a bit in those neighborhoods.
Suburban condos I expect to drop like a rock. Once single-family houses start dropping in price, no one will want a suburban condo.
Not to be argumentative but you are assuming that the prices charged in 2000 were reasonable to start with. The Pearl was created during the boom so prices could conceivably drop below where they started.
Saw lots of that in the 80s, particularly in the condo market.
Actaully, price declines always dip below the previous trough. Unless this houseing recession is “special”, a ginormous drop in inflation-adjusted prices is in the bag. And when it comes to nominal prices, IMHO, this is a very *special* housing recession.