PSU Review of Portland Real Estate
By Charles TurnerPortland State University just released its July 2007 edition of the PSU Center for Real Estate’s Quarterly Real Estate Report. The report covers both the national market and local market. A good deal of the report discusses Measure 37 but I think for this blog and our typical disucssion, the real meat starts on page 24 with, “Housing Price Appreciation in the Portland Region: A 25-Year Retrospective.” It is a historical look, not looking to the future at all. 6.5% annual appriciation equates to a doubling of home prices every 11 years.
Things start to get more interesting on page 30, “Local Housing Market Update.” The median price of existing detached homes in the Portland metropolitan area (excluding Vancouver) continues to rise. The median home price increased by 5% from $294,000 in the first quarter of 2007 to $308,000 in the second quarter. Over the entire year, the median price increased by 7%, which is a sharp decline in appreciation when compared to a 20% increase between the second quarter of 2005 and the second quarter of 2006.2 While the Portland housing market has cooled off from last year’s feverish pace, it continues to experience shows healthy appreciation… Prices of new detached homes increased only 4% from the second quarter of 2006 to the second quarter in 2007 compared to 23% in the previous year.
The graph shows that April and May were strong, creating good quaterly numbers even though June was not as good.
However, as a sign of recovery from this trend, the past quarter saw a 12 day decrease average days on market. Days on market decreased from 58 days in the first quarter of 2007 to 46 days in the second quarter.
It only seems fair to end with a quote from the introduction:
We see the role of the Quarterly Report as a place to publish unbiased analyses of local and national real estate trends and policy issues. As a quarterly publication, we take a longer view, rather than repeating the function of a daily newspaper or a weekly magazine.
However, as a sign of recovery from this trend, the past quarter saw a 12 day decrease average days on market. Days on market decreased from 58 days in the first quarter of 2007 to 46 days in the second quarter.
But isn’t that a normal trend in any given year? Sales are generally slow in Q1 (mostly still winter) and they pick up quite a lot in Q2 peaking in June, July.
The appreciate rate cited by PSU closely matches the case-schiller (sp?) report. I still think both sources had to massage the data in order to come up with these numbers.
It doesn’t make sense to me, but I am not some fancy, big-city economist either so what do I know? All I have to go on is anecdotal evidence and the housing tracker numbers which don’t jibe with either one of these reports.
PDX Renter: Housingtracker is based on asking prices. In a hot market that would be misleading if people were bidding higher than asking price. However, in a slowing market with high inventory such as we have now it could be misleading the other way: It’s possible that some below-asking-price bids are being accepted. In that case it could be that housingtracker is actually overestimating prices a bit.
Speaking of appreciation, The Portland Tribune ran this soft piece (albeit not well written) about real estate fraud a few days ago:
http://tinyurl.com/2fzbvy
Quote from article:
“People don’t realize the degree to which criminal behavior is at fault for the current situation”
If this is true, it sure helps to explain why home prices have risen 67% in five years. It also lays bare the fact that a lot of people made a lot of unearned and untaxed income based on lies and will never be made accountable.
It’s really been quite a party hasn’t it?
Because of local land constraints and many equity rich in-migrants from California, some assert that Portland is immune, or at least less susceptible to a housing market fallout. But for most economic cycles the Portland market characteristically lags national trends. The most obvious example would be the local recovery to the 2000-2001 economic downturn. I think Portland’s experience is likely to follow the national trend, albeit the effects are likely be less severe. Some evidence is already accumulating that indicates a local market correction. For example, the link below refers to graph plotting median sales price and median asking prices in the current period. I see it as convincing evidence of the forthcoming slowdown.
http://img214.imageshack.us/my.php?image=screenhunter652tb1.png
For much of the boom local listing prices averaged better than a $70,000 differential between listing price and realized sales price, a roughly 25% margin fluctuating slightly on a cyclical basis. However, in 2007, this differential has fallen off sharply, reaching a low of 13% in July, despite being a typical “peak” month. This trend has been largely the result of falling asking prices in market, which are currently almost 5% off their July 2006 peak while reaching an 18-month low this July.
Denial is an ugly thing.
I suspect that many real estate transactions in PDX involve cash back/incentives. I believe these types of shenanigans are being used to mask real price declines in housing. So yeah, realtors, lets keep the party going no matter how legally dubious the means!
Anecdotally, A friend bought a house with ~40K of incentives on a 420K closing. The house was originally listed at 399K. (Gotta love the used car salesman-like tricks being used by sellers/realtors).
SE_renter-
A place in my neighborhood was listed at $248,000, and it was recorded as sold for $260,000. Later when it was suggested that values were increasing based on history, I was quick to ask if the home really sold for $12,000 more than the asking price.
Oh, and one more thing, the house sat empty for about six months, so I doubt there was an above listing price offer…
Sellers want to suggest the property values are higher, but all we have are a bunch of hidden incentives.
Another thing I find a little funny: When low-priced homes go off the market faster than new ones enter on the market, the median price increases. Sellers want to use this as an indication of strength, but the underlying consumer behavior actually suggests people are demanding lower priced homes.
If nothing else, I will find it very interesting to watch as this plays out.
JP:
“…Underlying consumer behavior actually suggests people are demanding lower priced homes”
This is effectively what I was getting at in my above comment. Only I’m going a step futher to assert that sellers are begining to realize this in the form of lower median asking prices in 2007–and to SE_renter’s credit, greater incentives. I for one am anxious for August numbers to come out.
I suspect that many real estate transactions in PDX involve cash back/incentives. I believe these types of shenanigans are being used to mask real price declines in housing. So yeah, realtors, lets keep the party going no matter how legally dubious the means!
I’m not sure what you mean se_renter, probably because I’ve never seen it. Both the buyer and seller would be committing fraud, wouldn’t they? The Realtor(s) would be unethical if they were party to defrauding the lender.
When the buyer has little or no cash to bring to the table, 100% financing is still possible, the recorded sales price is often over asking (even if the buyer has 20% down, they may not have the additional money for closing costs). Closing costs and prepaid expenses (year of property taxes collected in advance) can run about 3%. Those costs, financed in, raise the recorded price. That is not too far out of whack with JP’s $260k recorded price with a $248k asking price. Could that be the reason?
And yes, the property has to appraise for the inflated price.
Charles,
Incentives are a fact of life. Most new housing is sold with incentives. Cash back schemes are pure fraud but they also do happen (admittedly this can be without the knowledge of the realtor). The more common behavior is to pay down rates or offer other types of incentives (large screen TV etc). This is the kind of stuff that is legally murky. Mostly because the FEDs just don’t care.
“Closing costs and prepaid expenses (year of property taxes collected in advance) can run about 3%.”
And the problem is where do you draw the line. Regardless, I am willing to bet that this just did not happen in 2004.
The transaction JP mentioned was a ~5% haircut.
And do you really think that 3% number applies to all realtors? It also depends on the definitition of “prepaid closing expenses.
Last year I was personally offered 5% as cash if I agreed to a FSBO transaction. The seller justified this by saying that this is what he would save by not using a realtor. He was represented by a realty trust agent at the time but told me he was going to get rid of him.
Charles-
“Closing costs and prepaid expenses (year of property taxes collected in advance) can run about 3%. Those costs, financed in, raise the recorded price. That is not too far out of whack with JP’s $260k recorded price with a $248k asking price. Could that be the reason?”
Let me be clear: I am not suggesting that there was any wrongdoing. I have no inside knowledge of why the recorded price was above the asking price.
That being said, do any of the additional costs add value to the property? I don’t think so. What I am concentrating on is a person who points to a home and says, “That one sold for $260,000,” but I know that the cash price was $248,000. Certainly I don’t think anyone would suggest that past (sunk) transactional costs add value to property.
I think everyone is correct. What costs should be taken out of a sales price to make sure that apples are being compared to apples? Seller paid closing costs? The $10,000 in sewer repair the seller paid through escrow? Paid directly to the contractor? Really it should be the net to the seller, in my opinion. Calculating that number is going to be hard to standardize though.
I’m seeing houses on Craigslist reduced 20, 30, even 85K. All over too, close-in trendy, Vantucky, Happy Boredom Valley. And there’s over 500 listed as ‘reduced”. That’s a record.
How long until we stop the denial?
Naysayer-
While there may be 500 listings, I have seen some properties listed 2 or 3 times.
That being said, when I drive around town, I notice more sale signs, including ‘reduced’ and ‘new price’ indicators.
Let’s see what the Fed does next week.
JP: I doubt there is anything the Fed can do at this point to save housing, short of dropping rates to 1% and even that might not do much at this point.
No, right now it’s a crisis of confidence that’s making people less likely to take risks and lend. Add to that the fact that lending standards would still remain tight (as they should) such that people actually have to save up for a downpayment (“save”? What a quaint concept).
Even Robert Reich is saying that a Fed cut won’t stop the coming recession. He’s calling for tax cuts (?!) because Americans are already up to their eyeballs in debt so lowering interest rates won’t help because they can’t borrow more. I can’t say as I agree with his perscription: Basically he’s saying that since the consumer’s credit card has been maxed out it’s time to run up the Federal credit card (again) to bail out the economy.
Actually we should just pay our dues and have a recession – they tend to readjust people’s (and company’s ) priorities and shake risky debt out of the system.
Tip-
I didn’t mean to imply that the Fed would (could?) save the day. I agree that any Fed action is going to be too little too late to save the housing market. People are already behind, and any reasonable action next week won’t help–unless the Fed cut rates by 1% or more…
I am not so sure, however, about a recession. The GDP is yet to contract, and for a recession we need two consecutive contractionary quarters. We are yet to take the first step back.
What we need is a tax HIKE. Put the tax rates back to where Clinton had them. Hell, put them back to where they were pre-Reagan. What are the rich going to do? Move? This is the best deal going. America is the only livable country in the world where the rich can get such a good deal. Any place else is going to cost them much more if nothing else than for security.
But no, most of you practice “aspirational politics”. You don’t want to make the wealthy pay taxes because you all think you’re going to get rich and when you do you won’t want to pay taxes either.
Dumb country.
For the past six years, people have been trying to buy houses that they can’t afford. And the sub-prime was a scheme to allow that – only the joke was on the buyer in the end.
With the inventory sky high and sales going down down down (per housing tracker), it’s difficult to understand why sellers still ask the so-called 10-20% appreciation per year!
Charles,
Lawrence Yun is predicting that housing will recover in 2008.
It seems to me that realtors would sell more houses if sellers had more realistic expectations. Why are Yun and the NAR catering to newbie realtors who are unlikely to make it through the current down-turn? Also, when real estate starts to recover, no one will believe the NAR.
So what do you and your colleagues think about the NARs PR campaign?
James:
See my post above. Sellers are always and naturally last to come to terms with a market slowdown. There is evidence to suggest this is beginning to happen in the local market. Median listing prices was down again in August, by roughly $6k–while median sales price in August remained effectively unchanged ($299,950). The differential between asking and sales price is now at 11.2%, before factoring in the impact of sales concessions discussed above. This during the peak buying period. With sales velocity down again in August (down 2.8% from July and 13% from Aug. 2006) look for prices to fall this Autumn.
one comment on “median prices”. if more high price homes are selling because buyers with higher income can afford prime financing, and the below-median houses aren’t selling due to tightening credit, this will change the mix and drive up the median price.
personally i’m in the market for a home, and i’m seeing lots of price reductions on the houses we’re interested in. i’m also seeing home sitting for months with “new price” on the sign. i’m in no hurry to buy as we’re renting below marketing, the reductions seem to be increasing, the inventory is piling up, and credit isn’t getting any cheaper.
Greattimetobuy-
Are you looking at my neighbor’s home? You must be! I know this because you said, “i’m also seeing home sitting for months with “new price” on the sign.” Oh, maybe my neighbor isn’t the only one?
Now on to median prices:
You suggest that if the higher priced homes are cleared from the market place, then the median price goes up. This is just plain wrong–it’s just the opposite.