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CNN; NAR Reports on Real Estate

NAR released this story today:

Tighter Lending Standards Good For Housing, But Will Dampen Sales
WASHINGTON, April 11, 2007 – Tighter lending criteria and fallout from the subprime loan debacle will lead to a healthier housing market with greater assurance that owners can handle mortgage adjustments, but higher loan standards will slow the housing recovery, according to the latest forecast by the National Association of Realtors®.

CNN goes on to report that prices dropped in 73 metro areas in the country. Take a look at the list of 1 year appreciation. Oregon gets three of the top 15 spots (Salem #5, Portland-Vancouver-Beaverton # 13, and Eugene-Springfield #14).

This leads us back to the question: is Oregon real estate still safe? If national home prices drop for the first time in 38 years, what do we do? Personally, we’re seeing new listings sell faster than older listings because they are coming on the market accurately priced for the current market, not the hangover effect of the previous market.

I should mention on the “put your money where you mouth is” front, we signed a contract for the purchase of a property in NE Portland yesterday.

23 Comments on “CNN; NAR Reports on Real Estate

  1. This leads us back to the question: is Oregon real estate still safe?

    Depends on what you mean by safe. It’s not going to fall into the ocean (unless your house is right on the beach, maybe). But it’s pretty certain that it’s not going to keep climbing in the near future either. At “best” we’ll see things stagnate. Possibly for a few years.

    The news out of AHM and CFC isn’t good: Alt-A definitely seems to be in trouble now. Alt-A backed bonds were a tough sell in March. Knock out subprime and now Alt-A and togehter that’s probably about 20% of our market.

    I also found this amusing:
    but higher loan standards will slow the housing recovery

    What recovery? We’re still on the downward slope and that’s likely to be the case for the next year. This year we’re seeing lots of ARM resets, but next year and 2009 is when we’ll see a lot of Option ARM resets. And it would seem that a lot of the folks with those loans have taken the option to pay the minimum which means they’re negatively amortizing. That’s partly why I say this isn’t over yet. What did Chruchhill say at the beginning of WWII? Something like “this isn’t the beginning of the end, it’s just the end of the beginning…”

  2. I agree with TIP. Safe is rather a loaded word. For sellers who only bought to make a 14% appreciation of their purchase, it’s not a good time to sell. Certainly for those who bought 4 years ago or more, it’s still a time where they can ask a reasonabl price and sell easily.

    The big word that needs expression is “Expectations”. Certainly it’s not a good time to be a flipper or sell because you’re being transferred to another location. Certainly there is a lot more competition in the marketplace than the last two years, and a longer average selling period for a listing.

  3. Actually, come to think of it, if the NAR is predicting falling home prices that must mean that hell has frozen over – better buy natural gas and heating oil futures. Oh, and was that a pig that just flew by my 4th floor window? 😉

  4. Interesting report from DataQuick. A little bit there for everyone.

  5. Here’s an interesting site for tracking various price, square footage and inventory in various markets:

    It’s still in beta which is why it looks a little rough, but it’s already pretty useable.

  6. I think, at worst we’ll see price stagnation in Portland for SFR’s. As for condos… Flat at worst. Check out the sales for the Encore…

  7. Sorry, I meant condos sales will be flat at best.

  8. Like myself, I think a lot of newcomers to Portland now are being turned off by:

    1) Too many construction projects on downtown streets. My coworkers who have lived here for years tell me that they avoid going downtown like the plague.

    2) Terrible condition of roads in “pricey” neighborhoods. SW Upper Drive in Portland Heights and even NW 23rd in Nob Hill are stellar examples of the absolute worst potholes. Driving on W Burnside can almost tear your car apart. Some roads in SW Portland are “not maintained” and therefore detract from any fine home.

    3) Rising prices in a buyer’s market. An unreasonable price, additionally, will be difficult to support with comps should the buyer need any sort of mortgage.

  9. Trouble in Portland’s economy? I was reading an article on unemployment claims rising and got to this line:

    The states with the largest increases were Oregon, with a rise of 1,780

    Odd that we’d lead the country in this respect as we’ve got one of the smaller populations.

    http://tinyurl.com/2k9rec

    I know that Freighliner is in the midst of a big layoff (around 700 as I recall) as they’re moving production to Mexico. Possibly that’s showing up in these numbers.

  10. I hear “telling anecdotes” all the time about how people from all over are scrambling to live here and that the large influx will keep home prices at “permanently high plateau”.

    Portland is a wonderful city, but the numbers don’t support this version of reality.

    The projected change in job availability in Portland over the next ten years — based on migration, economic growth, and other factors — is only 5.90% compared to 11.9% average for the US as a whole.

    http://www.bestplaces.net/city/Portland_OR-4159000021.aspx

    If the next ten years are anything like the last ten, the lions share of 5.90% will most likely be health-care related. We are becoming a “doctors city” and the tram and $20 million worth of waterfront development are a testament to that. Another way to look at it is the number of physicians in the county per 100000 population is 423.7 as compared to 169.7 US average.

    http://www.bestplaces.net/city/Portland_OR-4159000041.aspx

    It seems like overcapacity to me; why do we need all these docs? However I digress, the point is the region is not doing enough to bring in other kinds of good-paying jobs which would translate into a larger of migration of people to the area and a larger pool of people to buy homes.

  11. Yes Freightliner is responsible for a large decline of jobs in the area, as well as some other miscellaneous sectors. Some Nike jobs are moving to Tennessee.

    One note on employment – Hillsboro just might become a place of solar energy experimentation and vitalization. Of course, this bit of news is probably extremely speculative, but it’s worth noting.

    Speaking of that area, the number of homes for sale in the Bethany area has grown much in the last month. Also, homes that didn’t sell last year are still on the market this year.

  12. JJ: Can you provide more details about solar experimentation in Hillsboro? Is Intel going solar? Are they getting into the solar cell biz? Also, what kinds of Nike jobs are moving to Tennessee? (and how many) Just like there were jobs that moved from CA to here in the 90’s, now we’re already seeing outward migration of jobs from PDX (and other cities on the West coast) to areas with cheaper real estate inland. Perhaps in the long run this will lead to the revitalization of the center of the US as the young people who can’t afford to buy here migrate to places with affordable land and telecommute. But that would also means that the coasts will tend to have an older, aging population – people who bought when back when land was more affordable.

    Taking the long view: Maybe it’s time to buy and hold in places like Detroit where houses are basically selling for the price of the wood. That would be a case of buying when there’s blood in the streets.

    PDX Renter: Lots of doctors isn’t necessarily a bad thing. Our “problem” (having an abundance of docs) is a lot better than the alternative. In many rural areas of Oregon there are no doctors. Maybe we do need to encourage them to spread out a bit.

  13. I believe that I saw the article in the Oregonian a few weeks ago. It gave this big spread about Hillsboro being a prime location for solar energy.

    I wasn’t sure if the Nike move would affect Portland – sounded like it was the “manufacturing” from other parts of Oregon (Eugene area?).

    Unfortunately, the majority of US jobs aren’t moving to eastern United States. They’ve moved to India, Pakistan and China. We should be grateful that some companies still regard employing Americans on American soil as patriotic.

  14. Portland SFR prices are already stagnant at least on YOY basis. If you don’t believe me, just follow the links below. Also, inventory is currently increasing at a faster pace that it did last year. So much for the spring “bounce”.

    http://housingwatch.com/regionview.aspx?city=Portland&pct=50&g=m

    http://www.housingtracker.net/askingprices/Oregon/Portland-Vancouver-Beaverton/

    In my neighborhood, there are an awful lot of empties and staged houses.
    One flipper has three houses under preforeclosure:
    http://www.foreclosure.com/search.html?st=OR&cno=051&z=97214&tab=p
    (She has three additional properties under preforeclosure and all have tax liens.)

    There are also an awful lot of houses being sold at 10% haircuts over last year. Some are REOs, FSBOs, and short sales. All the gory details can be found here:
    http://www.foreclosure.com/search.html?st=OR&cno=051&z=97214

    BTW, we net about $160K (one of those doctors) and cannot afford a nice close-in SFR. I currently bike to the tram and am not interested in moving to NOPO. I recently offered 400K on an overpriced 510K FSBO in ladd’s addition and the guy hung up on me. LOL!

    PDX has about the same exposure to Sub-prime and Alt-A as San Diego. I think time is on my side.

  15. You are correct about the flippers. One in SW Portland near Sylvan is trying to sell a house for $250,000 more than purchase price a year before. Another in Raleigh Hills bought a fixer, put in new wood flooring and removed an old hot tub (and really nothing else) and two *months*(!) later wants $100,000 for her labors. Get bent.

  16. BTW, we net about $160K (one of those doctors) and cannot afford a nice close-in SFR.

    Pretty much says it all right there. There was also that front-page article in the Portland Tribune last Friday where a couple with a $100K combined income could not find anything they could afford in Portland. The problem with that article, though, was they seemed to be looking for some kind of government intervention to help the middle class afford houses – the kind of intervention that will just forestall the inevitable. Just keep the government money out of the market and let those prices fall – that’s the best way for getting affordable housing again.

    I think time is on my side.

    Yup. Hang in there. Patience will pay off. Maybe not this year, but probably next. It’s still better to keep renting and saving at this point.

    Let the flippers twist in the wind.

  17. Can we define flipper?

    1) Guy buys a condo in a hot market before it is built with no intention of owning it. Builder set the price.
    Flipper? Would speculator be a better term?

    2) Woman buys a cosmetic fixer with the intention of living in it for two years. Nothing has really changed inside but she’s got Pottery Barn paint going on now?
    Flipper?

    3) Contractor buys a run down house. Guts it, saves the old bones and gives it new life with quality construction. It is back on the market six months after project is started.
    Flipper? Businessman?

  18. Yes, each one is a flipper.

    IMHO, anyone who treats houses like the stock market of the late 90s is a flipper. Not that the overabundance of credit has helped the situation, but as credit tightens and inventory increases, I’m not going to feel bad for any of the three categories of people you presented when they lose their hats.

  19. Charles: of the three, #3 is actually performing a service; he’s actually producing something. However, I haven’t seen a lot of flipped houses where they did all that much. Usually they paint things up, maybe buy a few kitchen appliances or fixtures, mow the lawn and then turn around a month later and want to get a big premium.

    There’s a difference between speculation and production. Most flippers fall solidly in the speculation category. Of course, even #3 can be asking too much for the fixed up house.

    Casey Serin is the flipper posterboy:
    http://iamfacingforeclosure.com/

  20. Here’s a classic flipper example:

    Yeah, nice, 2BR 1BA in Sellwood. But the one small bathroom is only accessable through the master bedroom or through the enclosed back porch of the house. So when you’ve got guests over you’d tell them to go through the kitchen and out the back door to the porch and then they’ll find the door to the can. Nice. And the guy wants $345K for it. It’s no wonder it’s still on the market. The guy hasn’t dropped the price one cent in all these months. Basically he painted the inside and outside , added stainless steel appliances and new countertops in the kitchen. Oh, and I think he punched the door in from the master bath out to the back porch, but the bathroom itself didn’t seem to have any significant updates.

    Back when I looked it up on Zillow, if I recall correctly, it was purchased back in May06 for around $240K. Then about six months later (after the paint job, etc.) it goes on the market for $345K. And it’s still there some five months later.

    Now, if the guy had fixed up the basement (plenty of room down there) and maybe put in, oh, I don’t know, maybe another bedroom and a bathroom down there, I could see that he might have sold it by now for the price he’s asking (or maybe 10% less).

  21. What agents and flippers need to disclose to potential sellers is that the property taxes are increased, legally, with any added square footage or significant change to the property (Measure 50 made this legal). *AND* If the county discovers that said significant change happened some years back, they can sock the new owner with past taxes. The seller is *not* billed; the taxes are attached to the property.

    In a situation like this, who is held responsible in the potential lawsuit, the seller’s agent or the seller?

  22. And the news of a slowdown hasn’t stopped some sellers from trying to overinflate prices. Hey, if a buyer is willing to risk the market and want a house that badly, what’s to stop them from paying a high price?

    One seller in Northwest Portland wants a whopping 27% increase from his/her sale price of a new house back in November 2006. Source: RMLS and Zillow. Should this seller have his/her head examined, or congratulated on their audacity?

    Forest Heights is getting ridiculous in pricing – it really has become the haven of the noveaux riche. The place is gorgeous, I will admit readily. But asking 15% apppreciation on “investment” every year compounded monthly could make a knowledgeable buyer turn away. Again, savvy buyers should be looking at ALL details of the property before making an offer. Hopefully their buying agent is giving them full details.

    Portland Renter has a right to gripe.

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