I received my emailed copy of RMLS Action yesterday and don’t really know what to make of it. It looks like the appreciation numbers (8.9%) in the last twelve months are starting to make more sense. The effect of really strong months a year or more ago are getting dropped and I expect that by then end of the year we will settle into a number between five and six percent for 2007 but that is just one Realtor’s opinion. Annual appreciation numbers work in a consistent market but not so well in a shifting market. Shorter term stats, three or six months, would be more revealing.
Inventory has increased to 5.0 months. That’s higher than we are used to but probably the sign of a healthier market. I don’t think there should be a lot of concern if the market settles in to an inventory level in the four to six months range. Of course it isn’t what sellers want to see but it is good for buyers and the market itself. If we move much above six months, things might get tough.
I wrote the above portion of this post this morning. Now KGW’s 6PM news has just finished including a clip from business reporter, Joe Smith, on our real estate market. I recorded the clip but I am not the video editing expert so will look into how to convert it from a 102mb mpeg into something viewable here. Through the typical media doom and gloom there is a discussion of the danger of over pricing (previous post on overpricing) and the fact that the median home price has dropped from 12 months ago for the first time. That means one house sold above and one sold below the median price.
Overpricing is still a major factor in our market. I was asked for comments on a listing yesterday that is now 30% below its original listing price. It looks to be a steal now because it was so overpriced then. Realtors (probably including us) are equally to blame. It’s easy to tell a seller that you agree with their pricing. It’s what they want to hear so collecting the listing and then beating them up later will probably result in a commission once reality sets in. I know we have lost listings over pricing. Nobody wanted to admit the market was changing and the industry moved too slowly to educate their sellers. There are always the outliers, we had a listing that just baffled us to as why it wasn’t getting the expected results (of course it comes down to price in the end).
One other thing I should mention from the KGW report was the idea that it will probably take another year for the market to sort itself out.
From the KGW article:
“The June median price was 5.4 percent higher than the $280,000 recorded in June 2006, so the region has held onto the record-breaking price gains of early last year. But Conerly said the 12-month increase “reflects the strength of last year rather than anything that happened in the last few months.”
“Economist Jerry Johnson, of the Johnson Gardner firm in Portland, said he expects a flattening of year-to-year figures in the months ahead, in part because of the seasonally weaker second half of the year and the relatively high housing inventory.”
Also, an 18% decline in sales YoY when comparing June 2007 to June 2006. That’s pretty significant.
Oh, and it looks like Bend/Redmond is falling apart:
That’s most likely the first sign that Californians not being able to sell their houses is having an effect up here. (There apparently is trouble in Southern Oregon as well)
Lending standards continue to tighten even further as the ABX indices are going through the floor and there are now very clear signs that Alt-A is in trouble (it’s not just subprime anymore). Certain types of loans that were plentiful even six months ago are now extinct.
All of this seems to indicate that maybe it’s not different here afterall. Looks like we were just about 12 months behind other parts of the country.
Speaking of tightening standards, new loan underwriting rules coming July 22nd…
Fannie’s “Desktop Underwriter” will be re-calibrated on July 22 to enforce the guidance issued by the Fed which calls for “any mortgage containing an interest-only feature be underwritten at the highest possible interest rate or subsequent amortizing payment, and that any mortgage containing a negative-amortizing feature be underwritten at the highest possible balance and interest-rate adjustment.”
PDX Renter: Yep, the mortgage brokers are really whining about those ‘new’ standards from Fannie, but really, it’s about time.
BTW: Minnesota basically outlawed interest-only and neg-am mortgages earlier this week. Good for them. Let’s hope more states follow their lead. The mortgage folks went whacky in the last five years or so and now it’s time for them to take their meds.
I think a great many sellers are being “educated” by cable TV shows like “Flip This House” and the like. If you watch shows like that, you will likely be convinced the real estate party is still in full swing.
PDX Renter: True, but I think you can see the psychology shifting right now. I was talking with some people yesterday and everyone in the conversation was aware that prices are flat or falling now in PDX. Even a couple of months ago you’d get some incredulity if you suggested that prices could be falling now in PDX. A couple of people in that conversation yesterday said they had been thinking about buying, but now they’re going to wait and see for at least six months to see how bad it gets. Seems like a very prudent plan at this point.
Interesting background article on BlownMortgage:
Scratch and Dent Loan Market Takes a Bad Beating
Separately, several recent events are having a significant adverse effect on loan pricing, of all credit grades. The bankruptcies of a number of large subprime lenders (the latest being Alliance Bancorp, last week) is well known, but what is not widely understood is that their portfolios are being dumped on the market in huge volumes by their creditors. Similarly, a pair of highly-leveraged mortgage hedge funds managed by Bear Stearns recently collapsed, causing near-total losses to their investors. Their portfolios are being liquidated, but the sales apparently are not going well; rumor has it that only a small portion has yet been sold, and at a significantly higher discount than anticipated.
What does it mean? Mortgage rates will be heading up and lenders are going to be even more risk-averse.