The No Bailout Poster Child

CNN recently ran a story about the middle class getting pinched "From $70K to food bank, one family's struggle"

"When she was laid off in February, Patricia Guerrero was making $70,000 a year. Weeks later, with bills piling up and in need of food for her family, this middle-class mother did something she never thought she would do: She went to a food bank."

"Guerrero is estranged from her husband and raising her two young children. She's already burned through her savings to help make ends meet, and is drawing unemployment checks. She has had to take extreme measures to pay for her interest-only mortgage of $2,500 a month. In fact, her mother moved in with her to help pay the bills. Guerrero even applied for food stamps, but was denied."

On the surface it seems like a story of a middle class family falling through the cracks and getting pinched by the housing crash.

But dig deeper and you see that this was just another example of a family living way beyond its means, and finally getting caught.

According to this blog, "On the surface, this does seem like a true unfortunate soul. However, when you poke the story with a stick and say, 'boo', well, lets' just say Guerrero doesn't warrant much sympathy.

The 2,948 square foot house in question was purchased from her estranged husband's parents in August of 2002 for $202,000. By August of 2006, she and her husband refinanced this home a couple of times, finally winding up with $649,999 in debt loaded onto the house. That's close to 450k in cash out refi action in 4 years, 100k a year....and what was purchased with this so-called equity? If you watch the video that accompanies the story, Guerrero makes mention that she took off her Tiffany bracelet and left her Coach handbag in her car when she strolled into the food bank. In the photo, she is also surrounded by a sea of granite, so the 450k more than likely financed some pricey remodels as well Tiffany bracelets and Coach handbags.

Patricia Guerrero is not deserving of any sympathy because at 70k a year and being in the mortgage industry, she should have known she couldn't afford a 650k loan...even if the husband that bailed was making 70-80k himself. They may have used some 'liar loans' (stated income, no income verification, etc) to make the loan fly on paper, but in reality they bit off way more than they could afford. "

I'm sorry, but they really don't deserve to keep the house. They've basically already sold it, pulling $450k out if it, and for what? Looks like a nice kitchen remodel, a tiffany bracelet and at least one coach handbag.

This woman needs to stop looking for her bailout and figure out how to provide for the kids. It's obvious there were no savings, so maybe it's time to sell the house and find a cheap rental, or sell the bracelet and the coach bag, or god-forbid find a interim job to cover some of her expenses. I'm tired of people looking for a bailout. Own up that you made a bad decision and figure out how to get out of it. Cut your expenses, figure out how to get some income, and don't make the same mistakes again.

Tax Payers Against a Bailout

A reader sent this in:

"PDXOutsider,

I thought you should see this:

An online petition is available. Let you voices be known. No taxpayer funds to bailout the irresponsible.

http://www.petitiononline.com/mod_perl/signed.cgi?bailout

Thanks."

If you oppose a bailout for people who bought houses they couldn't afford, and for financial institutions that took on too much risk, please sign the petition.

Free Fall Friday - 4340 SE Madison

Here's another house with an interesting history. 4340 SE Madison.

The house sold for $305k in February 2006. It then sold again for $541 in June 2006 (with 100% financing!), a gain of 77% in just 4 months. It went into foreclosure and was bought back by the bank for $355k in October. Last month it sold to the proud new owner's for $295k. That's 45% off it's high!

Unfortunately the property taxes adjusted upwards to reflect the new $541k price, jumping from $2858 to $4373 in 2007. Ouch.

I don't have insights into what happened along the way, but judging by the state of the pool it was likely vacant for a period of time. Any Realtors out there know the details of any of the recent sales?

I also start to question Zillow's methodology with cases like this. If you look at their home value chart (you'll need to click on the 5 year view for the best picture) it was quick to reset upwards with the sale in June 06, but hasn't come back down to reflect the recent sale price. And after all the best indicator of what something is worth is what someone else will pay for it, in this case $295k, not $496k.

What's that smell you ask? Something between fishy and fraud methinks.

More shady lending practices

Clint featured a story from the Oregonian on his blog today, highlighting shady lending practices at Chase.

Over on Mish's blog, he is also highlighting shady practices at Citigroup. "Dear Citigroup Customer"

The first example doesn't surprise me, as it's calling out past practices. But the second one is just sad. Even after all the bad publicity, write-offs, and shameful business practices it seems that some organizations are still at it.

Lying with statistics

One of our reader's sent in a link to this article on CNNMoney.com, "Home sales rise on biggest-ever price drop".

"The National Association of Realtors reported that sales by homeowners rose 2.9% in February to a seasonally adjusted annual pace of 5.03 million, up from January's reading of 4.89 million. It was the first month-over-month rise of the annualized pace since July."

This comment makes it seem like sales have bottomed out and are starting to rebound. The NAR (and the mainstream media) loves to quote month over month increases and declines, when they should be focused on year-over-year changes.

"Though February's pace beat economists' expectations, sales last month were still down 23.8% from a year earlier. Economists surveyed by Briefing.com expected the report to show existing home sales slowed to an annual pace of 4.86 million.

The median price of a home sold during the month fell 8.2% to $195,900 from $213,500 a year earlier - the largest year-over-year price drop on record. Before the start of the current housing slump, it had been 11 years since prices declined, when compared with the same period a year earlier.

"That's a huge drop in prices, which is how you move the merchandise," said Kasriel.

Sale prices have now fallen 15% from their peak in July 2006, and are down 14% from June 2007, when the most recent steady downturn began. That brings the median price of existing homes sold down to May 2004 levels."

There's the real story. Even though prices have dropped 8.7% from February last year (the largest drop ever recorded), sales are still down almost 24% from last February. That doesn't sound like the merchandise is moving to me.

If you look at the recent chart I posted on sales per month, you'll see that an increase in sales is totally normal for February. (this is Portland data, but I'm sure nationally you see the same trend) That's not news. The fact that sales didn't increase with an 8% decrease in prices? That's news. That means we're far from the end of the slump.

"The report is a sign that the price environment is weaker than the Realtors' most recent forecasts. Though NAR chief economist Lawrence Yun said in a release that a "notable gain" in existing home sales is not expected until the second half of 2008, the Realtors' March forecast called for only a 6.3% decline in housing prices in the first quarter, compared to a year ago. NAR also forecast a median price of $200,500 for the first quarter. Given the current environment, March sales would need a very strong showing, both in median prices and the pace of sales, to reach the Realtors' forecast."

Ouch.

Absentee landlords beware!

My wife stumbled across this listing (MLS #8024635) over the weekend, and liked how the house sat up high on the hill. So before we looked any further I decided to pop over to Zillow and get the scoop on the location, and what Zillow thought it was worth.

At first I was a little puzzled by the photos posted on Zillow (4804 N Borthwick), but then I realized they must have been posted by the tenants. We found this info an the subject of who can post photos to Zillow:

"Who Can Upload Photos?
Anyone can upload photos of a house — owners, agents, neighbors — anyone! Since Zillow is a community site, we want everyone to contribute — even your neighbors or someone who has lived in the house 20 years ago. Photos uploaded by owners and agents will show up first. Also, community-uploaded photos cannot be deleted, but if you see something that doesn't look right or is inappropriate, please click the "Flag content" link and Zillow Customer Support will review it."

This photo shows the rotting windowsill with the title "massive water going in", other photos show the moisture in the walls and other fun discoveries.This is not the first house I've seen in the Mississippi area that appears to have been bought by investors, never had any maintenance, and is now being unloaded for what they hope is a tidy profit.

To all the absentee landlords out there: be careful what you try to get away with, your tenants now have more and more tools at their disposal to let the rest of us know just what you're up to, or not up to.

Good luck trying to sell this one. We'll check back and see how much it gets marked down over the next few months.

Another Reduction - 4094 NE 34th now $299k

Back on the 5th we were discussing 4904 NE 34th. Today the price was lowered again to $299k.

There are now three houses for sale on this corner, and another one just a few houses up the street.

MLS #8021247

Reader sightings - 2241 SE 26th

A reader spotted this house for sale at 2241 SE 26th and wrote in:

"I was driving through SE the other day and passed this house by. It looked very nice from the outside and the area was great. I thought to myself, "That's likely to be a bit out of your price range but it doesn't hurt to take a look..." MLS # 8021444

When I saw the price I couldn't believe my eyes - $625k?! When I got home I looked up the MLS number and checked portlandmaps. They purchased it last year for 340k."

According to PortlandMaps it's had a new garage added (but no pics, shame, I'm a big fan of garages), and had the basement finished. Other than that it looks to have had a full paint job and kitchen redo. If they get their asking price they'll make a pretty penny. My first impression was that it was overpriced, but according to Trulia it's in the ballpark on a price/ sq ft basis ($235, right at median price according to Trulia ) for the Hosford Abernethy area, but it is on a small lot (3750 sq ft).

Am I the only person who's tired of granite counter tops? I'm starting to miss Formica! I'm also not a big fan of the tile around the fireplaces, but that's just me.

No Sign of a Turnaround - Feb Sales Data

The February sales data was just released, so let's start with the leading indicators, inventory and sales rate.

Overall inventory is up in Feb to 14,870 units, from 14,131 in Jan. More importantly, inventory is up 40% year over year, the same as in January. So no signs of inventory dropping.

The number of sales in Feb was up from 1084 in Jan to 1380 in Feb, which is normal as Jan is typically the slowest month. Sales in Feb 08 are down 29.3% from Feb 07.
Combine sales and inventory and you get months of inventory, which dropped from 12.8 months in January, to 10.8 months in February. Year over year months of inventory have more than doubled from Feb 07, up 102.8% in Feb 08.
So even though sales are down and inventory is up, the median price has managed to hold steady at $280k, up 0.7% from Feb 07. The market peaked in August 2007 at $300k, so today's price is down 7% from the peak.
In the last chart, if we assume prices remain flat at $280k, then by July we will see -7% Year over Year appreciation.

Overall the Portland market appears to continue softening, and it will be interesting to see how much of a bump we see in the spring. I believe that the contributing factors (speculating and cheap credit) that increased demand and led to the market run-up are effectively gone, and with the reduced demand we will eventually see prices drop.

If you find your dream house, bargain hard, you just might be the only buyer they see.

What's the Difference Between Sales and Marketing?

Sales knows they're lying.

Over on SocketSite there's a great example of why some of us are suspicious of Realtors, and salespeople in general.

The Only Appropriate Headline: “What The Hell Were They Thinking?”

This goes back to my comments earlier about 632 NE Russell, which I don't think Alixe really internalized, so I'll repeat it again.

If I catch you lying, misrepresenting, fibbing, stretching or omitting the truth about one aspect of a sale, I can only assume you're doing the same elsewhere. You've now made me suspicious of everything else you say.

Is it really worth it?

Reader Sightings – 947 SE Miller, Sellwood

A reader sent in this comment about a house for sale in Sellwood.

“I rent in Sellwood and pass this place on my daily dog walk to the Sellwood Park. It's listed at $375K, but i'm pretty sure the brochure I picked the other day had a reduced price of $360K-ish. That's not an outrageous price for this area (I mean it is, but relative to other listing prices nowadays), but I'm wondering if this is a case of two properties built on one lot. You can't tell from the pics on the listing, but I'm telling you - this is the world's priciest trailer. It lists 1544 sq ft, but that's including a 600 sq ft unfinished basement. It has an identical twin to the left, and I'm pretty sure it's no coincidence there's no front picture on the listing - it looks crammed in there.

According to Portland Maps, it was bought for 100K back in '98, 291K in 2005 (gotta be some regret there) to the current owner, who is also the realtor. I know Sellwood is a "hot" area and all, but come on! This seems like a case of an owner desperate to unload a regrettable purchase at an inflated price.”

The lot is only 2500 sq ft, so it's possible the lot was split at some point and two shotgun style houses built on the one lot. MLS #8021021

Have you seen a house for sale you're curious about? Send me a note and I'll post it.

Portland Has a New Blog – Portland Gentrification

There’s a new blog in town that covers the effects of gentrification in and around Portland.

It’s a bit rabid and in the author’s (who wishes to remain anonymous) own words “we're/I'm intending to keep a very pissed off blog with a few laughs thrown in, for everyone who writes a rent check every month and is starting to feel like their f@$king home town wants to kick them the f@$k out.” There is definitely passion behind this blog.

It’s worth checking out, but obviously the language might offend some.

http://portlandgentro.typepad.com/portland_gentrification_a/

Portland Real Estate Market More Affordable?

One of the primary reasons I started this blog was to provide a more objective view of the Portland real estate market. Some, if not most of the data and statistics the NAR publishes are misleading, if not bordering on misrepresentation. For example, their measure of days on the market is meaningless, because listings can and ARE regularly canceled and re-listed with a new number, starting the counter over again.

While I don’t expect the NAR to change their policies anytime soon, at least I can show a more realistic picture to help both buyers and sellers better understand the market so that sellers can get their home sold quickly and buyers can find their dream house – both at the right price.

A friend of this blog - who wishes to remain anonymous - has provided the following data and charts of the greater Portland real estate market. I will be updating this data monthly as well as adding new sources and analysis as I go along. So here goes.

The median home price in Portland (chart 1) peaked in August 2007 at $300k and has since dropped 6.6% to $280k in January 2008. Year over year prices are still up 1.8% (chart 2) in January but chart 1 clearly shows a downward trend.

Chart 2 shows the year over year (YoY) price appreciation. The forecast in chart 2 is based on the assumption that the median price stays flat at $280k. If the median price drops, the YoY change will drop further. But within a few months we'll be showing negative YoY appreciation, finally catching up to the rest of the country.

Chart 3 shows the rate of sales (sales pace) as well as the total inventory of houses. You can clearly see inventory rising while sales have dropped and the drop appears to be accelerating. Divide inventory by sales rate and you get months of sales, which currently stands at 12.8 months. In other words, if no new houses are listed, it would take over a year for all the inventory to be sold at the current sales rate.

Chart 4 shows affordability in Portland. Anything less than 0 means that the median house is not affordable by the buyer with median income. The chart shows that in August 2007 median affordability peaked around -$50k, but the combination of lower median prices and lower interest rates has helped affordability. Unfortunately in February interest rates increased significantly so I expect the trend to reverse unless median prices fall significantly.

Chart 5 shows the spread between median list price and median sales price, or the “balance of reality” indicator. The drop around July 07 is due to buyers having to reduce their asking prices to find sellers as the market started to soften.

Chart 6 shows the spread of rents to mortgages. In 2002-2003 we were below the historic average, but in the past few years the spread has accelerated. Even though rents have risen recently, they haven’t risen as fast as the median mortgage payment. I expect rents to continue to increase as mortgages drop, closing the gap over the next 1-2 years. Historically the spread has ranged around 140%, and even with the recent increases in rents we're still 30% over the long term average. Expect rents to continue to increase due to apartments being converted into condos, and because more people will not be able to afford houses and will therefore be looking to rent.

Stay tuned for February data, which is already shaping up to be even worse.

EDIT: I've reduced the size of the charts, so they are readable when you click on them to make them larger.

Michael Jackson's NeverLand Ranch Faces Foreclosure Auction

It's not just the credit-unworthy that are facing foreclosure these days, as Michael Jackson looks to be about to lose his famous Neverland ranch. Jackson took out a $20M loan in April 2006, which is now being called due.

Opening bid is $20M. I'm in for $10k, now I just need 1999 friends and this little slice of history is all ours!

Yes I know it's not really Portland related, but I did find it interesting.

Free Fall Friday - 632 NE Russell - $550k

Here's another case of "instant equity". It looks like this house was bought for $314,550 in 2004, with about 8% down. The house was refinanced on 3/31/2006 for $504k (a 60% increase in 15 months!) with a second loan of $116k taken out on 11/10/2006 for a total of $620k.

It's now for sale for $550k. $70k instant equity!

It's now listed as a short sale, and gotta love the marketing "Charming 4-Square on the edge of Irvington! " Yup, the edge of Irvington would be Elliot. Not that there's anything wrong with that.

"Unfinished attic & basement are framed & plumbed w/good height. Room for garage to be rebuilt. Sale is subject to lenders' approval of a short sale."

Oops, we ran out of money before we finished the attic or basement. But hey, it's got granite countertops!

MLS# 8013821

It's Not an Inventory Problem, It's a Price Problem

I caught this article in the Washington Post today "The Housing Fix"

"Gloom. Doom. Calamity. Home prices are tumbling. We're bombarded by somber reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last.

It's elementary economics. Pretend that houses are apples. We have 1,000 apples, priced at $1 each. They don't sell. We can either keep the price at $1 and watch the apples rot or cut the price until people buy. Housing is no different.

Even many economists -- who should know better -- describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four months' a few years ago. But the real problem is insufficient demand. There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices."

Robert hits the nail on the head. House prices are elastic, i.e. when prices drop, demand increases. Portland's 12 months of supply will only drop when prices come back in line with demand, and now that cheap and cheerful credit is gone, so are lots of low end buyers. They will either need to save more for a down payment (not likely given our credit card society) or house prices will have to drop to affordable levels. Preventing foreclosures, renegotiating loans that people never could afford in the first place only prolongs the issue.

House Flipping Didn't Work, Let's Try Comedy!

It seems like you can't swing a dead rat without reading about the real estate market these days.

This morning I was flipping through this weeks Willamette Week, and without even trying came across three real estate references.

In the editorials on page 4 there is a funny piece about building a wall between us and California to keep out the "professionals, engineers, teachers, techies, etc" with a reference to the misconception that Portland home prices are continuing to rise: "Why should the rest of the nation's home values continue to plummet when Portland's stay steady, and even increase?" The piece is pretty funny, the misconception is not.

On page 15 there is a half page ad for Harrison High Condos, touting "Your home, your price". Come in and name your price. We can't sell these things, so please make an offer so we can pay back our construction loans.

Um, how about you pay me to live there, so the building doesn't look deserted. No?

Finally, on page 31, there is an article about local comics. Under things you should know about Andy Wood is the quote "Turned to comedy when house-flipping failed."

How bad is the housing market when stand up comedy is a better job than restoring (flipping) houses!?! Bad.

Check out That Property Line - 4904 NE 34th Ave.

This cute little house (MLS # 8021247) was bought and "restored" this past year and is now back on the market.

You could have bought it last March for $361k, and got a cute albeit dated house and garage on a nice large 7500 square ft lot.

Now you can buy the "restored" version, sans garage and most of it's lot, for only $329k, just marked down from $349k.

And there is something fishy going on with the lot lines. I'm not sure why they laid out the lots like they did, but it must have been to make each lot 2500 square feet. - see Portland Map Link

What the photos don't show are the two new houses that loom just a few feet from this poor house. Oh, and it's listed as Beaumont/Wilshire, but it's actually in Concordia, which changes school districts.

I'm sure this will come up again, but this house leaves me conflicted. I'm a fan of infill and urban density, walk-ability, etc. But somehow executions like this just leave me cold.

Portland Median House Prices Finally Drop as Sales Plunge 42%

A friend of the blog recently sent some preliminary February data:

1) Feb 2008 saw only 1,208 sales, down 42% from 2,087 in Feb 2007, but up from 1,084 in Jan 2008.

2) I would expect median prices to stay roughly the same in Feb 2008. My preliminary number is $276,600, slightly down from $280,000 in Jan 2008. However, looking back to Feb 2007, this would be the first period of Portland's downturn demonstrating negative year-over-year appreciation (Median $278,000 in Feb 07)

3) Given a conservative final sale pace range for Feb of 1,250 to 1,350 sales, look for inventory to fall slightly, A range of 10.6 months to 11.4 months"

A 42% drop would easily trump last months 32% drop, but given that the few last sales have yet to be recorded we'll probably end up closer to a 35% drop.

It also looks like we're headed into negative territory, finally. I'm tired of explaining to people that no, the Portland market is not still appreciating. We might finally have the data to show it on a year over year basis.

Again this is preliminary data, but it doesn't look like the spring bounce has started to materialize just yet, even with the fantastic weather we had in February.

Is the Wheelbarrow Included in the Price? - 5244 NE 18TH AVE

Here's my free tip of the day to all the realtors out there.

Your text might read: "No expense spared or corner untouched remodel." and "This your dream remodel"

But the first thing I notice in this photo is the dead lawn, and no landscaping. Which means I'll be investing in those as soon as I move in, or not if I've blown all my money on a deposit


The workers in the background above and the wheelbarrow, unfinished deck and crap in the driveway in the second shot scream "we just rushed through this and cut a few corners to get this onto the market before our financing runs out".

You only get one chance to make a first impression, the little details matter.

RMLS# 8020503

Free Fall Friday - 4401 NE Grand, 12.5% off!

Here's a duplex that's just been on the market a while, and now has been reduced $50k, down from $399k $349k, a 12.5% reduction.

http://www.wellcomemat.com/home/channels/kurtzteam/9ABC91FEA1#wrapper

According to my calculations, even at this "new, reduced" price you would still pay over $1000 a year to have the pleasure of saying you own this architectural gem. The price would still have to drop another $30k before it breaks even given current rent levels, let alone turns a profit.