Tuesday, August 26, 2008

Portland Exisitng Home Prices Fall 5.8% in June - Case Shiller

We're taking a break from a great discussion on renting vs. buying today to highlight the latest Case Shiller data.

The median price of existing homes in the metro Portland area fell 5.8% year over year in June 2008 according to Case Shiller, continuing the trend that began in July 2007. This is down 6.2% from the peak in July 2007.

The slight month over month gains we saw in April and May have now reversed, and the price index is down 0.3% from May.


The chart above clearly shows that 1. there was a bubble in Portland, and 2. it is now deflating. The chart and also shows a bit of a plateau over the winter as sales slowed and seller's held out that prices would rebound in the spring.

We've also seen the rate of decline slow a bit as peak buying season is in effect, but look for the decline to accelerate later in the year.

I predict we'll be down at least 10% year over year by the end of December. Any other predictions?

The chart above shows the price index over the past few years. You can see a slight increase in the median price the past two months which corresponds with the seasonality seen in previous years.
The above chart shows Portland, Seattle, the San Francisco bay area (the other areas I consider as closest to Portland) as well as the 20-city composite index. Portland and Seattle are tracking each other nicely, still about a year behind the rest of the market. The San Francisco area has really fallen off the cliff and continues to plummet.

The above chart shows the price index over the past 8 years. Prices have now fallen back to the May 2006 level, but look to have stabilized through the summer buying season.

I've added one more chart, which shows the price changes for the past 20 years. We saw one previous bubble around 1990, and then the more recent bubble. Prices have not been negative in Portland since they started tracking the market until just recently.

ABOUT CASE SHILLER:
The Case Shiller data focuses on the change in price of existing homes, and tries to exclude the effects of remodeling, or major damage. It tries to exclude investment properties and foreclosures (which would make the data look worse) as well as transfers between family members. It's a much better indicator of how the price of the average or typical house has changed from year to year. For full details on their methodology see their factsheet.

3 comments:

Patient Renter said...

Since you asked, I predict down 25% YOY by the end of 09. Then higher after that.

You only need to look at California to know it's going to happen.

Anonymous said...

Fantastic chart showing the appreciation rate for PDX over the last 20 years. I believe if you were to provide a chart from 1978-1988 it would show significant prices declines in the early 1980's. This was followed by 4-5 year of basically flat to slightly declining home prices. This was due primarily to mortgage rates being in the 15-20% range (I am not kidding). This cut off most of the mortgage financing for homes & brought a grinding halt to the RE market. Today we have lenders reverting to the normal pratice of qualifying people based on their incomes in relation to the price of the home they are purchasing. While not as restrictive as conditions in the 1980's this has had a significant impact on the RE market.

Saw some data which stated that the yearly median income of households in the US was around $51,000 in 2000. After several years of declines it is just now back to the $51,000 level. All the while home prices in PDX have at least doubled (with many areas tripling or more). Don't know how the median incomes in PDX relate to these figures but I think we have fared a little bit better. However, I do not believe incomes have even remotely kept pace with the RE price increases. This does not bode well for RE prices in PDX unless incomes increase significantly.

I would guess if you look back around 40-50 years or so you will find that the historic norm for appreciation in PDX home prices is around 3-5% annually. To revert back to this historic norm prices will have to fall significantly.

I believe that RE prices will fall at least 10% either by the end of the year or by the spring of 2009 at the lastest. After that they could stabize or fall off a cliff by 25-30%. I guess we will have to wait & see what happens.

For all the people who think PDX is different since there has been an influx of transplants over the last 5-6 years I say hogwash. The majority of these recent transplants appear to have been young creative types. Which equals people with little or no personal wealth, a pile of student loans & many with lower paying jobs. Most will not qualify for home loans at current home prices.

Welcome to the early 1980's Portland, better break out those disco records & enjoy it.

Leo said...

I think it is important to point out that the 1990 peak in appreciation did not appear to be a bubble. After the 1990 peak, prices appear to have behaved in the way housing bulls hoped they would behave this time (a slowing of price growth indicated by decreasing, but not negative, appreciation).

I don’t know much about what happened in Portland around 1990. However, based on the sustained positive appreciation over the years following the peak, I would expect that there was a sustained increase in income for the area. Any thoughts?

That being said, the current situation is clearly unlike the 1990 peak and displays typical bubble behavior.