Tuesday, October 28, 2008

Portland Median Existing Home Prices Continue to Slide - Down 7.6% YoY (Case Shiller)

The median price of existing homes in the metro Portland area fell 7.6 % year over year in August 2008 according to Case Shiller, continuing the trend that began in July 2007. This is down 7.8% from the peak in July 2007, wiping out any gains made since April 2006.

The index fell 1.3% from July to August. The slight month over month gains we saw over the summer have now reversed and the decline is accelerating.

The chart above clearly shows that there was definitely a bubble in Portland, and it is now deflating.

Last year in one of my first posts I predicted that price appreciation would go negative before March 2008, and looking back it looks like I was right.

The chart above shows the price index, and you can clearly see the bubble forming in 2004, accelerate in 2005 and then start to slow in 2006.

I am now predicting that prices will be down 9% by the end of the year (down from my 10% estimate a few months back).

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. While the 20 city index has started to flatten out the San Francisco Bay area has really fallen off the cliff and continues to plummet.
This chart above shows the price index for the past three years. You can more clearly see the seaonality, as well as the fact that prices are back to April 2006 levels and dropping.

This chart shows the previous bubble in the early 90's, and also shows that Portland prices had never dropped over the past 20 years. But as they say, past performance is no guarantee of future performance!

(EDIT) - I have added the charts and more analysis. Sorry for the delay, I lost the post a few times and had to find the time to recreate it.

The S&P/Case-Shiller Home Price Indices measures the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. These indices use the repeat sales pricing technique to measure housing markets. First developed by Karl Case and Robert Shiller, this methodology collects data on single-family home re-sales, capturing re-sold sale prices to form sale pairs. This index family consists of 20 regional indices and two composite indices as aggregates of the regions.


White Salamander said...

I'm starting to see homes within my pricepoint search of 250,000 and under in Inner NE starting to drop into the low 240,000's and high 230,000's. At this time last year the picking were still slim at the under 250,000 point. Are these small cracks in the price point going to continue to widen?

PDX Outsider said...

Yes, I would expect to see prices sliding at the low end. That's the area where first time buyer's have been shut out. You now need a real deposit and good credit, not just a pulse to get a loan. Hence demand has slowed, and lord knows there is no lack of supply.

I'm working on getting more detail on neighborhoods, stay tuned.

White Salamander said...

cool, that would be great to see additional data that is neighborhood specific. Right now I have credit score in the high 700's with 0 consumer debt (credit cards, car payments and so on) I have 30,000 saved for a down payment without taking the tax credit program for first time home buyers. My lease is up in July so hopefully my savings can increase while prices continue to drop.

Anonymous said...

White Salamander

What's your hurry? By July RE prices should be in full blown retreat but will still have 1-2 years of price declines ahead. Calling the bottom can be extremely difficult but since PDX is still severly over-valued patience is still the best option in my opinion. Based on historic charts going back 20 years PDX is approximately 25% over-valued based on the median sales prices to median income levels.

Also don't think that the huge price declines occuring elsewhere won't have an affect on PDX prices. As homeownwers in many other areas see their equity evaporate, this robs them of their mobility. In other words even if many people still want to move to PDX they can not do so since they have little or no equity with which to use as a down payment to purchase a home in PDX.

Real estate if not dead certainly has an extreme case of the flu. There is no current or near term foreseeable market dynamics (easy credit, low interest rates or increased incomes) which will spur future RE increases. After the great deleveraging which is currently occurring is over (probably 2-3 years), RE prices may revert to the historic norm of appreciation rates of around 3% annually.

Anonymous said...

There are two very easy ways to check the levels of Portland housing valuations. The first is to compound a fair annual appreciation (return) rate for a house/condo price starting just prior to the nation-wide bubble. I would start in year 2000 and assume a generous average annual appreciation increase of say 5%. Take the Gregory Lofts for example. A 950 sqft loft was selling for around 190K in 2000. A 5% appreciation rate since 2000 means this loft should be priced at around $280K. Right now the average 950 sqft Gregory loft is going for approximately $380K. Thus, we still have some price realism to occur in Portland. Portland real estate brokers and sellers are still delusional... The second way to get a handle of valuations is to check out inventory. What I found shocking is that over the past few months, real-estate brokers have been removing inventory from their sheets as they were getting flooded with supply. This inventory deception that I have observed just over the past 2-months is very telling of how bad it is becoming. Message to real-estate brokers and sellers, we (people who didn't buy during the bubble) aren't stupid :) The argument of "It's different here" is no more true than it was in Florida,California, Vega, Chicago, New York, etc.

Anonymous said...

I agree with your analysis on projected price declines ahead. The example of the Gregory loft would fit in pretty close to the 25% price declines awaiting PDX ($380K x .75 = $285K).

For anyone waiting for prices to adjust quickly, I don't think that will happen. Expect prices to decline slowly at first & then accelerate. This will be caused by the number of people who have to sell (bank repos, deceased people or estate sales, divorces, job transfers) rather than the people who want to sell but don't have to YET. As more investors & people with postive home equity positions begin to see the price declines caused by the people who have to sell accelerate, there will be a rush to the door. Could take a year or two but sellers will eventially realize that the sales comps set by those who have to sell will determine the market value for their homes. It will not be based on what they paid in the past or any grandiose visions of stable or even increasing prices in the future.

I don't see the bottom in PDX RE prices until at least sometime in 2010, with a total price decline from the peak of approximately 35% (prices already down around 10%, so only 25% more to go). This is based on the historic trends of home values vs affordability, dramatically slowing population increases in PDX, tighter credit (traditional underwriting standards) & higher interest rates.

All potential buyers should take a deep breath & relax. In a year or so you will call all of the shots in the RE market in PDX.

Anonymous said...

As far as realtors manipulating listing data, that does not suprise me. My problem with sales data & realtors has always been their refusal or reluctance to disclose sales concessions when reporting sales prices. This is nothing other than a blatant attempt to prop up values through deception.

As realtors see their incomes evaporate I am certain we will see more sleazy actions by both realtors & the RMLS. As the old saying goes "buyer beware".

Lots of people are moving here & we are special was also the mantra of people in Vegas, Phoenix, Florida & California. PDX will be no different, other than being well behind the price correction curve in a year or two. This may cause a mass exodus of residents to areas which have already corrected & have afforable housing. This is true espically in the construction industry as workers move to areas with increasing new home construction. This is what happened in the last big housing bubble of the early 1980's, with thousands of Oregon construction workers moving to California & elsewhere.

bearlee said...

Yes, lots of people are moving here (but not with $)! I was just at my US Bank branch chatting with a lender regarding numerous things and he said he's opening new accounts right and left. Yeah, for 20 somethings and they're depositing on average a couple of hundred bucks! LOL. Sorry folks, but all these kids won't be in position to buy for a very long time.

Also, I overheard today at the grocery store that Mill Plain Medical and Pharmacy in Vancouver just laid off 150 people in sales and billing. So, yes, even the medical field is feeling this one:O(

Anonymous said...

The damn post office is gettinjg ready to lay off 40,000 people. This is going to get ugly folks. if you need to sell, slash your price and sell now! Or be prepared to chase the market down another 30%.

White Salamander said...

thanks to everyone for their advice, it's not easy to always be patient but so far it has paid off for me.

speaking of questionable data, why is that every couple of weeks certain properties keep showing up as "new" in my property search. I can understand if it went off the market for awhile and then came back, or if the price changed or something but there are some houses that show up as new listing every week. What's the story there?

PDX Outsider said...

That would be the seller's agents desperate attempts to catch your attention, and make yesterday's crap look like today's new improved crap.

AFAIK an agent can remove and re-list a property for no reason. Sometimes they go pending then pop back up, but on the search engine I use it shows that.

If I'm wrong hopefully someone will correct me. And I believe that rule will change soon so that a property has to be off the market for 6? weeks before it can be re-listed.

Anonymous said...

Portland realtors and sellers should brace themselves for a severe freeze in sales. We will not be isolated from the current real estate devaluation. Prices will definitely drop. Credit remains frozen and lenders are very wary. The pool of qualified buyers has shrunken from its bubble levels. There will be no more liars loans, piggy backs, zero down or interest only. Portland is not in a some protective bubble from this financial mess.

Jolynne Ash said...

I don't know, according to RMLS: "For the 12 months rolling average ending in October, 2008 vs. the previous 12 months, the average price in the Portland Metropolitan area is down 1.1%"

Who do you believe? An out of State analysis or the actual data base used to track every home sold (except FSBO) in Portland?

I'll put my money on the local MLS any day. I've been in the business for 17 years, and I agree these are tough times, but they aren't all that bad.

Maldoror said...


where are you getting these numbers from? Clint at Portland Housing Blog runs an analysis on the local mls numbers when they are published and he shows an 8.5% decline from the top in the summer of 2007. I'm including a link below for convenience.


Maldoror said...

Portland metro requires a legitimate growth engine -- one that will increase wages and provide jobs -- in order to escape the effects of the downturn currently sweeping the globe.

I see no such growth engine in the near term, but I do see rapidly rising unemployment and heavy exposure to alt-a and pay option financing schemes which is not a winning combination.

I would expect to see foreclosures skyrocket (already up 169% from last year) and more aggressive declines in housing prices through next year and beyond.

Perhaps in 4-5 years, Portland can boom by becoming a source of alternative energy innovations, but there are far cheaper places in the country to start such incubators than Multnomah County so I am not convinced that will happen either.

PDX Outsider said...

"I'll put my money on the local MLS any day. I've been in the business for 17 years, and I agree these are tough times, but they aren't all that bad."

Jolynne, you really need to stop drinking the RMLS Kool-Aid and start seeing the big picture.

It's bad. And it's getting worse.

1. The RMLS uses a rolling 12 month average, which as I've stated before smooths out any changes. Clint (and I when I can get the data) track year over year data for the most recent month, which shows you what's happening now, not over the past 2 years.

2. Case Shiller is not some fly-by-night outfit, it's the objective gold standard for housing values. If anything the NAR has shown just how biased and slanted they are with their continual cries of "the bottom is just around the corner" for the last 24 month. I guess if they keep saying it they'll get it right eventually, right?

3. If you're telling your clients "it's not that bad" I hope they aren't listening. Just how many clients do you have right now? How many did you have last year? I bet it's less right? A lot less?

You've once again proven why we need this blog, and blogs like Clint's... to present an objective view of the market, not BS like "it's not that bad.".

Now if you have something useful to add I'm all ears, but "it's not that bad" just won't cut it around these parts.