Condo Sales Stall Like an Old Plymouth

According to a recent article, "Condo pipeline dries up" in The Portland Business Journal, sales of new condo's in Portland have come to a screeching halt.

"The John Ross condominiums have sweeping views, an elegant shape that inspires architectural envy, and a whole lot of unsold units.

To date, just 177 of its 303 units have attracted buyers.

According to Multnomah County property records, a database that includes sale dates along with information about the property, buyers and prices, just two units have sold in 2008."

Only 2 units have sold in 5 months? At that rate I'll be dead before they sell the rest.

According to the article, there are over 3 years of inventory for condo's at the current sales rate.

"Today, Portland has about 2,500 unsold condominiums, a figure that includes developers' inventories and another 1,000 "phantom units," which refers to condominiums bought by investors who intended to turn a quick profit and who apparently are holding out for the market to return.

Assuming Portland buyers have an appetite for 700 to 1,000 units a year, it will take nearly three years to clear out the current inventory."

I'm still amazed that the construction industry hasn't found better ways to predict when the market is going to slowdown or pickup. It seems like it's always feast of famine. Develop thousands of new units, flood the market, stop construction, then miss the bottom and scramble to build more.

""We probably have about a two-year supply in the downtown area," said Newton, who said barring an economic collapse, Portland continues to attract newcomers and will need to keep adding new housing in the future."

Yes yes, we know so many people are moving here. With a soft economy I'm not sure where these jobs are coming from. I'll post the migration statistics when I find them again.

But if you're in the market for a condo (and I know a few readers are) it should be a great time to negotiate. And will likely only get better until the inventory drops, either from increased sales, or conversions to apartments.

Portland Gentrification Makes NY Times

My wife found this article on the front page of the New York Times today, under the Portland Journal section. "Racial Shift in a Progressive City Spurs Talks".

"PORTLAND, Ore. — Not every neighborhood in this city is one of those Northwest destinations where passion for espresso, the environment and plenty of exercise define the cultural common ground. A few places are still described as frontiers, where pioneers move because prices are relatively reasonable, the location is convenient and, they say, they “want the diversity.”

Yet one person’s frontier, it turns out, is often another’s front porch. It has been true across the country: gentrification, which increases housing prices and tension, sometimes has racial overtones and can seem like a dirty word. Now Portland is encouraging black and white residents to talk about it, but even here in Sincere City, the conversation has been difficult."

While it's obvious that the NE has changed, we missed the beginning of the change. We decided to rent a house in the NE as it was a less-expensive neighborhood, relatively convenient to downtown and also convenient to my job in Vancouver.

As we drove around looking for places to rent, some of the first things we heard were a blatantly racist real estate agent encouraging us not to live in certain areas of the NE (near Killingsworth), and our movers who told us "when we saw your address we were afraid to come out here."

I'll leave you to read the full article if you're interested, but this comment struck me as disingenuous.

"Ms. Laufer offended some, but she said in an interview a few days later that she had meant well, that she felt enlightened by what she heard at the meeting and hoped to be able to discuss her feelings about race honestly with blacks. Unlike some other whites new to the area, she was not aware of the city’s history when she moved there. The price was right, that is all, and Mrs. Laufer loved the front porch."

I find it hard to believe that nobody told her the history of the NE, we learned about it without even asking. And just looking around it's pretty obvious what's going on.

Portland Existing Home Prices Drop 4% in March

The median price of existing homes in the metro Portland area fell 4% year over year in March 2008 according to Case Shiller, continuing the trend that began in July 2007. This is down 6.5% from the peak in July 2007.

The chart above clearly shows the bubble deflating, 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. Prices have clearly started accelerating downwards as the fundamental issues driving the price declines (lack of financing for buyer's with poor credit or low down-payments, prices vs. income ratios out of whack, too much inventory, etc) have not changed.

The price index has fallen to 174.39, less than the point in May 2006 (175.20).

Prices in Seattle and Portland are still following the national trend with a one year delay, as the previous chart above shows. National price declines show no signs of slowing, which indicates that Portland is likely in for the same ride.

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.

Portland Existing Home Prices Drop 4% in April - Case Shiller

Prices of existing Portland homes dropped 4% year over year in April according to Case Shiller, down an additional 1% from March. Prices have rolled back to the same level as May 2006, wiping out almost 2 years of gains.

More data later today once I have a chance to update the spreadsheets.

Who Are the Speculators?

My wife and I hit on an interesting theory this weekend, as we were looking at yet another Realtor used houses salesperson-owned property featured above(MLS #8051133, 3807 N. Borthwick Ave.).

I believe that more and more Realtor agent-owned investment properties are going to go on the market to raise cash, as the typical Realtor used house salesperson's income has been slashed by 40%

This property just came on the market while still being renovated. We did a quick drive by and noticed the massive amounts of peeling paint, the inch of moss on the roof, and my wife commented that the front porch looks like it's about to fall off. At first I was surprised to see it was owned by a Realtor agent, but then it started to make sense.

The gravy train is over. Lots of Realtor used houses salespeople bought income properties over the past few years during the years of double-digit appreciation. Now that sales are off 40% I imagine a number of them must be hurting for income. Hence they are selling off the investment properties to raise cash. And I assume they need cash badly enough to not even invest a little effort into curb appeal before trying to sell it.

The irony of course is that the more Realtor used houses salespeople that start dumping properties, the more it's going to drive the market down, continuing the cycle. I don't have facts to prove that more investment properties are on the market than usual, but based on our looking it feels like there are.

This is yet another sign that things are going to get a lot worse before they get better.

Ruffling a Few Feathers

Apparently I have ruffled a few feathers over on Trulia when I asked if their heatmap data was based on RMLS (inflated) figures, or on assessor data (more accurate IMO).

The thread is here if you'd care to join in.

Frankly I'm tired of having to keep portlandmaps.com up whenever I see a house listing, to get the true picture of the size of the house. I heard from a Realtor that RMLS requires Realtors to input the total size of a house (including unfinished basements and attics) not just livable space.

I realize that the assessor data can be wrong, but I feel that it's more accurate than the size data that RMLS posts. I'd like to see them change this policy, what do you think?

Those Crazy Realtors

A local real estate agent (who shall remain nameless) recently sent a friend this Op-ed piece from the Wall Street Journal. along with this comment:

"Here is an interesting article I thought you might enjoy. It is a bit wordy but very good national information about the real estate market. Remember, the article is referring to our market nationally.

Oregon real estate is still relatively strong!"

Wow. 2 pages is wordy? Are her clients illiterate on average?

I also love that this piece really refers to the national market, and specifically talks about new housing starts, neither of which really apply to Oregon or Portland specifically.

But my favorite is the last line. If relatively strong means we've only dropped 7% when the rest of the country has dropped 10% or more, then yes, we're relatively strong.

It must be exhausting staying that optomistic all the time!

New open thread, bring on Memorial Day!

Here's a new open thread for you. Hopefully everybody survived last weeks heat wave, I for one was happy to see a little rain and cooler temps.

Median and Average Prices Drop in April

According to the RMLS data released late last week, both the average and median prices in the Portland metro area dropped last month.

The median price dropped 3.5% from $280k in April 2007 to $275k in April 2008, while the average price dropped 3.9% from $338.2k to $325k.

The chart above shows the forecasted appreciation if prices hold steady. We'll see -8.3% appreciation in July if the median price holds steady at $275k.

Inventory continues to grow as more sellers put their homes on the market. Sales pace has increased as it typically does in the spring, but is still well down from last year. This chart clearly shows the decrease in sales, and the corresponding increase in inventory.

The affordability index moved closer to neutral in April, likely due to the decrease in median price.
The spread of list to sales price also increased in April, likely due to sellers feeling more confident as the spring selling season hits.

Thanks again to Chris at Johnson Gardner for the charts and analysis. He's been swamped (as have I) and apologizes for the lack of more detailed analysis. Maybe if we scream loud enough he'll find a few minutes this weekend to crank them out.

I should be back to posting more frequently as my arm is healing nicely and I can type again.

What Do Your Neighbors Think?

A friend sent this over, recent results of a neighborhood survey on the quality of life in Portland.

I haven't had time to dive through the results, but this one caught my eye:

Livability of Portland, by neighborhood.
The fact that Irvington is top of the list isn't surprising, but the fact that Elliot is near the top was a bit surprising. Good to see that happiness doesn't require lots of $$.

Top 8 Reasons To Buy Now

A few readers have made comments on why now is a good time to buy. Some of these are from a recent Money magazine article, others were added by readers. I thought we'd compile them and add to them, gathering the wisdom of the crowd.

Top 8 reasons to buy now (in Portland):

1. Record inventory, more houses to choose from, in all price ranges

2. Sales are down 40%, much less likelihood that you'll get into a bidding war, more time to craft a good offer

3. Interest rates are still low

4. Median prices have already dropped more than 7% from the August 2007 high, a savings of $21k on a $300k house

5. Some houses are being priced more realistically

6. Sellers are starting to drop their prices when they don't get offers

7. Sellers are starting to understand that the spring bump is more of a molehill, and are much more willing to negotiate

8. It's difficult to time the bottom (but not impossible!), but you're better off now that you were last year. Still, things are likely to keep going down, so don't be afraid to ask for more discounts.

We'll get to reasons NOT to buy now in the next post. But for now, what other reasons do you have?

California Speculator Loses 9 Houses

Will sent this one in:

"You may have already caught this one...

http://www.reuters.com/article/bondsNews/idUSN0952458820080511?sp=true

I thought I'd send it along in case it slipped by. I don't think too many people will be losing sleep over this guys loss."

From the article:

"LOS ANGELES (Reuters) - A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.

Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience.

...

Forgaard bought a house in Santa Cruz, about 60 miles (100 km) south of San Francisco, in 2000. Four years later, using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans -- in which payments do not cover the interest so that a borrower's balance grows over time."

I gotta give this guy credit, he actually takes responsibility for his mistake. He knew he was speculating and got burned.

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance.

"I didn't anticipate a downturn of epic proportions such that home values are 40 percent less than they were," he said.

"Where I went wrong is I invested heavily in an area that wasn't my passion and I had a really demanding full-time job so I couldn't pay attention to nuances, the little indicators telling you the housing market was going soft," he said. "I was in over my head."

More Industry Propaganda

Clint is featuring a great sad piece of real estate propaganda on his site: "Oregon Real Estate Propaganda". The original site is here.

A couple choice quotes:

" Homeowners in it for the long-term nearly always come out ahead in building wealth."

Nearly is the key word here. In some cases it can take 10 years to recoup your investment, like the entire 90's in California. And Case Schiller has shown that housing tracks inflation over the past 100 years, today's prices are way over the historic average prices.

They're quoting Darin Provost as an expert? Who? He has 5 blog posts, and that makes him an expert? I' can think of 2-3 other Realtors with better sites off the top of my head, but I guess they weren't invited to this party.

I can't blame the real estate industry for cranking up the marketing, in a down market it's the smart thing to do.

But Clint and I can give you an alternative view, one that doesn't paint Portland with such rosy colors. Unlike this collection of industry insiders, this outsider wants to make sure you have ALL the facts, not just their hand picked facts.

Money magazine predicts a 20% price drop for Portland

A reader sent this in, from Money magazine:


They are only predicting a 10% drop for Seattle, so it seems like they think that Portland was either more overvalued, or is facing some condition that will cause it to fall further (lack of jobs?).

I tend to agree with the 20% drop, that's about what I've been predicting. Any other thoughts? Should we start a pool?

RMV vs Sales Price

One of our readers sent in this guest post, thanks JS!

My wife and I bought a bungalow in NE Portland back in January 2001 and sold a year or so ago at a hefty profit. The "bubble fever" started out slowly but by 2004 it had started to infect several of my neighbors and by 2005 it had us all in its grip. If someone sold two streets over for well over their asking price we'd all know about it in about ten minutes. On the surface we passed such gossip over the back fence as business-like as possible so as not to appear greedy or otherwise unseemly. But as we related the news to each other our silly grins betrayed our true feelings: we're sitting on gold mines and getting rich by the minute! Many of us grew cautious and told ourselves not to get carried away by the wealth effect. Others tapped into their home equity for the most trivial of reasons.

During those seven years my wife and I had the Oregonian delivered daily to our home. My guilty pleasure during the bubble years was to read the weekly Bought + Sold column in the Thursday InPortland section. The column organizes home sales by zip code and shows both the sales price and the real market value (RMV) of the home. A firm called First American Real Estate Solutions provides the data to the Oregonian. Week after week the sales price would greatly exceed the RMV of homes throughout the metro area. What is the RMV? That's the estimate of the home's market value that Multnomah County's Assessment and Taxation Division calculates. They use it to help determine property taxes. If you have the street address of any property in the metro area you can find out its RMV by going to PortlandMaps and looking for its property value in the Summary section. Realtors will tell you that the figure is practically worthless and is far too low. And they have a point. The only way to know the true market value of a house is to put it up for sale and see what a buyer will pay for it. And yet, the estimate will put you in the ballpark at least.

So as I said, for all the years that I read the Bought + Sold column it always showed sales prices exceeding RMV estimates. And as I already mentioned, we sold our bungalow at the height of the bubble market. For a year now we've been renting, watching, and waiting. And it's a strange feeling. Now I'm on the buying side again and so I look at the Bought + Sold column from the perspective of a buyer. I want to see the trends. I need to know how much certain houses in certain zip codes sold for and whether they are over or under the RMV.

But I can no longer do that. Several weeks ago, without editorial comment, the Bought + Sold column dropped the RMV figure. Now they list only the sales price. Did the Oregonian's editors make this decision? Or do they farm it out to First American and they were the ones who made the decision? There is someone who does know and that's Michelle Brence, the InPortland Editor. I've e-mailed her twice to inquire about the change. But I've never received a reply. (If you're interested in giving it a try she can be reached at 503-412-7059 or by e-mail at michellebrence@news.oregonian.com.) It's a real hassle that the RMV is no longer printed. I've taken several street addresses from the column over the past few weeks and plugged them into portlandmaps.com to find the RMV. A surprising number of them are higher than the sales price. That means that a lot of sellers are willing to accept offers below the county's estimate, an estimate that realtors have said is too low to represent the real market value. But the average reader wouldn't know that because that information is no longer available. And that's a shame.

- JS

Who'd like to guest post?

Would anybody like to submit a guest post? Or 2? Or 10?

Yours truly had a run in with a patch of gravel on my bike ride home on Thursday, and the gravel won. While I'd like to say that my biggest injury was to my ego (definitely bruised), my left arm did come out a bit worse for wear (minor fracture). My typing speed is way down with only one good hand, so the posts will likely slow down for a little while.

Which creates an opportunity for you guys and gals. Any hot topics you'd like to discuss? Buyer's looking for advice? Seller's looking for tips? Development info?

Think of it as an open thread with more visibility. We've got lots of smart readers and contributors out there and this is your chance to make it more of your blog.

If you're game send the post via email to me, and I will help edit. I can post photos or links to photos. The more complete the post the better.

May 1 Open Thread - Thank You!

It's officially May, and hopefully summer is right around the corner.

I want to take a minute to thank all of you for coming here to read, comment and contribute to the blog. The discussions have been civil and I've learned more about the market because of them. Knowing I've been able to help a few buyers better navigate the current rocky real estate market has made it all worth it.

But I have also noticed things quiet down lately, which I think is good. I feel that there was a perceptible change once the local market moved into negative territory as I and others no longer needed to scream that it was coming. You'd have to be an idiot not to acknowledge that Portland will follow the rest of the country towards lower prices. I know I got pretty burned out for a while, but I am more committed than ever to sharing my insights into the market and exposing the tricks that used house salespeople are using to try to boost business.

Keep sending in interesting sightings, news stories, and misinformation you see, and I will post whatever I can.

So what's on your mind as spring springs and we enter "peak buying season"?

Another Builder Goes Belly Up

According to a story today in the Oregonian, the soft real estate market has claimed another victim, local builder Tony Marnella.

"Clackamas County homebuilder Tony Marnella and three of his companies filed for Chapter 11 bankruptcy earlier this month.

Landing Development LLC, 550 Investments LLC, Tony Marnella Inc. and Marnella collectively owe about $24 million, the bulk of it to two lenders -- Sterling Savings Bank and MW Housing Partners III LP, an affiliate of timber giant Weyerhaeuser."

""One of my biggest frustrations right now is the amount of FUD (Fear, Uncertainty and Doubt) being generated by the media about the state of the current real estate market and the local economy," Marnella said in a March 20 post.

"In my opinion, there is a lot of misinformation and a failure to acknowledge the positives about our local real estate market.""

Right, it's all the media's fault. It has nothing to do with people actually needing a real down payment, and being required to take out loans where you actually pay back some principle, not just some of the interest. And it also has nothing to do with an overpricced market that probably made him a lot of money over the past few years.

"It's true that the Portland area remains vigorous relative to the weakness in much of the rest of the country. But the market in the area has slowed, as Marnella's own numbers show.

Marnella's various companies brought in $4.3 million in revenue in 2006 and $1.1 million in 2007, according to the bankruptcy filing. So far in 2008, the companies have generated revenue of $10,000."

Maybe you should have done something when your revenue dropped by 75% last year, and tricked to basically zero this year. But nope, you're committed to building more homes that people don't need and can't afford. Smart.