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. Have I mentioned I like charts?
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 final 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.
Things couldn't look better three years ago for Milton and Patricia Harper of Lake City, who giddily accepted the keys to a small castle, plus enough money to pay taxes on it for 25 years. It was a product of "Extreme Makeover: Home Edition."
Now, the Clayton County house is a two-story, turreted example of how things can go wrong. It's in foreclosure.
The Harpers used the house at 5489 Ahyoka Drive as collateral for a $450,000 loan, Clayton County mortgage records show. Records at the law firm handling foreclosures for the lender, JPMorgan Chase Bank, say it is in foreclosure. The four-bedroom house with decorative rock walls and a three-car garage is scheduled for auction on the Clayton County Courthouse steps Aug. 5.
The Harpers, who declined interview requests when reporters knocked on their door Friday, told WSB-TV they got the loan for a construction business that failed.
Failure seemed an impossibility in February 2005, when ABC TV viewers got a look at the stunning home constructed in a subdivision three miles east of I-75. Painted dark olive and covered with specialty shingles, the home's domed door opened into a structure that featured four fireplaces, a solarium, music room and a porte-cochere that connected to Milton Harper's new office. The yard was a study in landscape art, with young magnolias, fieldstone and a Leyland cypress hugging one corner. A black metal fence ringed it.
It had taken shape in six intense days in January 2005, when Atlanta-based Beazer Homes USA and "Extreme Makeover" demolished the Harpers' old home, plagued by a faulty septic system. Professionals and volunteers came together to erect the largest home that the "Extreme" team had ever built.
Materials and labor were donated, but the home would have cost about $450,000 to construct. When they were done, the home dwarfed all the ranch and split-level structures in neighboring lots.
That was not all. Beazer Homes' employees and company partners raised a quarter-million dollars in contributions for the family. The sum included scholarships for the three Harper children and a home maintenance fund.
The Harpers, whom ABC chose from among 15,000 "Extreme Makeover" applicants, spent the week in Disneyland while 1,800 people swarmed about the site. The family returned to a new home, plus contributions worth about $200,000.
They opened the home to lots of friends, said Amber May, 18, who lives a few doors away from the Harpers.
"It will be midnight," she said, "and we'll see six cars and a million kids" at the house.
Another neighbor, Brittney Harris, said the Harpers seemed considerate.
"They're good, quiet neighbors," she said.
Perhaps they are, said Donald Williams, who was visiting Harris. But he doubted their business acumen.
With $450,000 "they could have just bought a business," he said.
A representative for Beazer declined comment. A representative of ABC offered an e-mail: "'Extreme Makeover: Home Edition' advises each family to consult a financial planner after they receive their new home. Ultimately, financial matters are personal, and we work to respect the privacy of the families."
Law firm McCalla Raymer LLC, which has a team of specialists handling JPMorgan foreclosures, confirmed that the Harper home is on the calendar for auction next month.
The news left Lake City Mayor Willie Oswalt wondering what went wrong. He recalled a chilly January day when he and a handful of others wrestled an aged beam into place in the home's living room. The Harpers' future seemed just as solid, he said.
"It's aggravating," said Oswalt. "It just makes you mad. You do that much work, and they just squander it."
Looking in on the carnage now, I bet most of the folks that are walking away or losing their houses as rates reset could have rented the same place for less than their mortgage payment. That should have been a sign that prices were out of whack. I know we rent our current place for less than the monthly PITI.If you don’t live in a cave, you have probably hears about the current crisis in banking and housing. Many banks and mortgage companies have already failed (Netbank, Indymac, and others), and many more are expected to follow. But if the banks hedged their risks appropriately, the pain of the housing crisis would be mostly limited to the private mortgage insurance companies, such as MGIC Investment Corp (MTG).
Traditional wisdom states that you need a 20 percent down payment to purchase a house. The 20 percent down payment is the method a borrower can use to prove loan worthiness. The large down payment, and a good credit score were the traditional means a bank used to establish credit worthiness for such a large purchase. If a borrower wanted a home loan with less then a 20 percent down payment, they were structured as a piggyback loan. The piggyback loan consisted of two loans, one for 80 percent of the value of the house, and a second loan at a higher interest rate for the difference between the smaller down payment (sometimes nothing at all), and 20 percent. In addition, banks and mortgage lenders issuing piggyback loans required the owner to purchase additional private mortgage insurance. The mortgage insurance premiums paid by the owner was a protective insurance policy designed to hedge the banks risk against default. Companies such as MGIC, who sold the mortgage insurance, would cover the first 20 percent of loss and the banks would cover the rest.
Roger Erickson sums it up:Mortgage defaults in the Portland area and central Oregon rose 97 percent in the first half of 2008, compared with a year ago.
That's not too surprising considering homeowners in 2007 still enjoyed the tail end of the housing boom, and the housing market is now in full swoon.
What's more surprising is the number of defaults -- typically the first step of a foreclosure -- through June 30 rose far higher than at the peak of the last downturn in 2002, according to records in Multnomah, Washington, Clackamas and Deschutes counties. Those cover the Portland area and the peak-growth Bend region.
"We're just seeing the tip of the iceberg," said Roger Erickson, a principal broker at Americana Properties Inc. "It's going to get a lot worse before it gets better."
Lenders hire Erickson to sell properties they've taken back from borrowers in foreclosures.
Erickson said he had five foreclosures to sell in early 2008.
Today, he has 22.
My take on this data is that as financing has become harder to find and prices have started to decline, more and more owner's are unable to sell or renegotiate their loans are the houses are going to auction.As bank repossessions continue to mount, it's a question that is being asked more and more often. The answer is, foreclosures are available and reasonably priced - but don't expect a screaming deal.Anybody have any brushes with foreclosure's they'd like to share?
"More than 50 percent of our customers come in wanting a great deal on a foreclosure," said Pat Lashinsky, CEO of Emeryville's ZipRealty, a brokerage with more than 2,200 agents in 19 states. "The percentage that actually do (find one) is significantly less. When you find a good deal, there are five or six or seven offers, and you're up against professional investors."
Finding a foreclosure is straightforward, according to a range of industry
experts: Decide on a budget and geographic area; get prequalified for a mortgage; work with a buyer's agent; check the MLS - the same steps you take in buying a nonforeclosed property.
But there are potential obstacles in navigating the unfamiliar territory of the properties known in the trade as REOs - short for real estate owned by banks. "It takes a certain breed of borrower to buy a foreclosure," said Joe Metz, a Realtor-broker with Re/Max Active Realty in Fremont. "I hold a lot of REOs open on weekends. I can tell if a buyer is new to the whole thing; they just get really upset with the condition of the house."
That's because banks don't do more than a very basic clean-out of foreclosed properties. They don't paint. They don't replace carpets. They don't remodel.
"We explain that if you want a staged house, you'll pay 50 grand more for it," Metz said. "This is a deal. These are all things that can be corrected with your checkbook."
Here are more factors to consider in buying a foreclosure:
-- They're discounted, but not giveaways. Banks usually determine an asking price after hiring several real estate agents to give opinions about a property's value.
"Banks are getting very aggressive on pricing," said Glen Bell, a Realtor with Keller Williams Realty. "We're seeing them priced at 10 percent to 15 percent less than non-REO properties. Reducing prices to attractive levels has become their strategy ... to unload assets."
However, it's important to remember that banks, and the people who work for them, are skilled at analyzing prices and market conditions.
"Our experience is the bank has a number (the asking price); they will hold that for a while," Metz said. "If they don't get that number for three or four weeks, they will lower the price a little more. Banks are very smart about how they do this. They move them very quickly and for about as much as anybody could get."
-- They can draw multiple offers. Don't think that you're the only one with the brilliant idea to buy a foreclosure at a discount. "We've seen multiple offers in about half of our sales and pending transactions," Bell said.
Here's a diamond in the rough for the handy and brave. It's only going for $129k in an area where similar homes are easily going for $250k and up, although it might need $100k to get it in similar condition. And unfortunately it sounds so bad that you won't get bank financing. Which is a shame as it excludes those that need this place the most.
