Ryan Frank has an interesting look at Foreclosure's in today's Oregonian:
Anyone who has been reading this blog knows that while foreclosure's here aren't YET as bad as some other areas, they are accelerating quickly. But this is an interesting comparison to the last recession.
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.
Roger Erickson sums it up:
"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.
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.
Thanks to Ryan for asking one of the 10 or so questions I sent in. Here are a few of my favorite comments.
"At a housing industry lunch forum, the brokers said they started noticing fewer potential buyers visiting their listings about last April.
The evidence that the bottom is near?
Brokers point to the fact sellers are finally willing to give up a bit on their price to sell faster. They also point out that real estate insiders themselves are now snapping up investment properties."
Really? They're snapping up investment properties? Show me one. Nothing concrete was mentioned in the article.
Nothing I analyzed last year (2-4 unit buildings) made a positive cash flow with 20% down, most would need 40% down, and then you're looking at a 1% return on your investment. Unless you include speculation on price inflation, but that looks to be over. So I predict prices will have to soften to come back in line where investment properties actually provide a decent ROI and cash flow without hoping for 10% YoY appreciation.
But let's look at a concrete example. Here's a four plex for sale for $415k. With a 44% down payment ($182k) you're looking at a 0.06% cash on cash return. That's not 6%, that 0.06%!
I know interest rates are in the proverbial toilet, but even my savings account pays more than that.
If there are good deals out there, this outsider hasn't found them. You must need to be an insider.
Here's one of the questions I submitted to Frank:
"Why are Realtors afraid to admit the market is softening and will likely decline over the next few months?
"It has," one broker said.
"It's all past tense," another said.
"It has declined," Davies said. "It has softened. But actually the last 60, 90 days have been just like they were last year. It's very active."
Becky Jackson at Realty Trust Group Inc. in the Pearl District said: "When you're speaking to a buyer today you may not be able to say perfectly that it has passed. You might still see something for the next few months but you're not going to know what is the last day of the low market."
Just like they were last year? Sales are down 30% from last year, that's "just like last year?"
It's all past tense? Wishful thinking again. It's all future tense! The decline has just started here.
"Kathy MacNaughton of Realty Trust Group said: "What you say privately and publicly is different."
"How so?" I asked.
"I don't think it does you any good to say the market is tanking. And it's not. We know that. You've heard that today. But I will tell you that probably six months ago I talked to my buyers privately and said, 'You know what, we have to be very careful. I see signs in this market of settling.' And I think all of us did the same thing.""
Prices might not have tanked, but I would say that a 30% decline in sales is pretty much tanking. I know in my industry if we were down 30% from last year I, and 75% of my coworkers, would be out of a job. And if I told my manager that a 30% sales decline was just like last year I'd be fired on the spot.
My objective with this blog is to present an alternate, non-Realtor, "outsider" view of the Portland real estate market based on my experiences and analysis, to help you make a better decision whether you are trying to buy, sell, or just interested in learning more about the market.
