No Sign of a Turnaround - Feb Sales Data

The February sales data was just released, so let's start with the leading indicators, inventory and sales rate.

Overall inventory is up in Feb to 14,870 units, from 14,131 in Jan. More importantly, inventory is up 40% year over year, the same as in January. So no signs of inventory dropping.

The number of sales in Feb was up from 1084 in Jan to 1380 in Feb, which is normal as Jan is typically the slowest month. Sales in Feb 08 are down 29.3% from Feb 07.
Combine sales and inventory and you get months of inventory, which dropped from 12.8 months in January, to 10.8 months in February. Year over year months of inventory have more than doubled from Feb 07, up 102.8% in Feb 08.
So even though sales are down and inventory is up, the median price has managed to hold steady at $280k, up 0.7% from Feb 07. The market peaked in August 2007 at $300k, so today's price is down 7% from the peak.
In the last chart, if we assume prices remain flat at $280k, then by July we will see -7% Year over Year appreciation.

Overall the Portland market appears to continue softening, and it will be interesting to see how much of a bump we see in the spring. I believe that the contributing factors (speculating and cheap credit) that increased demand and led to the market run-up are effectively gone, and with the reduced demand we will eventually see prices drop.

If you find your dream house, bargain hard, you just might be the only buyer they see.

Portland Real Estate Market More Affordable?

One of the primary reasons I started this blog was to provide a more objective view of the Portland real estate market. Some, if not most of the data and statistics the NAR publishes are misleading, if not bordering on misrepresentation. For example, their measure of days on the market is meaningless, because listings can and ARE regularly canceled and re-listed with a new number, starting the counter over again.

While I don’t expect the NAR to change their policies anytime soon, at least I can show a more realistic picture to help both buyers and sellers better understand the market so that sellers can get their home sold quickly and buyers can find their dream house – both at the right price.

A friend of this blog - who wishes to remain anonymous - has provided the following data and charts of the greater Portland real estate market. I will be updating this data monthly as well as adding new sources and analysis as I go along. So here goes.

The median home price in Portland (chart 1) peaked in August 2007 at $300k and has since dropped 6.6% to $280k in January 2008. Year over year prices are still up 1.8% (chart 2) in January but chart 1 clearly shows a downward trend.

Chart 2 shows the year over year (YoY) price appreciation. The forecast in chart 2 is based on the assumption that the median price stays flat at $280k. If the median price drops, the YoY change will drop further. But within a few months we'll be showing negative YoY appreciation, finally catching up to the rest of the country.

Chart 3 shows the rate of sales (sales pace) as well as the total inventory of houses. You can clearly see inventory rising while sales have dropped and the drop appears to be accelerating. Divide inventory by sales rate and you get months of sales, which currently stands at 12.8 months. In other words, if no new houses are listed, it would take over a year for all the inventory to be sold at the current sales rate.

Chart 4 shows affordability in Portland. Anything less than 0 means that the median house is not affordable by the buyer with median income. The chart shows that in August 2007 median affordability peaked around -$50k, but the combination of lower median prices and lower interest rates has helped affordability. Unfortunately in February interest rates increased significantly so I expect the trend to reverse unless median prices fall significantly.

Chart 5 shows the spread between median list price and median sales price, or the “balance of reality” indicator. The drop around July 07 is due to buyers having to reduce their asking prices to find sellers as the market started to soften.

Chart 6 shows the spread of rents to mortgages. In 2002-2003 we were below the historic average, but in the past few years the spread has accelerated. Even though rents have risen recently, they haven’t risen as fast as the median mortgage payment. I expect rents to continue to increase as mortgages drop, closing the gap over the next 1-2 years. Historically the spread has ranged around 140%, and even with the recent increases in rents we're still 30% over the long term average. Expect rents to continue to increase due to apartments being converted into condos, and because more people will not be able to afford houses and will therefore be looking to rent.

Stay tuned for February data, which is already shaping up to be even worse.

EDIT: I've reduced the size of the charts, so they are readable when you click on them to make them larger.

Free Fall Friday - 632 NE Russell - $550k

Here's another case of "instant equity". It looks like this house was bought for $314,550 in 2004, with about 8% down. The house was refinanced on 3/31/2006 for $504k (a 60% increase in 15 months!) with a second loan of $116k taken out on 11/10/2006 for a total of $620k.

It's now for sale for $550k. $70k instant equity!

It's now listed as a short sale, and gotta love the marketing "Charming 4-Square on the edge of Irvington! " Yup, the edge of Irvington would be Elliot. Not that there's anything wrong with that.

"Unfinished attic & basement are framed & plumbed w/good height. Room for garage to be rebuilt. Sale is subject to lenders' approval of a short sale."

Oops, we ran out of money before we finished the attic or basement. But hey, it's got granite countertops!

MLS# 8013821

Free Fall Friday - 4401 NE Grand, 12.5% off!

Here's a duplex that's just been on the market a while, and now has been reduced $50k, down from $399k $349k, a 12.5% reduction.

http://www.wellcomemat.com/home/channels/kurtzteam/9ABC91FEA1#wrapper

According to my calculations, even at this "new, reduced" price you would still pay over $1000 a year to have the pleasure of saying you own this architectural gem. The price would still have to drop another $30k before it breaks even given current rent levels, let alone turns a profit.

Great chart on homes prices across the nation

The NY times has a great interactive chart that shows the %change in house prices over the past 20 years: "Home Prices Across the Nation".

I've clipped the chart for Portland, but I encourage you to go play with the chart on their site.

Are Short Sales a Good Deal?

BLOG.FranklyRealty.com: Short Sales Are "Fake Listings." Only 5% Close!

I saw the post above today on short sales, which reminded me of this conversation we had a few weeks ago.

Has anybody here tried to buy a short sale? I expect to see more of them as foreclosures increase, but they always seemed to be fraught with danger to me, and Frank confirms that.

Oregon foreclosures almost double

Realytrac just released their monthly report on foreclosures, and the numbers for Oregon are getting worse.

Foreclosure filings are up over 28% from December 2007, and are up 96% year over year in January.

Unfortunately they don't break out Portland numbers, but my gut says that Portland is doing better than some less expensive areas.

The elusive exclusive buyer's agent

Perplexed asked in a previous thread

"Has anyone ever used an exclusive buyer's realtor?

In this day where it's a buyer's market agents who only represent buyers should be in a great position."

And in a follow-up post:

"Here is what I found. I know of no one who has ever dealt with any of them, which is why I asked.

http://www.carlahomes.com/

http://www.dreamstreetre.com/

http://www.worldstar.com/~pdxpro/

Read the document at the lower left on the last link. It is an interesting discussion of what to watch out for."

Here's the document he's referring to, which I think is a good source of info for potential buyers:

I haven't used an exclusive buyer's agent, but I have given the subject of buyer's agents a bit of thought.

One issue I see is that if you've acted as a seller's agent and never sold a house, you don't know all the inside issues that would help with negotiation.

But I think the biggest issue is the basic principal-agent issue and misalignment of interests between the buyer and buyer's agents such as:

1. The buyer stands to benefit from a lower price, while the agent benefits from a higher price due to a greater likelihood of sale and a greater commission.

2. The buyer might be in a position to wait as long as possible for a good deal, but the agent only makes money on a sale, so is inclined to push for a sale.

Those are the two big issues I see, I'm sure there are more. But it seems like #1 could be eliminated with a different payment structure, such as a flat fee plus bonus for discount. Or a retainer plus hourly rate.

I really like the idea of paying a flat payment with a bonus for a discount, based on the amount of discount. Does anybody know of any agents using a payment structure like this? To answer Perplexed's question, has anybody used an exclusive buyer's agent and what were the results?

Advice for real estate agents (quit now!)

Seth Godin has an excellent post that all real estate agents should read. His advice is that you should either:

1. Quit.

2. Specialize, and become the best at one small niche of your market.

#1 is easy. #2 is scary and hard. There is also option #3 which is to keep doing what you've been doing for the past few years, and watch your business die slowly.

#2 isn't that hard as much as it's scary and counterintuitive for most people. And for those that say they don't have time, I found the time to build and contribute to this blog, and I have no incentive other than to help other frustrated buyer's like myself who are tired of the status quo.

I see Charles Turner doing an excellent job at #2, and I have seen a few other Realtors starting to specialize. But I see plenty of others that are still trying to take orders in a the new sales world.

I'd love to hear stories of Realtors that are reinventing their business during the downturn.

How to Pick a Great Neighborhood

I've been getting mail from folks looking to move to Portland and trying to pick a neighborhood, and with so many great neighborhoods to pick from, it's tough to recommend just one.

But I recently found a tool that makes it a whole lot easier. www.walkscore.com allows you to see what stores, schools, bars, restaurants and parks are within walking distance of any location.

Here's an example in the Alberta Arts district: http://www.walkscore.com/get-score.php?street=ne+going+and+29th%2C+portland+or&go=Go

Check it out, it's a great tool. And if anyone has any suggestions for Mark, please feel free to add a comment. They're coming to visit tomorrow to take another look around.

"Maybe you could help us with a new route. We are a 30ish couple that enjoy both the outdoors and urban environs. We would like to have a good grocery store and a good pub(I'm a homebrewer). Big bonus if they were in walking distance. Proximity to bike trails and public trans is vital to us at first since we're selling one vehicle to cut costs. We really enjoy eating out although we don't mind driving a little to do so. We love Farmer's Markets. We love the Portland vibe. Any suggestions for two days of exploration? Thanks in advance."

Flipping over Laurelhurst - 3215 Ne Couch St

One of our readers points out this house for sale in Laurelhurst:

"Purchased for $250K on 02/12/2002, some permits pulled, looks like some updating, added room and bathroom in basement, I think he's fudging on the square footage.

Here's the kicker: asking price $650K!!!

http://portland.craigslist.org/mlt/rfs/571745277.html"

The seller is a real estate agent, for what it's worth. Let's see how fast it sells. That's 21.1% annual appreciation (not including renovation costs) for those curious.

Sidelined Home Buyers Frozen by Fears

I caught this article today: Sidelined home buyers frozen by fears.

There are a couple great quotes that sum up the current lack of buyers:

"Rochelle Getzler, a housewife in Nassau County, outside New York city, and her husband, Abraham, have been on the fence for nearly a year, waiting for an opportune time to buy.I think it is too risky to buy right now," she said. "Yes, prices have come down, but they have come down from extremely high levels."

""I think home prices are going to continue falling, so I see no compelling reason to buy a home right now when we can hold off and buy at a lower price later this year or early next year," she said.

Economists tend to agree. Housing markets in some parts of the country will suffer drops of more than 30 percent before the housing crisis is over, according to a report in December by Moody's Economy.com."

""The economic fundamentals in housing are weak and I see no sign of a bottom," said Chris Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School in New York."

These quotes all pretty much sum up my current position for buyers. I see two strategies to play:

1. Offer X% lower than current asking prices, X being wherever you see the market bottoming out in the next 2-3 years.
2 Wait for signs that prices have stabilized, and might increase again, and start making offers then

Has anybody made any offers recently that were > 20% off asking price, and had them accepted?

Portland Market Melts Down

My first reaction after seeing the January RMLS statistic was something along the lines of “Holy cr@p, the market has imploded!” But after analyzing the data a bit more I realized that the past few Januarys have seen significant jumps month to month. So even though months of inventory jumped another 50% this month, that's not unusual for January. Given the historical trends, I expect the months of inventory will drop in February, so don’t be fooled with the realtors all crow about how months of inventory has peaked and is now dropping.

The trend to keep an eye on is inventory growth. While the total inventory is shocking, the fact that the growth rate has also increased over the past few months shows that the market continues to get worse.

So what’s driving this? If you combine the inventory data with the recent sales data that show average prices increasing while the median price is flat (over on Clint’s blog), I think what we’re seeing is that entry-level buyers, those with less than 20% for a down payment, or those with lower incomes are finding it harder and harder to buy. This will have a ripple effect on seller’s trying to trade up to larger homes.

I’ll post more comments once I’ve analyzed the data a bit more closely.

A Local Anecdote

We had some good friends over for drinks this weekend and, as usual, talk turned to real estate. We mentioned that we’ve had our eye on a house that is currentlyfor sale in their neighborhood, and not only did they know the house, they knew a bit about the owner. Their comments were:

"That house is owned by Mary (not her real name). She made a bunch of money as a mortgage broker and bought six investment properties over the past few years. Her income has dropped recently and so she's trying to thin out her holdings and she listed that house a few months ago. Her original plan was to fix it up to get top dollar, but now she's just hoping to get out from under it fast. She's already dropped the asking price once, and will probably drop it again."

I can't help but think we're going to see more and more stories like this over the next few months (and years). If you were a buyer interested in this house, what would you do? Wait? Submit a lowball offer?

Did You Buy a Home That Was Relisted?

A few weeks ago I asked about the practice of relisting properties here.

Nightline is looking for people who were tricked by the practice of relisting a property that has been on the market for longer than the seller's would like.

If you're interested in talking to them see this website, Did You Buy a Home That Had Been on the Market for a Longer Period of Time Than You'd Thought?

Free Fall Friday - 47% off

Here's a shocking short sale that I ran across recently.

This house sold for $422k on 5/22/06, and then it sold again for $565k on 9/01/06. It was 100% financed, and according to the listing it still needs work!

I can't imagine who would pay $565k for this 1660 2224 sq ft. house in this neighborhood, so I'm wondering if some sort of fraud was committed, especially to get 100% financing.

It's now bank owned, and the bank is trying to sell it for $299k, which means someone took a bath on this one.

This listing is here:

http://www.johnlscott.com/propertydetail.aspx?GroupID=58567666&ListingID=31403742&Sort=0

I'd Like Some of What They are Smoking Please?

OK, maybe I'm stupid, maybe I'm missing something here, can you folks help me see why anybody would buy this?

According to my calculations, given the current rents and this asking price, with 20% down, and esimating 5% of gross rents for maintenance and 0% vacancy, including the tax break you would LOSE $4443 per year to own this lovely duplex.

What am I missing?

(courtesy of Craigslist)

$549900 Belmont Victorian Duplex

RMLS # 8012653

OPEN SUNDAY FEB 10TH 11-1 P.M. LWR UNIT ONLY
Big, bright Victorian duplex in the heart of the Sunnyside/Belmont neighborhood.
Easy conversion back to single family home or live in one unit and rent the other. Lower unit has one large bedroom, one small bedroom, generous living room, and large renovated kitchen. Upper unit has two generous bedrooms and large living room. Each unit has off street parking and private storage. Laundry machines in basement. Current rents are $1195/1150. Each unit is approximately 900 sq ft. Great location right at the Sunnyside Sunflower. Just blocks for Zupans, Stumptown, and bus.

RMLS# 8012653 &8012652

What Would You Like to See?

The blog is starting to see some traffic, so thank you to all who are coming to visit and leaving comments.

My goal is still to find as much data as I can, and help paint a true portrait of the Portland real estate market. But I'd like to know what kind or information and analysis YOU would like to see. My current thoughts include:

1. Median pricing trends, predictions and drivers
2. Neighborhood pricing trends and drivers
3. Foreclosure statistics and locations
4. Pricing reductions
5. Inventory changes due to delistings (unlistings?)
6. Exposing real estate agent tricks and misinformation
7. Sub-prime and ARM loan information

Outside of market analysis, I'm also an architecture buff (and Portland is a fantastic place to be for interesting homes!), but not a fan of quick flips. Is there any interest in coverage of:

A. Interesting properties for sale
B. Bad flips

Let me know your thoughts, and if anyone has access to NAR data they'd be willing to share, please let me know.

Portland Home Price Appreciation Continues March South

The latest S&P Case Shiller data was released a few days ago, and the median price appreciation continued to drop in November 2007, down another 0.6% from 1.9% to 1.3%. It's still positive, but at this rate it will be negative within a few months, and I haven't seen any news that gives me any hope of things turning around.

Portland Not Immune From Foreclosures

The Oregonian has an interesting article about foreclosures in Portland and how they are not only affecting low or moderate income homeowners (article link: Foreclosures move into tony Zip codes)

This confirms my suspicions that most of the foreclosures in Portland will be due to:

1. Speculators getting caught by the bubble bursting and having to sell for a loss

2. Buyers living beyond their means and buying more house than they can afford with risky mortgages

3. Owners tapping into the equity of their house to take out money, and not being able to keep up with the additional payments

I'm seeing more examples of #3 and #1, but I haven't seen too many examples of #2 just yet, but I think they will increase as 2-3 year ARM's reset.