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!
Here's an excerpt. Warning: Please put down anything you might be drinking, or else you might end up spiting it all over your PC due to spontaneous laughter.
"BEAVERTON, Ore. — Is a new real estate bubble forming? Executives at RE/MAX equity group think so. Gary Taylor, principal broker at the firm’s Sunset Corridor office and head of the company’s panel who studied recent market data and the prevailing theory, recently released the panel’s findings.
Local brokers are seeing steady sales through this “new market”. Last month the Portland Metropolitan area had 1,384 closed sales, up 27.6 percent from January 2008 (1). What the brokers are hearing is a real demand from individuals with a sincere desire to buy, but limiting factors are hindering their ability to execute a transaction."
Ah yes, the old monthly sales increase ruse. What they forgot to mention was that sales in Portland were DOWN 29% year over year. The February bump is seasonality, it happens every year. Yawn. "Some of the factors that the panel identified in the current market:
Contingencies. Brokers are seeing a higher than normal amount of contingent offers, relative to total sales. These contingencies usually include the potential buyer’s ability to sell their primary residence."
Ah I see, this is a "wishful thinking" bubble. I wish I could sell my house, so I could buy a bigger house. The reality is, with no entry level buyers thanks to the elimination of funny money and zero down loans, others can't trade up.
"Deals, Deals, Deals. Brokers are hearing from their clients that are confident that the market may have hit bottom and is on the way back up. This has resulted in buyers acting on aggressive marketing tactics from local builders, as well as sellers trying to market their property. "
This would be the "hearsay" bubble. We hear there are buyers out there! Of course people are acting on builder incentives, I might be tempted by 50% off too!
"Financing Woes. The tightening of the ability for many to get mortgages may be true, but that has not affected the desire of buyers. In the last two years, there have been nearly 2 million new households formed (3), and it’s likely they will soon be in the home buying market. " More wishful thinking. Those new households now need real savings to buy a house, and most people don't know the meaning of savings.
Gary Taylor and his team must be real geniuses to spot this bubble before the rest of us, I'd like to thank him for bringing it to our attention!
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.
This chart is a brilliant view of the continued spin from the NAR, and how often it has been wrong. I understand the are trying to encourage people to buy and sell, but at some point if you are continually wrong you lose credibility. I know they lost my attention respect a long time ago.
It's ever funnier (or scarier) when you put this chart together with the recent news that Lawrence Yun (the NAR's cheif economist) was named as one of America's top economic forecasters.
And just so we're all on the same page, I'll believe we will have hit bottom when we see the sales decline plateau and start increasing, and inventory stop increasing. Prices will rise after that.
And don't forget, two data points is just a line. Three is a trend.
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.
