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

Are Relistings Inflating Values?

I noticed another house get relisted today. This house was listed today (MLS #8039896) at $299k, down from it's previous listing at $314k (MLS #8035485).

Let's assume it sells at the lower price. The spread between listing and asking price will show as 0. But if it had remained at $314k and just the price reduced the spread would be 6%.

So for those trying to chart the spread between listing and selling price as an indicator of where the market is moving, we now have another skewed statistic.

I haven't had a lot of time to think this through, so what are your thoughts? Is this meaningful? Any Realtors care to comment?

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.