Happy Earth Day!

I thought I'd take a break from being a real estate voyeur and analyst to celebrate Earth Day today.

In the past few months my wife and I made a few small changes in our behavior, then watched them snowballed into a few major changes. Call it the power of commitment but once we decided we could do more to be "green" we started finding other small and not so small changes we could make that would help reduce waste or energy.

The tipping point seems to be the purchase of a travel coffee mug that doesn't leak. We saw the mug our babysitter used and my wife went out and bought two, one for each of us. She now takes hers with her to school and uses it instead of a disposable cup. Not really a huge change, right? But that one step seems to have cemented our commitment.

Soon after we made a few more significant changes:

- Switched our daughter over from disposable to cloth diapers
- Bought a composter and set it up
- We found out that we could recycle plastics at Metro in the outer NE Portland, so we bought two bins (one for containers, one for plastic foil) and started collecting our plastic to recycle.
- I started biking to work more regularly, 4 days last week.
- Looking into building a rain catchment system (at our rental house) to help use rainwater to water our plants.

We have seen a measurable decrease in our weekly trash with these changes, and frankly the biggest benefit of me biking to work is that I feel better and I know I'm in better shape (40 min a day of biking will do that!)

Living "green" had definitely hit the mainstream in the past few years. So what are you doing differently? Got any tricks you want to share?

Or do you think it's all BS and we're all just doing this to feel better without making any real difference?

Either way, happy Earth Day!

The Great Ponzi Scheme

Here's a short but great opinion piece in the New York Times - "Ponzi Squared" - about the current housing mess, and it sums up one of the issues better than I can.

Frankly I have very little sympathy for "homeowners" who put no money down on funny money mortgages and are now losing their homes. I feel like they were basically renting the house at the bank's expense. But Paul McCulley stated it much better than I could, using financial terms. Here's an excerpt:

"Paul McCulley of Pimco, the big bond manager, gave an interesting speech in which he said the recent subprime mortgage fiasco proceeded to a fourth level — one that he called “Ponzi-squared” — before it collapsed.

At the end, he said, the marginal subprime loan was:

No money down
No documentation of income
Initial below-market teaser interest rate
Negative amortization

That is not a loan, he said. Instead, it amounted to giving the home buyer a call option to buy the house at the current market price, coupled with a put option to sell the house back at that price.

If house prices kept rising, the “buyer” could make the small interest payments to keep the option open, and eventually sell the house. That happened for a time, and led to the conclusion by rating agencies that such borrowers were good risks.

But when prices went down, the “buyer” would suffer no loss if he exercised the put and gave the house to the lender. That is just what happened."

I do sympathize with those that are facing foreclosure due to hardship, disability, or other unfortunate events. But I believe that the majority of those facing foreclosure today have never truly "owned" their homes. They speculated on an investment and lost. Just as I have lost on a number of investments I have made over the past 10 years. (hello internet stocks!).

Reader Sightings: 5838 NE 14th

Here's another reader sighting:

12 SW Lowell, MLS #8003377

"Bought in 2004 for $380K, now selling for $300K. That’s a 21% decrease!"

My favorite quote: "No Yard to Maintain!" It's like a condo, but it's not!

Here is a link to more data on Trulia.

So who can find the largest price decrease out there? I think I'm in the lead with 45%, I'll have to go check. Post them in the comments, or send me an email and I'll post them up.

I'm also happy to post the biggest increases, coming soon!

March RMLS Data and Analysis

The March RMLS data was released this week and it's not as bad as I expected. A big thank you goes out to Chris at Johnson Gardner for help with the analysis. I thought I was a good analyst, but Chris is better. Click on any of the chart to enlarge them. On to the charts!



The median price in March was basically flat, up only 0.6% Year over Year, and up 2.7% from February. Year over year growth has basically been flat for three months now.

Inventory as measured by the absolute number of homes on the market rose again in March for the third straight month, nearing 15,900 units. So while inventory in terms of months has fallen since January as a result of a more accelerated (seasonal) sales pace, the total number of sellers on the market has increased. In other words, the rate of sales in the first quarter has yet to keep pace with new additions to the market. The rate of sales is down 39.1%, and I believe that the lack of buyers will eventually drive down prices.

The affordability measure in the metro area fell in March for the second straight month. This was partially the impact of a monthly increase and median prices [$280,000 in (Feb 08) vs. $286,500 (Mar 08] and a slight uptick in the average 30-year FRM.

The results of this figure are deceiving. This chart calculates the spread of listing to sales prices in an attempt to measure seller optimism (or reality). While the results for March indicate a narrowing spread, this was the result of a higher sales price and stagnate listing prices. This would indicate that on average--at least in March, that buyers came back to the sellers in terms of price and not vice versa.

Chris also added a couple cool new charts and some more detailed analysis this month.

This is a cool visual that scatter plots all sales under $1,000,000 by price and sq. ft. The trendlines would indicate that prices have in fact remained roughly consistent year over year.

This chart shows the distribution of sales by price cohort. Using $300,000 as a benchmark there was a slight 1.1% shift toward higher priced homes (Above $300,000) obviously accounting for the modest uptick in median price.

This chart displays the year-over-year change in sales pace by price point. This chart allows us to measure which cohorts of the market are seeing the biggest slowdown. The 56% decrease in homes below $150,000, and to a certain extent $200,000 to $300,000 is an indication of marginal or first time buyers either waiting it out or failing to get financing.

A summary of market activity by product type. (Note from Chris: Note that RMLS issued a section on condo appreciation that listed an average condo sales price of $336,500 for March 2008. I am fairly certain this is a miscalculation). Not how the average sales price in the market is no longer increasing. In my opinion this would suggest that tightening in terms of pricing is starting to occur.

This data differs from the data reported in the RMLS Market Action. The RMLS likes to report the last 12 months vs the previous 12 months, and based on this methodology it appears that the average price is still increasing. I believe our method here is more accurate, and more clearly shows changes in growth, both up or down.

It shows inventory in terms of months (using the Realtors calculation) by price point. Good luck selling your $600,000+ home.

This chart shows median sales price and sales pace by subregion. Next month we'll get to year over year changes.

Again a big thanks to Chris for all this analysis.

Hey, it's the new REMAX bubble!

jasper pointed out the advertisement, thinly disguised as a news story:

" MAX EQUITY ROUNDTABLE SUGGESTS POSSIBLE “NEW REAL ESTATE BUBBLE” THEORY"

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!

By request - an open thread

By popular request, I'm adding an open thread with a few ground rules.

1. Please try to reference the previous post you're commenting on.
2. Keep it civil. Attack the argument, not the person.
3. I will delete abusive posts or foul language.

That's it. So what's on your minds. Here's one to start: The cold war was neither cold, nor a war. Discuss.

Kidding...

Portland insiders see signs of improvement?

The O has a story yesterday covering the recent luncheon on the local real estate market that was attended by 16 local brokers. "Portland real estate insiders see signs of market improvement"

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.