MAY 2010 PORTLAND REAL ESTATE UPDATE!!

Sales activity in the Portland Metro area continued to show improvement in April 2010 compared to the same month a year ago. Closed sales increased 49.1% and pending sales jumped 60.8%, and new listings rose 23.8%. The average sales price for April 2010 decreased 3.1% compared to April 2009, while the median sale price went down 4%. Month-to-month, there were minimal changes in prices. Comparing January through April 2010 with the same period in 2009, closed sales increased 41.4%. Pending sales jumped 46.3%, and new listings also rose 15.4%. We are now at 7.3 months of inventory, which is the lowest of this year. To give it some historical perspective, in 2008/2009 and thus far into 2010, 19.2 months of inventory was the highest (January 2009) and 6.5 months of inventory was the lowest (October 2009…note that was right before the initial first-time buyer credit was to expire). The average market time YTD is 138 days on market. A solid web presence, staging, pricing and a little patience are all virtues. We are adjusting to a new pace. As always, information is VERY neighborhood specific, so contact me for information about your area.

This said, I do believe we have experienced a bit of backlash in May from the expiration of the 2nd tax credit, which ended April 30th, 2010. (May’s Market Update may show some figures down from March and April 2010, though perhaps still better than the same time period in 2009). RMLS (Realtor’s Multiple Listing Service) stats showed that lockbox activity in the Portland Metro area was down 17.3%, when comparing the week of April 26-May 9th with the week prior. Today’s Monday morning stats show the activity recovering some of those losses and when comparing the week of May 10-16 with the week prior, lockbox activity was up 6.4% I think we will now have an opportunity to see what the “new normal” of the real estate market is and where we are in the recovery process without the artificial tax-credit.

As a buyer, the main obstacles I see in the real estate marketplace currently are restricted credit markets (loan programs are limited, money is tight, loan requirements have increased, appraisal standards are amplified) and diminished equity (many people would take advantage of this buyer’s market if they had enough equity in their existing property to move forward with their plans). But, the only way to find out is to ask me to run a analysis of recent comparable sales and plan a visit with a trusted mortgage broker. This is an incredible opportunity (with or without a tax credit) for some buyers. The week ended with mortgage rates hovering around 4.5% for a 30-year fixed loan!! And, FHA is a popular vehicle for that first-time buyer (or anyone purchasing a home with a loan amount of less than $418,750, more for duplexes, triplexes, etc) with only a required 3.5% down-payment. There are also some 90% LTV (loan-to-value, so 10% down) loans out there for “non-jumbo” loans (loan amounts of less than $417,000). So, with low interest rates and pricing you will find some good buys out there. Well-priced investment properties are a great addition to any financial portfolio. These properties are hard to find and even harder to secure, often with multiple offers. Follow my story on a duplex I am attempting to purchase. I almost “over-analyzed” myself right out of this great investment opportunity!!

As a seller, price is the new location. It is still very much a “buyer’s market”. There is a smaller pool of buyers, increased inventory and you must compete with pricing on short-sales and bank foreclosures. A very pragmatic approach to pricing your home is mandatory, even slightly over-priced properties will be ignored by an aware and savvy pool of buyers and dismissed by the showing Realtors. You must “think like a buyer”! Pricing is the hardest part of the marketing process these days because getting priced right is the key and will shorten market time and could ultimately result in more money in your pocket. I have felt a little momentum building again in the marketplace, so sellers have to decide how they want to be positioned in the marketplace!

Forbes Magazine is famous for its lists. And, Portland is always making one list or another. We recently made #16 on “The Best Places to be Single” . Also, #74 for “Best Bang for the Buck” .  And, finally #19 as “Best Places for Business and Careers” due to projected economic growth. Forbes.com analyzed the most recent Case-Shiller report to determine the best and worst housing markets in the nation. Forbes also analyzed monthly declines and year-over-year declines in home prices to determine where prices were falling fastest and where those drops were picking up momentum. Portland ranked fourth best in their study.

By the end of the month you will be able to enjoy my newly updated web site! It will definitely continue to offer the great “search properties” function and daily e-mailing of new property information. It will still include my blog and my Resource Guide as well as other links to valuable information and resources. But, it will have a new look and feel and the goal is to be more search-engine friendly so my listings can be more easily found on the web. Check it out…before and after!!

As always, your business and referrals are appreciated ….jj

I get this particular question asked a lot:  “when will things (in the Portland Oregon real estate market) get back to normal?”.  I have this theory that there will be a “new normal”…maybe, “next to normal”.  What will that be?  Again, I’ve temporarily misplaced my crystal ball but I believe it won’t be what we have known.  It will be a new market, less frenzied, more studied and tentative for “awhile”!   Okay, so what exactly is “awhile”…I dunno!  I do think our progression out of this hole will take some time.  I am looking to purchase another modest investment property, but if I had “tons o’ cash”, I’d be grabbing up more real estate deals right now (only because of diminished pricing and low interest rates).  But, that’s because people will always need a place to live, so someone has to provide that (especially if buying has slowed)!  And, as I recently wrote:  I love real estate!

April 1st was our annual Portland Oregon “Tech Fair” which showcases all that’s new and wonderful in the world of real estate marketing (and, hopefully) selling properties! All the latest in tech gadgets, websites, mobile marketing, mortgages and more! I lusted after a Dell “tablet” laptop that would allow signing and sending of documents, such as real estate sale agreements, on the spot.  And, loved the new large placards w/photos and information to replace and/or supplement paper flyers with a “scan-able” icon that Smart Phones can scan and read on their screens as buyers drive neighborhoods (saving paper, no more “running out of flyers” in your flyer box on real estate signs).  

A highlight (for me) was the presentation by John Mitchell, Economist (Mitchell is the principal of M & H Economic Consultants of Portland. He is a past chairman of the Oregon Council of Economic Advisors and former chief economist of U.S. Bancorp). I was always try to attend his presentations. Basically, no dramatically “breaking” news!!  I think we all recognize this is the most serious down cycle in 80 years with many major institutions no longer with us. More than 8 million jobs are gone. Nationwide, almost one quarter of people with mortgages owe more than the home is worth. For most adults, this is their first serious recession. As we know, the consumer price index fell in 2009 (the first time in 50 years). Portland has not fared that well (but, we’re NOT Las Vegas or Miami….is that “misery loves company”???). But, basically, our world has changed (I recently spouted a bit of rhetoric about how we might embrace “less is more” ). We also have a new medical system being implemented (and whether you agree, disagree or you’re undecided, there is a change a-coming). The government IS the mortgage market through “Fannie Mae”, “Freddie Mac” and “FHA”. We have a declining home ownership (more of a reason to invest in rental properties???). And, we have some “lingering leftovers” with the commercial real estate market and further foreclosures. 

John Mitchell, Economist

Ok, so all this sounds pretty dire!  Mitchell, however, believes the “worst is over” and “we are experiencing the end of the recession and the start of the recovery”.  He believes we will look back and see mid 2009 as the end of the recession.  Now some of the figures are a bit deceiving as the 4rth quarter of 2009 saw a lot of stimulus feeding the spending, such as “Cash for Clunkers” and the “1st-Time Home Buyer Tax Credit”.  All the same, he agrees with other economists that we will see more sectors with increases as well as increases in employment….slowly, slowly!!!  (He was waiting to see this morning’s good news: U.S. economy added 162,000 jobs in March, unemployment rate held steady at 9.7%). Home prices are no longer in a “free-fall mode” and there is some stabilization.  He predicts by the end of the year we will start to see a slow rise in interest rates.  The real question there is now that the Federal Reserve is no longer buying Mortgage-Backed-Securities (MBS) will private investors step in and buy?  The new Case-Schiller Index shows that Portland was down January 2010 (over January 2009) by 4.2% year-0ver-year.  So, nationwide and in Oregon, the magnitude of declines is diminishing.  The biggest obstacle is creation of jobs and our present unemployment.  IF we generate 2 million jobs a year (and will we??), it will take 4-5 years to recoup the present lost jobs.  He compared the shape of the recovery as a “Nike swoosh”:  a high, followed by a large dip followed by a slow trail.                                                                           

NIKE "swoosh" logo

Ted C. Jones, Chief Economist for Stewart Title

•   ”and, I think it’s gonna be alright,
• yes, the worst is over now.
• The morning sun is shining like a red rubber ball”. 

The Cyrkle/1966  

  Ted C. Jones, Ph.D.
Senior Vice President-Chief Economist, Stewart Title Guaranty Company
Director of Investor Relations, Stewart Information Services Corporation NYSE-STC  gave a robust presentation today, Thursday February 25th, 2010 at the Columbia Yacht Club to a room full of Real Estate Brokers, Mortgage Brokers and Title reps hungry for information and tidbits of foresight on economic predictions for Portland, Oregon.  There were no “defining moments” or “jarring revelations” at this seminar, but lots of good facts, figures, opinions and observations!  His real estate and economic predictions (which he reminded us were just about “spot on” last year, except concerning interest rates) simply concurred with a lot of other reading and presentations I have attended.  However, he made the material interesting, palatable and interspersed what he called “Ted’s Solutions” to a myriad of problems.  You don’t have to agree with everything but he certainly backed up his opinions and prophecies with a lot of graphs and historical data.   

• Wall Street:  liquidity and Washington realizing that they can’t contol
• Jobs:  he feels the stimulus is not working
• Time-Bomb loans:  now concerned about commercial
• Terrorists attacks
• Pandemic:  like Bird Flu
• Inflation and cap rates going up
• Tax-cuts
• Energy:  US imports 63% of oil
• All the band-aid fixes for real estate, autos, credit cards and banks

Just as a regular citizen trying to reign in a budget and make their finances work, the US must start with decreased spending.  He definitely believes (as do most in the industry) that interest rates are artificially low and will definitely begin to creep up.  He believes we will not see interest rates as low as we are now experiencing in our lifetime again (I guess it matters how old you are).  Those buyers with good credit or cash, a bit of patience and some luck will make some great buys in the existing market.  And, he feels our next crisis will be in the commercial real estate market.  “History doesn’t repeat itself, but it certainly does rhyme!”….Mark Twain.

This has been a global recession.  For the US, imports and exports slowed considerably and our CPI (consumer price index) has decreased in ‘09 for the first time since 1955!  Consumers, businesses and governments have restrained spending.  Now there are inflation>deflation>inflation worries.  But, Mr. P did not believe that inflation was a big worry for 2010 and 2011.  Fiscal stimulus and lower energy prices have helped to spark the recovery and there’s still a lot of stimulus money to spend.  Labor has to get higher wages to pay for inflationary prices.

Despite the fact that this morning there were positive numbers for unemployment (10%, down form 10.2%), Mr. P feels that the unemployment rate is a lagging indicator of economic condition.  He expects that there could be more job losses in early 2010.  We should, he believes, pay more attention to job creation!  How many jobs are actually being created?  In the 2001 recession, it took four years for jobs to completely recover.  It may take 5-6 years to get back to our former job rate this time around.

The US dollar recovered briefly but has dropped again.  Mr. P feels that the value of the dollar is a relative value against other currencies….that’s all!  The dollar value is going down to where it used to be and where he believes it should be, at a more natural level.

What happens after we spend all the stimulus money?  What’s behind the stimulus to continue the recovery?  Labor markets may remain weak because businesses will be conservative and reluctant to re-hire until they’re sure this recovery “has legs”.  He compares our recovery to the constellation “Cassiopeia” (the shape of a soft “W”) and there could be a recovery with a slight dip.  In Oregon we hit 12% unemployment in March of ‘09 and down to 11.3% in October ‘09.  For some perspective, we were at 5% in April of ‘07!!  Some of our jobs are gone for good, others are simply in hibernation.  And, keep in mind that unemployment figures do not include those that have quit looking or those that have taken part-time work until they find full-time employment.

Mr. P believes we are at or very close to the bottom and predicts a slow housing recovery with a possible 35% increase in housing starts by between 2013 and 2015.  Metro predicts that our population will grow by one million people in the next 10 years.  The Housing Price Index “Rate of Decline” slowed and California is starting to gain ground.

Leading indicators for Oregon show that the economy has turned, but it will be a slow growth!  We will see more signs of this recovery in the 2nd half of 2010 and in 2011.  Mr. P predicts some positive job growth for Oregon in the 2nd half of 2010 but it could be 2011 before we really start to show positive numbers.  Commercial real estate will remain weak till 2012 with a mild recovery that is absolutely dependent on the credit markets.  Private investor groups will continue to buy up property since credit markets are tight.

Risks to this forecast:

• Credit Markets: There must be credit availability to the credit worthy.
• H1N1 Virus:  He does not see this as a risk as big as the media plays it.
• Export Markets:  Must stay viable.
• Geopolitical:  Some unseen geographical/political event.

**Referencing the book by Richard Forina

Yesterday was our annual Realtor Trade Fair, with a full day of presentations, classes and new ideas from vendors.  I attended the morning session with Economist John Mitchell (I always enjoy his perspective).  I also visited all the booths at the fair and received clarification on some great new technology ideas and will be merging my office real estate web site, my excellent buyer search site and my blog into one web presence and I’m excited about that!!  These are some of the main points taken from Mr. Mitchell’s evaluation, assessment and predictions for our local, national & global economy!!

1)       Our real GDP (gross domestic productions) peaked December 2007 and we’ve been in a recession ever since and this is a global recession.

2)      We have endured 32 recessions in our economic history and all have ended.

3)      The Great Depression lasted 43 months.  In 1980, we were in recession for 16 months, the last two recessions were shorter in 1990 and 2001 (8 months).  We are in the 15^th month of this current recession.

4)      Housing is at the core of this recession.  The housing market peaked in 2005 with 2.3 million units.  We are now building 500,000 units (down 51%).  Mr. Mitchell believes we are “at or near the bottom”.  He mused that we were “bouncing along the bottom”.

5)      The housing “bubble” follows a long tradition of other “favorites” such as tulip bulbs, South Sea shares, Railroads/canals and internet stocks.

6)      The housing decline was precipitated by loose loan underwriting, regulatory failures and a colossal failure of risk management with all parties sub-dividing the transaction and no one taking ultimate responsibility, tax laws such as equity lines of credit encouraging people to take the equity from their homes and, of course, some speculation and fraud.

7)      The local change in our local real estate market really began in the Spring of 2005.

      “Housing Affordability” will cause the end of the decline.  (Actually we are already seeing that finding the “sweet spot” in pricing is what currently will move a home).

9)      We learned that “leverage” works both ways.

10)  Movement in the credit markets will be paramount to real estate moving.

11)  Case-Shiller reports Portland housing down an average of -13.1%.

12)  The prospects for GDP growth in 2009 -1.5 to -2.5% with 0 to -1% inflation and no price pressure.  The Fed has provided liquidity with Fed Funds Target at 0-.25%.

13)  What must happen to end the downturn?  Inventories have to be reduced, capital markets function again, people start saving again to strengthen balance sheets and, ultimately, confidence is restored.

14)  Mr. Mitchell believes the Stimulus Package is thinking back to Econ 101, right out of “The General Theory of Employment, Interest and Money” (1936) with government spending to offset personal “re-trenching”.  But, remember:  stimulus=borrowing and borrowing will eventually put upward pressure on interest rates.

15)  “Let’s resist the temptation to confuse what we hope or fear with what we know”.

JUST ONE REALTORS VIEW!!

The housing market will be a key component to the economic recovery!  Credit has to be available and buyers need initiative to get into the marketplace.  Of course, there are several reasons to be a buyer right now:

·         Lowest Interest rates in Years…hovering + or – 5%

·         Increased Inventory

·         Negotiation on Inventory

·         First –Time Buyer Credit:  A tax credit lowers your tax bill dollar for dollar. A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you’re in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you might be.

What does the new Stimulus Bill provide for buyers?

• Credit has been increased: the original credit was limited to $7500 or 10% of the home’s purchase price; this has been upped to $8000 or 10%. 
• Credit no longer requires repayment: a significant criticism of the original 2008 credit was its repayment requirement, as those taking the credit would be required to repay it over 15 years. That has been addressed in the new law so that repayment is now required unless the home is sold within the first 3 years. 
• Credit is now allowable for buyers using “revenue bond” funded mortgages: many state and local entities offer first-time homebuyer mortgage programs that sometimes offer terms more favorable than government or conventional mortgages. Previously those buyers had been prohibited from accepting the credit, however they may now claim it.
• Time to purchase extended: the original credit was due to expire June 30th; the revision extends that to November 30^th, 2009
• Credit may be retroactively claimed: the prior credit offered the option to claim as if the purchase took place 12/31/2008 even if it closed in the early parts of 2009. The final bill’s language appears to replace this paragraph with something unrelated, which may mean buyers will need to wait until 2010 to claim the credit (either check with an accountant or wait for further updates, it does appear that either way you get to claim the credit….and a credit is always a good thing).