January 2012 Portland Metro Real Estate Update!!!

The “word” for the last several months of market stats has been “improvement”.  And, last month was no different!!  Closed sales saw a 10.3% increase and pending sales saw a growth of 19.3%.  And, get this!!!  We are now at 5.3 months of inventory (there are currently 8,612 active residential listings).  In the last 3 years we have been at a high of 19.2 months of inventory and this is the lowest in that time period!!  The average sale price dropped 6.7% compared to 2010.  So, in some areas pricing is still declining, in other areas we are seeing some stabilization.

BUYERS:  What does this mean for buyers?  I still see a slow recovery, so I don’t believe that interest rates or pricing will improve so suddenly that you need to feel an undue sense of urgency.  That being said, a declining market is going down until it isn’t!  And, interest rates are low until they’re not!  So, not being a gambler I would begin whatever steps you might need to feel comfortable making that purchase.

SELLERS:  What does this mean for sellers?  Well, it at least gives us hope that our market might be moving towards more balance.  When is the market going to improve?  Probably not any time soon, but we are making some progress.  I do believe that we still have a lot of “shadow inventory” of short-sales and foreclosures that haven’t surfaced.  And, pricing is still “King”.  Stay tuned!

INVESTORS:  What does this mean for investors?  It’s a very solid investor market as rents have been rising due to a shortage of rental properties and more renters entering the market that have either lost their home or decided they can’t buy.  The vacancy rates are low.  Well priced, well located smaller plexes sell quickly so investors must be prepared with mortgage pre-approvals or cash.  But, they must also do their homework and make sure the property will cash flow (how much is based on your developed strategy).  Then you rely on the tenant paying down the mortgage every month to increase ROI (return on investment).

What do you predict will happen in the real estate market in 2012?  It’s been a crazy 3 to 4 years in both our local and national real estate markets.  If you agree with the statistic that March 2007 was the absolute pinnacle of the real estate frenzy, then we are coming up on 5 years of instability and various levels of distress!  I know we definitely started to see some signs in 2007 (and, even earlier) and in 2008 Portland began to experience the adjustment in earnest, albeit slowly! Portland was a little “late to the party” as compared to some areas of the country.  And, we may be out-staying our welcome?

We’ve had these real estate “mood-swings” before in my illustrious 25+ year career, but the difference this time was the “depth of the deceit”; the dark under-belly of a world most of us know nothing about.  The “behind-the-scenes” marketplace wheeling and dealing which ultimately undermined our economy.

But, what’s done is done!  Now we have to slowly and surely re-align our real estate expectations to our new normal.  I do believe that we still have a considerable reserve of foreclosures and short-sales which will continue to plague our local market.  Jobs are an integral part of our recovery and with jobs comes confidence.  The jobs numbers of late are a little better but hard to correctly gauge.  Consumer confidence does appear to be on the rise.  We have the lowest inventory of homes for sale in the Portland area in three years!  And, the total “days on market” (DOM), or the time it takes to sell the average home, has decreased.  I think we will continue to deplete inventory in 2012…again…slowly.  Should this sales trend continue, expect prices to level off soon and they could potentially resume their climb from there.  However, I don’t really expect any real noticeable appreciation to begin in 2012.

The first of the baby boomers will begin turning 65.  Woo hoo (or not)!  So, that could precipitate some housing changes.  I think the uber-low mortgage rates will stay with us and attract 1st time buyers who have the credit scores and means for a down-payment. Who knows what the 2012 elections will bring but it usually does NOT mean a lot of drastic changes in policy.  It will continue to be a cautious market!!  I am starting to see a little new construction again.  I believe that tight money will continue to be a stumbling block but we are already seeing a bit of loosening of the mortgage-lending purse strings.  However, my recent experiences will make me predict that the appraisal process will be behind the rest of the mortgage industry.  The appraisal industry received a huge brunt of blame for some of our recent trials and tribulations.  The sins of the few were absolutely visited on the many in that situation!!!

I definitely do NOT have a crystal ball but I do have confidence that the only consistency in life IS change.  However, the one thing I love about owning a primary residence or an investment property is that, no matter what, a certain amount of your investment (principal) goes towards your overall wealth development (whether there’s appreciation or not)!  In a primary residence (your home), you pay a certain amount towards the principal in the mortgage (the rest goes to interest; a tax write-off) every month.  In a cash-flowing investment property, your tenants pay for your mortgage by buying down the principal (you still get the interest write-off plus depreciation plus maintenance=nice tax advantages) .

The Wall St Journal wrote in an article yesterday:  ”The U.S. Housing bust has made the single family home an extremely attractive investment. House prices have fallen sharply and 30-year mortgages are available for people with good credit at rates below 4%. Housing affordability has never been better”.  I’d love to hear other thoughts and opinions.

There are lots holiday distractions.  It begins with Thanksgiving, includes whatever religious or secular celebrations you embrace and ends with ringing in a New Year!  It’s a terrifically exciting time of year with family, friends, holiday lights, shopping, parties, perhaps a bit too much eating and, for some, occasional alcohol consumption (or over-indulgence, as the case may be).  So, why would someone continue to market their home and try to sell during this season?  And, why would someone leave the mall to pursue a house hunt at this time of year?   You’ve got questions, I’ve got theories!

For the Seller:  Nothing is quite as enchanting as a home that is “lightly” decorated for the holidays.  It exudes warmth & welcome and could trigger “home n’ hearth” memories for the buyer.  There is less competition, as a lot home-sellers opt to remove their home from the marketplace during the holidays.  The buyers that are actually looking are usually serious, otherwise they’d be at the mall or elsewhere.

For the Buyer:  Normally consumers are vigilant about buying opportunities like Black Friday, Small Business Saturday and Cyber Monday along with sales, coupons and rebates.  Certainly, volumes have been written about the record low mortgage rates and that home prices have adjusted considerably lower in the last four years.  A more subtle indication of a home buying bargain is that statistics indicate that year-after-year, the average home prices fall in the fourth quarter.  The holidays beginning with Thanksgiving, winter weather and the distractions of gift purchases certainly contribute to lower home sales.  The smart buyer can take advantage of the end of the year to get their best possible deal on a home purchase.  The buyers willing to buck the trend could easily benefit from lower prices and less competition from other buyers.

NOVEMBER PORTLAND METRO REAL ESTATE UPDATE!

Suddenly, we appear to be on the brink of wintertime, but what a truly glorious autumn we’ve had here in Portland!!!  Our summer home buying season has passed, but as we approach the holidays our real estate market still has some “teeth”.  As was the case last month, local sales activity in the Portland Metro area showed improvements in closed and pending sale this October 2011 compared with October of last year.  Closed sales were up 14.1% and pending sales up 15.1% and we now have 6.8 months of inventory (compared to 10.7 months of inventory this time last year).   Part of this sales activity is directly related to pricing.  Factoring in sales of foreclosed and other distressed properties, Portland home prices fell 4.4% in September compared to the prior year.  According to CoreLogic data, the five states with the highest price appreciation were West Virginia (up 13.2%), Maine (up 5.8%), Wyoming (up 4.8%), Montana (up 4.4%) and Kansas (up 3.9%).  The states with the greatest decline were Nevada (down 9.6%), Arizona (down 7.7%), Minnesota (down 5.9%), Michigan (down 4.8%) and Delaware (down 3.7%)!

SELLERS:  What does this mean for sellers?  It’s a very emotional market.  It’s still a buyer’s market, unless you’ve priced your home at a price that buyers consider a really good deal (at which time there are often multiple offer situations).  The first question you need to ask yourself is: Are you emotionally prepared to sell? Selling is a challenge for most sellers, although some markets are better than others. Unless you bought seven to 10 years ago (there are exceptions) and preserved your equity, you may not be able to sell for enough to pay off the mortgages secured against the property and the other costs of selling.  And, what about selling at this time of year?  Well, there’s less competition and if the rest of this calendar year proves to continue with the current level of activity (as it did last year), it could be a good time to be on the market!

BUYERS:  What does this mean for buyers?  At the risk of sounding like a broken record, today’s low, low interest rates and low, low pricing make for one of the best buying opportunities in 40 years!!  The average rate of 30, 20 and 15 year fixed mortgages have fallen to the lowest on record dating back to 1971!!  Recent projections call for another five or so years of bouncing along close to the bottom of this market cycle. Many experts believe that the big price declines are behind us.  I’m not going to sugar-coat it, getting a mortgage will make you close to crazy but you know what they say about “no pain..no gain”!!  For as little as 3.5% down, you could get into a house and quit buying someone else a piece of real estate!

INVESTORS:  What does this mean for investors?  In a rather lack-luster (albeit slowly improving) economy, investment real estate is a bright spot for landlords and investors. Rents are up, vacancies are down and potential tenants are plentiful as a result of the foreclosure crisis. In most parts of the Portland area, the vacancy rate is below 4 percent. Only two markets, east Vancouver and Oregon City, are at or above the 5 percent that is considered balanced, and most close-in neighborhoods of Portland are closer to 2.5 percent according to the Metro Multifamily Housing Association.

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OCTOBER 2011 PORTLAND METRO REAL ESTATE UPDATE!

Happy Halloween!!  I realize I’m a little late with this October edition of my real estate update, but I’ve been on my excellent “Aussie-Kiwi” vacation visiting my sister in Australia/New Zealand for three weeks and I’m still digging out from the pile of paper, files and work as I try to catch up.  I’m not sure I can give much insight into the market for this month (as I missed most of it).  I can share a few statistics and items of interest.  I can generally assess that “volume is up and prices are down” for real estate sales!  That, of course, makes sense.  As prices drop, more buyers are willing to venture back into the real estate market.  Inventory has decreased but the market activity is also decreasing in the condo markets but overall inventory lightening and market action trending up in single family market.  However, we were up to 6.7 months of inventory for September (from 6.2 months in August).  But, that’s typical for the time of year.  Sales activity in the Portland Metro area showed improvement in closed and pending sales this September compared with September 2010 and the inventory level remained much lower than the same month in 2010 (10.5 months).

BUYERS:  As a buyer, you are often seeking the lowest interest rate.  And current rates are excellent, hovering at around 4%, give or take!!  However, interest rates are not your only concern.  You must also consider and compare the “annual percentage rate” (APR).  APR is a federal calculation to help consumers determine which loan is best.  It adds all the costs of getting the loan to determine your true overall charges.  If your APR is more than 2/10 of a percentage point more than the comparables that equals measurably higher closing costs!  Ask for a “Good Faith Summary of Costs” from the lenders you are interviewing so you can compare “apples to apples”!  Also, start thinking ahead as a purchaser to when you might be a seller.  There are some benefits to the future assume-ability of FHA financing. Read more!  And, get pre-approved!  Here’s why….

SELLERS:  You may have heard rumblings in the news about the “new and improved” HARP (Home Affordable Refinance Program)!  The old program did not really work.  This one could be a little different as the key is getting the banks to bite!!  The new version will allow certain homeowners (underwater, yet current on their payments) to refinance up to 125% LTV (loan-to-value) if their mortgage originated prior to June 1^st, 2009.  The benefit for banks is that the banks will not have to re-purchase bad loans.  The new HARP would eliminate LTV, eliminate appraisals and reduce documentation.  This is a very simplified explanation and I’m sure more information will surface.  As far as selling property, it’s still pricing, pricing, pricing!!!

INVESTORS:  What a time to be a real estate investor!!  I know…I know coming up with the down-payment and getting the financing is a challenge!!!  I had to beg, borrow and (almost) steal to close my last purchase.  There are investor loans out there for 10% down, although the best interest rates are with 20+% down.  But, you will never know unless you visit a mortgage broker and “test the waters”.  There are cash-flowing properties out there!  It’s just something to consider to add to your overall financial strategy.  And, I’ve definitely learned some lessons managing my investment properties that I would like to share!

August 2011 Portland Metro Real Estate Update!

“Summertime and the livin’ is easy”!  Or, perhaps it just feels “easier”.  After all, the summer season took it’s sweet time getting to the Portland area so we deserve whatever “easiness” we can scrounge!  Otherwise, if you’re suffering from a bit of motion sickness, it’s probably the wild ride we experienced with our stock market!  So, how’s the real estate market, you ask?  The end of 2010 and the first part of 2011 definitely saw an upswing in real estate activity (not prices, just activity) in the greater Portland Metro!  I’m hoping this last round of erratic economic news doesn’t dampen the level of enthusiasm.  Closed and pending sales were both up in July 2011 compared with July 2010.  Also, the inventory level in July 2011 was down 3.8 months compared with the same month a year ago.  However, inventory is now at 7 months, up from 6 months of inventory last month!  Both the average sales price (up 3%) and the median sales price (up 1.9%) increased from last month.  Like I said:  erratic!!  I believe the increase in activity is directly related to the diminished pricing and the low interest rates!!  I’m seeing/hearing about more cash offers, as people feel that “parking” their cash reserves in real estate could be a good alternative.

BUYERS:  So, what does this mean for buyers?  Interest rates are low, low, low!!  They’ve been hovering in the high 3’s/low 4’s.  There are a myriad of mortgage calculators available on the web (one at www.fabulousportland.com located in the right hand navigation bar).  So, just play with the numbers.  If you want to make a housing change, pick an arbitrary loan amount and see what the difference is in your mortgage payment at a 4%, 5% or 6% interest rate.  Now see the difference in payments over 30 years!  The Federal Reserve is promising to keep interest rates low for awhile in hopes of spurring our economy, but I just wouldn’t want to miss these rates.  It would definitely be one of those “coulda, shoulda, woulda” moments at a later date.  Just don’t overbuy for your financial situation.  Look at your long-term goals and consider real estate as a long-term investment.

SELLERS:  So, what does this mean for sellers?  I sound like a broken record, but buyers are looking for competitive pricing!  So, it’s all about pricing, pricing, pricing!  If priced aggressively, properties are moving and I’m even seeing multiple offers!  The condition of the property will also affect how long it takes to sell.  Sharp, turn-key properties that are priced correctly move relatively quickly.  “Fixers” or cosmetically challenged properties are harder to price and, thus, will take longer.  The average total market time is 132 DOM (days on market).  Total market time is the number of days from when a property is listed to when an offer is accepted on that same property.  So, 132 DOM shows you there are still lots of overpriced properties that are “chasing the market down” in their asking price.

INVESTORS:  So, what does this mean for investors?  A recent report that just came out says that now it is actually cheaper to buy than rent.  This hasn’t been the case for many years.  And at the same time, the demand for rentals has greatly increased due to less buyers in the market.  My personal experience with my rentals is that Portland area rents are increasing.  So if you already own a home, this may be an amazing time to buy rental property and be able to cash-flow them.  You can get into an investment property for 20% down.  Real estate investments could help off-set the wild roller coaster ride we’ve experienced in the stock & bond markets!

OVERALL:  If you look at the numbers and factor in the economic situation of the world, you have to ask how long will it take to get out of this real estate slump?  We may have to consider this the “new normal”.  We currently have 7 months of local inventory (our 2011 high was 11.3 months) plus an unknown amount of “shadow inventory” of foreclosures from the banks (they are slowly foreclosing and releasing this inventory so as not to have too many foreclosures on their books and not saturate the markets), not to mention more short-sales.  From our local statistics and the national and international economic indicators, I don’t see any dramatic upswing in values ANY time soon and believe it will at least 5 more years with possibly more diminished pricing in some areas.  However, if a life change is desired and/or necessary…what you lose on the sale of a property should be gained on your purchase.  Sometimes you just have to move on……

It’s obviously going to be a Herculean task for Congress to balance the budget and reduce the deficit. It’s sort of like the country song lyric that goes “everyone wants to go to Heaven but nobody wants to go now.” It is estimated that the mortgage interest deduction cost the government $100 Billion last year which is why it is a target for cuts.

The Mortgage Interest Deduction has been part of Income Tax laws in this country since 1913. The United States of America is one of the few countries in the world that allows such a deduction. Our goverment has always supported homeownership as is evidenced in the different tax benefits it receives:

• Mortgage interest deduction up to $1,000,000 in acquisition debt on a principal residence and second home
• Deduction of interest on Home Equity debt of $100,000 over acquisition debt used for any purpose
• Capital gain exclusion on up to $500,000 for married couples filing jointly and $250,000 for single homeowners
• Favorable long-term capital gain rates if gain exceeds exclusion limits
• Property tax deduction

There is an interesting relationship between a good economy and a healthy housing market. Contrasted to profits from the stock market which tend to be plowed back into other investments, profits from home sales tend to be spent on consumer products that directly benefit the economy.

The National Association of REALTORS supports the MID (Mortgage Interest Deduction) and reports that one job is created for every two homes sold. It further states that $60,000 is pumped into the economy for each home sold and that homeownership accounts for over $2 Trillion of the U.S. gross domestic product.  Now, I can’t personally back up those numbers, but I do know that home owners contribute in taxes paid, consumer spending and consumer confidence!

American homeowers are currently paying 80-90% of all federal income tax collected. Some economists believe that a healthy housing market is a leading indicator for economic recovery and that tampering with a significant homeowner benefit like the mortgage interest deduction would hurt the economy!

I never liked roller coaster rides, even as a child! So, I find the current stock market VERY unsettling! The market is down xxx amount (I can’t keep up with it) in the last few days. I could take my savings out of the stock market and mutual funds and stick it in a sock drawer but I’m not sure that’s the answer either??? I’d probably inadvertently put my socks through the wash…and then what?

Preservation of capital is probably today’s most important investment consideration (especially for boomers nearing retirement) and making a profit would definitely be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing is an asset class to consider, in my humble opinion.

Real Estate has had a 30% to 40% price correction in the past four years, making the affordability factor very attractive. Mortgage rates are at near all-time low with 30 year loans available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.

Five year certificates of deposits earn a little over 2% but rental properties are yielding much more than that. Income properties are tangible assets that have benefitted dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties could provide some protection.

Investment properties offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on (hopefully/eventually) appreciating assets with tax advantages and reasonable control. Your tenants pay off the mortgage (principal, interest, taxes and insurance) while you enjoy whatever immediate cash flow is available.  Thus, even without appreciation you are gaining equity through principal reduction!

Financing investment properties is a bit more of a “song & dance” these days, but it can be done!  You can read some of my “tales of woe” from recent personal experience or fume with me on recent “highway robbery“!

I have a program developed by Hector Ariceago of First American Title that I have permission to share with interested investors, please e-mail me at jj@janeesejackson.com and I would be happy to send it to you.  It helps determine yield on potential investment properties.  I would be happy to sit down and brainstorm with you on a plan/strategy for including some investment real estate in your overall financial plan!

Builders often offer a variety of incentives such as upgrades, seller-paid closing costs, interest rate buy downs, washers, dryers, refrigerators or big screen TVs.  Interestingly, much of the resale market doesn’t employ many of these techniques. According to the latest NAR Home Buyers and Sellers Profile, 56% of sellers are not offering any incentives at all.  25% offer a home warranty which is valuable but at an average cost of less than $500, it probably doesn’t do much to make the difference in the decision to buy or not.

With the tougher mortgage conditions that exist today, buyers are more discerning and looking for their best opportunity. When homes are similar in size, condition, location and price, the home with the most attractive terms may sell first.  Just something else to consider (along with pricing correctly, of course!).