Another benefit to our current market.

The Oregonian ran an article last Sunday titled the “Real estate’s vocabulary expands: Defining Market Realities”.  For a complete review of this article go to:

http://www.oregonlive.com/realestate/oregonian/index.ssf?/base/homes_real_estate/1218227111271700.xml&coll=7#continue. Though the “vocabulary” today’s Buyers need to comprehend that the article refers too is valid.  What got my attention was in the middle of the story it refers to the fact that the terms of our industry are “intimidating” and “unfamiliar”.  Of course these terms can be.  If truth be known, these terms are “intimidating” and “unfamiliar” for some of our peers in the industry.  It states that,” Many of these professionals say they’re spending more and more time decoding unfamiliar terms and concepts for their clients.”  Is this a bad thing?  Isn’t that their job?

 

I think we can all agree that if the time these professionals are now spending with Buyers was spent over the past few years the mortgage crisis would not have ended up like it did.  Too many Real Estate professionals let Buyers get into mortgages and they did not understand the realities of the terms that they were accepting.  Buyers were so excited to be able to buy a home that if they were told they were approved for a loan they jumped on it.  With everyone so busy few took the time to explain to those Buyers what they were committing to.

 

I have been licensed as a Realtor here in the Portland metro area for over 22years, as well as building, developing and rehabbing over the years.  I thought that was our job as Real Estate professionals to “inform” and “educate” our clients to insure that they are making informed and educated decisions when buying and selling.  I expected it from the escrow officers and lenders that I worked with as well.  It appears to me that if this is what is now happing in the market place then this should only be taken as a good thing for the consumer. If things have slowed down enough that Brokers, Lenders and Escrow officers are actually servicing their clients like we used to, then once again the consumer benefits from market change.

 

With so many opportunities arising in our current market for the consumer like incredibly low rates, great selection of inventory and motivated Sellers this is just one more reason for taking advantage of this Real Estate market.

Was it worth the wait?

What I mentioned in the closing of last months entry was that, “Really the only thing that people should fear now is that if the market continues to improve, prices will strengthen and rates will go up.”  Well as of this week the long term 30year mortgage rate has increased to 6.77%.  This is a 1.52% increase from January.  I used an example in my April entry about an increase in rate, which at that time the increase in rate had cost a potential buyer $171 a month.  Today that would increase the monthly cost to a buyer an additional $264 for the same priced home.

 

This was illustrated brilliantly in a Time magazine article back in February of this year.  (for a full review of this article see the link,  http://www.time.com/time/magazine/article/0,9171,1713483,00.html . What is frustrating is that all the negative news has feared potential buyers into inaction and what was illustrated has come to pass.  The author showed that an increase in interest rate had a greater negative impact than a loss in value.  So, unlike the author’s illustration here in Portland where prices are still above where they were in January of this year, the interest rate increase has a much greater negative impact.  In fact, the Fed has recently stated that there will be no more rate drops this year and with inflation pressures they are certain to increase rates next year. 

 

While our market continues to improve the interest rate increase can have a significant impact on a buyers monthly affordability.  However, we must still recognize that even interest rates in the 6% or 7% range are still extremely good.  Considering historically where they have been.  When I first got into Real Estate back in 1986 as a sales agent we used to say that any rate in the “single digits” was a good rate.  I still believe this, but we have been spoiled by the rates in the high 4% and 5% range.

 

Bottom line here is that inventories are dropping for new and resale homes, rates are slowly increasing and we are seeing the signs that we are slowly crawling out of the bottom of this market.  Noted in the latest S&P/ Case-Schiller report which lists Portland as one of 7 metro areas in their 20 metro area composite that are improving as of their May report.  There are those that say there is another year of this, but the majority of those that I talk to at all levels of this industry feel that this buying opportunity is coming to a close and by February of next year we will be back to a normalized Portland market.  Nothing like we saw in 2005 & 2006.  Those days are gone for a while.  Maybe 10 years or so, but if we are able to shed 2 - 3 more months of inventory we will be back to what we are accustomed to with single digit appreciation and manageable inventory levels.

 

I also feel that the window is closing and too many people that have stared great opportunities in the face are merely watching them go by because of a fear of the “what if”.  “What if prices drop after we buy?”  Well, as I have stated many times before you shouldn’t be buying as a short term investment right now.  Real Estate is and has been historically a solid long term investment.  “What if rates drop after we buy?”  IF they drop it will be so insignificant that it isn’t worth worrying about.  It is a greater concern of how much higher they are going to go.  

 

So, by the time these people feel it is safe to get back in the water, the market will have improved, tightened up and it will be to late to take advantage of what is before them right now.  I still see the buying and investing opportunity that exists right now as possibly a generational opportunity that we may never see again.

Is the glass half full or half empty?

After reading some of the many negative articles that have been written since my last entry, it occurred to me that we quote from some of the same statistics.  However, the naysayers quote only what is negative, builders and home owners having a tough time and how the market compares to previous markets.  Yet, if any of us in the industry, and now more outside of the industry, spot light improvements and opportunities in the market we are labeled as propagandists.

 

This isn’t to say that we shouldn’t keep in perspective past markets, but to inform based only on how the current market compares to the past without including current performance is, I feel, disingenuous.

 

Would you even listen to the news if it only mentioned how the stories statistics related to the year before?  If the weather broadcast for the week only stated that the temperature would be 5 degrees warmer than last year, but didn’t tell you what the temperature would be for the week.  How about the news caster stating that “Crime is up 6% over last year”.  With no mention that actually all crime was down, except auto thefts.  Would this be acceptable as a complete story?  Would you even listen after awhile when you began to realize the missing information in the stories?  So, why listen to those who say that the Portland market is declining.  When in fact, out of the 12 regions of the Portland Metro area only 2 are showing signs of depreciation.  Compared to last year yes, the median sales price for May is down 3.2% however, it is up from April ’08 4.5%.

 

Acknowledgement of the opportunities within the market isn’t a denial of the current market slump.  Of course, the market is down from last year.  No one argues that.  Sales are off by over 30%.  It is also up month over month since December.  May’s sales in the Portland Metro area where up 17.8% over April.  I am criticized because this is a seasonal trend and so, this fact is irrelevant.  However, if you listen to those who are telling only the negative about the market.  How would you even know this is happening?  Seasonal or not?  With all this negative press, unless you are in the industry you would never realize this. The facts are that rates are at historic lows again and prices have corrected back to an affordable level.  To say that the market is good and it is a good time to buy again does not ignore what the current conditions are.  It clearly informs those in or considering getting in the market that conditions to buy are great.  You hear that it is difficult to get financing.  Yes, it is compared to the last couple of years, but recent improvements from Fannie Mae and FHA allow home buyers to still get 97% financing and there are even still products for 100% and stated income financing.  However, all you tend to hear is how difficult is to get financing.  How does that statement and the like inform or help anyone?  Builders are selling homes at or below cost to move them.  Isn’t that an opportunity that is worth looking into if a buyer is considering a home?

 

You decide who is churning out propaganda and who isn’t.  There will always be those who view the glass half empty and those who view it half full.  Obviously, I see it half full.  The reality is, we all have to adjust to this market and some of us are having a tough time.  No doubt, there will be more bad news which will be exploited by those that enjoy doing so.  However, to just resign to the fact that things are bad and ignore all that is positive, is foolish.  Moreover, to try and convince people that they shouldn’t invest without full disclosure of all the market offers is disingenuous to say the least.  I would rather inform people of the opportunities they can take advantage of than fear people into inaction and miss out on opportunities.   Really the only thing that people should fear now is that if the market continues to improve prices will strengthen and rates will go up. 

 

Those that do ignore the advice of the naysayers will reap the rewards of this market in the yeas to come.  I do feel that the market has made it’s correction and since real estate historically doubles about every 10 years, I feel this is the beginning of the next 10 years.

It only gets better from here

Another great article that vindicates a lot of what many of us have been saying was written recently.  The Wall Street Journal published an article written by Cyril Moulle-Berteaux on the 6^th of May.  This article nails it!

 

It states that April will show that it was the bottom of the housing decline.  We feel that in our sales offices and what we hear amongst our peers.  Buyers are starting to feel a bit more confident and are starting to revisit the housing market.  More positive news like this Wall Street Journal article and our local new channel 6 had a great story about the Portland housing market last week all help rebuild the confidence that has been lacking in our market place.  We still hear plenty of negative press, but we will always hear that.  When the market turns around then it will be bad press about how unaffordable it is.  Most of the naysayers won’t find anything positive no matter what direction the market goes.  However, for the rest of us it is improving.  Ever it be so slowly, it is improving.

 

One theory that I have heard before and was addressed very well in this article is the belief that prices must drop another 30% before we get back with where they’ve been historically.  However, the article reads; 

 

“This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

 

“Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.”

 

The national trends that are mentioned in this article are being realized here in Portland as well. The article addresses the fact that home inventories have been falling over the past months.  Here in Portland, RMLS reported that we had 12.8 months of unsold inventory in January.  By March we were down to 9.1.  We have seen an increase back to 10.1 in April however; an increase in inventories is historically in line with this time of year.  We have seen a 6.8% increase in pending sales from March to April.  Of course, all that will be referenced by the naysayers in their blogs and stories is that sales are down from last year with no mention of the increase in sales month to month since December of last year.

 

The National Association of Realtors has also just reported that, “buying a house in the Portland metro area is once again affordable for a family earning the median income.”  All the more reason to get into this market now and stop listening to those who continue to say the sky is falling in spite of the facts that things are improving.

 

 

A link to the entire WSJ article is provided below:

http://online.wsj.com/article/SB121003604494869449.html

Real Estate Market Ebb & Flow

Real Estate values have traditionally doubled every 10 years or so.  This has been the case for many decades.  But with every change in the market, there are those who say the end is near. As I often tell people, get your eyes off your feet and look ahead down the road. Real Estate has and always will be a long-term investment.  If you were looking to buy and sell in 6 months, I would advise you to stay put.  However, that is not why you buy. Whatever happens in the next few months should not dictate a person’s decision regarding their next home. 

 

Three weeks ago The National Association of Realtors stated that they expect the national market will decline by an estimated 1.2% in 2008.  1.2%!  If this is not defining the bottom of the market or the near bottom I don’t what is.  Bear in mind, this is averaging the top metro areas like Charlotte, North Carolina and Portland, Oregon with the likes of Miami, Florida, Las Vegas, Nevada and Detroit, Michigan.   So, if the worst they are predicting is 1.2% percent, I think that’s a pretty good indicator of how these top markets are going to perform this year.

 

On a $300,000 sales price today, 1.2% is only a “possible” decline in value of $3600!  Is it really worth missing out on the buying opportunities today over $3600?  Not to mention that the interest rates have increased 1 full percent since the 3^rd week of January, this year, to about 6.25%.  That alone should be getting the attention of prospective buyers.  That same house with a 90% LTV (Loan To Value) mortgage at today’s 6.25% interest rate would have a Principal & Interest (PI) payment of $1662.  If it were purchased back in January at 5.25% with the same purchase price and loan amount, the PI payment would be about $1491.  So, not buying that home over just the last 10 weeks would have cost you $171 a month or $2,052 a year.  I don’t need to do the exercise of what the same house would cost with a 1.2% drop in value and another .05% increase in rate.  I think you get the picture. The point is that if you wait to feel out this market, home prices could steady and sellers might become less willing to negotiate. 

 

Portland Monthly Magazine just published a great story about the local real estate market that vindicated a lot of what I’ve been saying.  They stated that, “Portland hasn’t seen a decline in real estate values since the mid-80’s and our average annual increase is typically under 10 percent.  As a result, even if our market does stumble, we won’t have nearly as far to fall as a place like California, where double-digit annual price increases have been replaced by similar decreases.”

 

Suffice it to say, our local market is fairly steady and any dips are far below those of the national average. Not to mention, it’s become a buyer’s market once again, which, if you looked at a graph, would be right in line with how the market works. If you’re looking at real estate as a long-term investment, don’t delay. There are excellent opportunities out there right now.

Finally a more optimistic take on Portland’s housing market!

How refreshing to finally read a feature article that accurately portrays Portland’s position in the current housing market. Portland Monthly Magazine’s April issue (on newsstands now) backs up my position that Portland is suffering far less than the rest of the nation and is still a great place to invest in real estate.

In the article, Oregon economist Tom Potiowsky says, “We’ll likely be spared the deep shocks affecting the rest of the nation, in part because of our long history of slow, steady growth.”  He adds, “We’re not immune to what’s happening with the national economy but where others are going to require major surgery, we’re probably just going to need aspirin.”

The article also supports my position that Portland remains a great place to buy, “The bottom line for buyers in 2008: With interest rates relatively low and the number of homes on the market high, now is a good time to buy, if you can afford the market.”

In the past 20 years, house prices in Portland have continued to rise, leaving us in one of the strongest markets in the country today. If we were to examine a graph of Portland’s housing market and home values over the last 20 years, we would see a rise in the year-over-year growth in home prices and values in the Portland area.

Hopefully, one day soon, Oregonians will realize that the principals of our market are all in place and this is truly an unbelievable time to invest in real estate.  When they look back on this time a year or two from now and see the equity that they gained by not listening to the “Chicken Littles”, they won’t be needing aspirin - they will be treating themselves to champagne.

Obtaining financing in today’s market

I wanted to respond to some skepticism about my last posting from some who have been frustrated by the financing process. If you have a job and a decent credit score but are still struggling to get financing, I would advise you to talk to more than one loan officer or lender. The Wells Fargo lender we use at Marnella Homes is still offering financing up to 100% and agrees with my assessment of the local market.I stand behind my previous comment when I said that the people who cannot get financing today are those who truly can’t afford to buy a home. The poor lending practices that gave these people loans in the past stretching them way beyond their means are the reason we’re hearing about the woes in the lending community today. Our homes are still selling and the only people that are not getting financing are those with bad credit, not enough income to afford the monthly payments or zero money for a down payment. However, those who can improve on anyone or a combination of these three issues can get financing through our programs.For those of you struggling to get the financing you need to buy a home, I encourage you to seek out several of the many competent loan officers out there that work for lenders who can help you. Best of luck and please let me know if we can help.

Thanks,
Tony

What’s up with the Real Estate Market - FACT or FUD?

In the 20+ years I’ve been in the real estate industry, I’ve seen and experienced firsthand the various peaks and valleys of the real estate market. One of my biggest frustrations right now is the amount of FUD (Fear, Uncertainty and Doubt) being generated by the media about the state of the current real estate market and the local economy. In my opinion, there is a lot of misinformation and a failure to acknowledge the positives about our local real estate market. Our economy is in fact doing quite well and our real estate market is solid. Only the “perception” of the market is bad. Our local market is not going to be as affected by the sub-prime market as the rest of the country because the Northwest’s allocation of those bad loans is about half of the national average. I’d like to share some interesting facts and FUD that I’ve come across recently:

FUD: The media is telling us that foreclosures are at an all time high.

FACT: Oregon is ranked 36 out of 50 states for foreclosures as of December. Further, Oregon’s foreclosure rate is down by over 10% from November.

FUD: We hear that the financial markets have tightened and it is now harder than ever to obtain a loan.

FACT: Over 97% of all mortgages are current and being paid on time. Yes, the markets have tightened and have eliminated loans to individuals, but those are the folks that never should have qualified for a loan in the first place.

FUD: We hear that the market is falling and prices are unstable and only those with excellent credit can get a loan.

FACT: Most people with a current job and an average credit score can still get a loan just as they could in the past.

FUD: We hear how real estate sales and priced are down.

FACT: Portland is one of a few cities in the nation that has realized appreciation year over year. Property values were up 6% last year. New homes sales in Oregon were up 5.4% in ‘07 over ‘06. While an increase of 5.4% is not at the rate of past years, it is still an increase. The reality is that 18 - 24 months ago we were in a ridiculously hot market and now we are in a more normalized market. This contrast is being perceived as a collapse.

FACT: June of ‘05 had the lowest home mortgage rates we had seen in over 30 years. So current rates that are be mentioned at a 3 year low are really a 33 year low. When rates were low in the past, home prices were increaseing. Now buyers are finding low interest rates and lower home prices at a time when builders, like me, have slashed margins to move homes. Low prices and low rates are seldom, if ever on the same axis! This is a great opportunity to purchase real estate at stable prices with low financing. I would encourage everyone to take advantage of the current market conditions.

OPPORTUNITY: If you are thinking about adding a rental property to your portfolio, now is the time. Rental rates are on the rise due to tighter lender requirements and now you need more than a pulse to qualify to buy a home. Rentals will cash flow sooner than they have in the past. Consider what I have done to fund my two boy’s college education. I have bought a home for each boy to help fund their higher education. You can do the same. With a 15 years mortgage, by the time they graduate from high school you have a free and clear asset that you can sell or refi to pay for college.

Historically, real estate has always been a long term investment. There have been and likely will be furture opportunities to buy and flip real estate. However, now is not one of them. When you invest for your family and/or financial security, you invest for the long term; not 6-12 months down the line but for years to come. At the end of the day, whether you buy a home from me or a competitor, I would encourage you to make the investment either to help a family member, as a rental, or for a change in lifestyle for yourself. We may never see this kind of opportunity again.

Tell me what you think. What has your experience been? Is the FUD getting to you?