Today the legislature is scrambling to balance a rapid response with careful consideration and analysis of the giant economic problem the country is facing.
The bailouts are an ugly, distasteful "remedy" to a problem which was absolutely avoidable. The US Congress have earned their rotten approval rating by basking in the glow of short-term easy money and prosperity while the reality train barreled toward us at breakneck speed.
Well, the train has hit. History shows that congress failed to act with regulation of the secondary mortgage markets back in 2005 when Senators Dole, Sununu and McCain submitted S.190 to do just that - only to have it killed by a party-line vote by house democrats.
Without regulation, no surge like the housing bubble could be allowed to continue without a market-driven correction.
But a market-driven correction this significant would be devastating. So congress steps in again - only this time they're too late to offer anything but a socialization of risk to offset years of unfettered private profit.
But this is a real estate blog - not an economic or political one - although the three seem braided together of late. So how is the local real estate market affected?
1. Increased confidence in the secondard market will make mortgages more available. The government takeover of Fannie May and Freddie Mac will likely have the intended effect. In the short term, this should give institutional investors the confidence to purchase mortgage backed securities. This means less supply and more demand, which should make more mortgages available to those with the ability to pay them back.
2. A weak dollar makes capital investment more attractive. To call an investment in real estate "stable" right now may seem ridiculous - but it is largely accurate. Sure, things really stink, but they've consistantly stunk. Inventory numbers in the Portland area since Februrary have been between 9.2 and 10.4 months. This is a remarkably tight range for such a long period. A capital investment in real estate is a good alternative to the volatile stock market.
3. Increased supply creates buying opportunity. The high inventory numbers have created strong price preassure, giving buyers more for their money.
4. Real estate has always been a good long-term investment.
5. The temporary spike in liquidity in the market will keep mortgage rates down - but when the correction takes hold they will have to go up to fight the inevitable inflation. Locking in at a low percentage rate on a nicer home now will result in a lower payment than if you try to do it later when the dollar strengthens.
What do we need more of?
We need a higher availability for bridge loans - or some kind of tax credit for carrying costs - to break the deadlock of needing to sell one property before purchasing another.
We need assurances that these bailouts and government takeovers transition back to private ownership with oversight vs. public ownership. We have crossed the line into socialism with these bailouts and takeovers - which is not healthy for a free market economy.
The best move to make? Rent your home and move up the hill.
Consider renting your current property and moving "up the hill" a bit. In the portland area, homes in the 400-600k range have been hit especially hard by downward price pressure and short sale competition. Upgrading now to a $500,000 home in Happy Valley will get you the same amenities as a $700,000 home bought in 2006.
The rental market is particularly robust - as families unable or unwilling to get back into the market find refuge in renting single family homes. You won't have captial gains taxes if you lived at the address for two of the five years prior to selling it. Renting your current home for a year or two to wait out the market conditions can be a smart move.
This is the same strategy I used in 2003 to combat a different problem. I had a condo in SW Portland which was undergoing exterior rennovations. I rented it out until completion of the project and purchased another home (which I still live in today). I was able to realize a much higher appreciation by waiting out the large siding and decking project - much like a homeowner can try to wait out the high inventories for an improved market condition today.
Call me to talk about it - and what I can do to help you find your next home.
Monday, September 22, 2008
Tuesday, July 15, 2008
An argument for optimism.
This week, Fannie May and Freddie Mac made headlines on rumors of government intervention. Share prices tumbled on fears the two secondary mortgage market giants would be inadequately funded to buy paper from the primary market.
This morning, President Bush addressed the issue by remarking, "We must ensure we can continue providing credit during this time of stress," citing both skyrocketing energy costs and mortgage industry stabalization.
"Time of stress" probably sums up what most are feeling - but is it reasonable, or media-fueled hysteria?
Here's the ugly truth: We are likely in a recession - just putting in our time during the mandatory waiting period to find out for sure. My heating oil company quoted me $4.71 per gallon for fuel yesterday. The value of a dollar has plummeted. Real estate speculators are selling their million dollar condos purchased last year for $800,000. It seems the sky is falling.
The result of these pressures; Everywhere people are tightening their belts, cancelling unneeded subscriptions, putting on sweaters instead of turning up the heat, vacationing close to home, driving less, and resurrecting the concept of the family budget.
This sounds like a time of stress? The symptoms we're complaining about are fueling the strongest economic stabalization in my lifetime.
Supporting this stabalization is a glut of regulation that should have been recommended by the previous FED Chairman Alan Greenspan. The gist: Only lend money to those who can afford to pay it back.
And what about those who can afford to pay it back? They'll pay around six percent interest for a home loan - a far cry from the 14-15% seen in the 1980's. The cost of borrowing $200,000 is now around $1200 per month for a 30-year fixed-rate loan, as opposed to $2500 per month three decades ago.
And what about the economy? Soaring energy prices are finally forcing us to commit to energy independence. The next ten years is going to see American's thirst for alternative energies satisfied by innovation on par with the tech revolution of the 90's and the industrial revolution of the 50's.
This is a time of stress -which always comes before growth. Americans have a lot to be excited about.
This morning, President Bush addressed the issue by remarking, "We must ensure we can continue providing credit during this time of stress," citing both skyrocketing energy costs and mortgage industry stabalization.
"Time of stress" probably sums up what most are feeling - but is it reasonable, or media-fueled hysteria?
Here's the ugly truth: We are likely in a recession - just putting in our time during the mandatory waiting period to find out for sure. My heating oil company quoted me $4.71 per gallon for fuel yesterday. The value of a dollar has plummeted. Real estate speculators are selling their million dollar condos purchased last year for $800,000. It seems the sky is falling.
The result of these pressures; Everywhere people are tightening their belts, cancelling unneeded subscriptions, putting on sweaters instead of turning up the heat, vacationing close to home, driving less, and resurrecting the concept of the family budget.
This sounds like a time of stress? The symptoms we're complaining about are fueling the strongest economic stabalization in my lifetime.
Supporting this stabalization is a glut of regulation that should have been recommended by the previous FED Chairman Alan Greenspan. The gist: Only lend money to those who can afford to pay it back.
And what about those who can afford to pay it back? They'll pay around six percent interest for a home loan - a far cry from the 14-15% seen in the 1980's. The cost of borrowing $200,000 is now around $1200 per month for a 30-year fixed-rate loan, as opposed to $2500 per month three decades ago.
And what about the economy? Soaring energy prices are finally forcing us to commit to energy independence. The next ten years is going to see American's thirst for alternative energies satisfied by innovation on par with the tech revolution of the 90's and the industrial revolution of the 50's.
This is a time of stress -which always comes before growth. Americans have a lot to be excited about.
Monday, May 19, 2008
Balancing price pressure and livable value.
May 19, 2008 - It’s no secret that swollen local housing inventories and national media hysteria have created dramatic price competition among sellers. This has transformed formerly rational home buyers into frothy-mouthed, rabid bargain hunters. What’s needed is a little perspective in balancing the quest for a perfect-timing, bottom-of-the-market fire sale and the simple goal of finding the right home for your lifestyle at a fair price.
My phone rings constantly with people who want to buy the day the market hits bottom. Not a day sooner or a day later.
A lot of people try and employ this strategy with the stock market, or wait for a set of patio furniture to go on clearance in October. But in our desire to avoid paying a penny more than the lowest historical price for something – we gamble away our opportunity to enjoy livable value.
I define livable value as “What it’s worth to me. Personally.”
The real estate industry has done itself a disservice by allowing an opportunistic audience to turn the housing market into a commodity. Livable value is being ignored.
I’m no longer hearing as much about school districts or neighborhoods. I’m hearing, “How long has it been sitting?” or “I’d offer them [insert completely inadequate number here] and see what they say.”
The price of a home is extremely important, but it’s not singularly important.
The perspective that’s missing is the concept of livable value. What’s it worth to you? Is it really worth living in your #3 or #4 choice because it’s priced $30,000 less than your #1? Maybe. Is it fair to expect the seller of your #1 choice to accept an irrational price reduction simply because of distressed competition? Absolutely not.
For families, a home is more than a financial investment. It’s about establishing a connection with your community and a hub for your loved ones to interact with society.
The most important question about price should be, “What’s the livable value to me?” I’m not suggesting that price pressure is unimportant – but I am declaring that it’s become too important.
It’s a great time to be a buyer – not only is there enormous selection, but prices are competitive. There’s no need to grind sellers with ridiculous lowball offers or look to take advantage of a distressed family who needs to move. Negotiate. Put yourself in a good position. But stop grinding.
If you’re shopping for a home in this market, look at more than price competition. Look at livable value. You’ll be much happier in a home that fits your lifestyle than the one you got on “clearance” for 5% less.
My phone rings constantly with people who want to buy the day the market hits bottom. Not a day sooner or a day later.
A lot of people try and employ this strategy with the stock market, or wait for a set of patio furniture to go on clearance in October. But in our desire to avoid paying a penny more than the lowest historical price for something – we gamble away our opportunity to enjoy livable value.
I define livable value as “What it’s worth to me. Personally.”
The real estate industry has done itself a disservice by allowing an opportunistic audience to turn the housing market into a commodity. Livable value is being ignored.
I’m no longer hearing as much about school districts or neighborhoods. I’m hearing, “How long has it been sitting?” or “I’d offer them [insert completely inadequate number here] and see what they say.”
The price of a home is extremely important, but it’s not singularly important.
The perspective that’s missing is the concept of livable value. What’s it worth to you? Is it really worth living in your #3 or #4 choice because it’s priced $30,000 less than your #1? Maybe. Is it fair to expect the seller of your #1 choice to accept an irrational price reduction simply because of distressed competition? Absolutely not.
For families, a home is more than a financial investment. It’s about establishing a connection with your community and a hub for your loved ones to interact with society.
The most important question about price should be, “What’s the livable value to me?” I’m not suggesting that price pressure is unimportant – but I am declaring that it’s become too important.
It’s a great time to be a buyer – not only is there enormous selection, but prices are competitive. There’s no need to grind sellers with ridiculous lowball offers or look to take advantage of a distressed family who needs to move. Negotiate. Put yourself in a good position. But stop grinding.
If you’re shopping for a home in this market, look at more than price competition. Look at livable value. You’ll be much happier in a home that fits your lifestyle than the one you got on “clearance” for 5% less.
Oregon appreciation continues to buck national trends.
Februrary 16, 2008 - The National Association of Realtors® today released the data for Q4 of 2007, and once again, the Portland metro area showed growth while other markets continued to fizzle - showing a quarterly price appreciation of 1.8%. Although price remains strong, January posted a record housing inventory for the area - which indicates excellent buying opportunities as sellers compete for buyers. Sellers will need to get more aggressive in marketing their homes, as price doesn't appear to be the primary motivating factor.
Outlook: Oregon
January 16, 2007 – The numbers are in. According to the National Association of Realtor's annual price analysis report through Q2 2007 just released, the local forecast bucks the national trend with resiliency and even (dare I say) growth projected in the coming months. Here are some highlights (all data from the October 2007 NAR report);
The big story seems to be foreclosure rates and the sub-prime lending fallout. The overall foreclosure rate in the State of Oregon for Q2 2007 was 0.5%, compared to the national trend of 1.4%. Similarly, the Portland market has weathered the price storm, showing an overall appreciation of 5.2% while the national average fell 1.1%.The local market has also added more than 46,000 new jobs in the past two years, causing the NAR to predict "A rise in home sales and a strengthening in home prices appear imminent."
The continuing problem Oregon faces is the gap between income data and housing affordability. Housing prices have grown roughly 250% since 1990, outpacing income growth which is just shy of 100%. "However, such a reliance solely on price and income growth is inappropriate," the report claims. "For a home buyer, what is relevant is not home price in relation to income, but rather the mortgage payment in relation to income." With interest rates hovering around 6.5%, a buyer can simply afford much more house than they could in 1990.
The other major factor we have in Oregon (my opinion, not NAR research) is the continued stream of California buyers flocking to Oregon for the schools, recreation and relatively inexpensive housing. These buyers have undoubtedly fueled the swell in housing prices in spite of local income levels, and will continue to provide such support.
The halt of new construction will help stabilize the high inventory of homes on the market. Prolonged oversupply in the new housing markets have caused this reduction, which will in-turn whittle away at our inventory, strengthen prices and more quickly address demand.
As predatory lenders have been chased out of the market with their unrealistic loan products, borrowers are shifting focus to more stable FHA loans. In 2000 in Oregon, FHA loans accounted for 13% of the market. Today, it's around 2%. The mortgage industry is buzzing with speculation that we may see some of the restrictions eased on income caps and lending amounts in FHA loans - which will lead to stronger housing demand. Rents have also risen dramatically in the past year, which is typically a catalyst for first-time home buyers - many of whom are going FHA.
So the outlook is actually pretty good for Oregon. I'm cautiously optimistic. The report indicates that even with a rise in interest rates to as much as 7.5%, Oregon will still see slow, stable growth. And if interest rates remain stable, things will return to normal faster than otherwise expected.
The big story seems to be foreclosure rates and the sub-prime lending fallout. The overall foreclosure rate in the State of Oregon for Q2 2007 was 0.5%, compared to the national trend of 1.4%. Similarly, the Portland market has weathered the price storm, showing an overall appreciation of 5.2% while the national average fell 1.1%.The local market has also added more than 46,000 new jobs in the past two years, causing the NAR to predict "A rise in home sales and a strengthening in home prices appear imminent."
The continuing problem Oregon faces is the gap between income data and housing affordability. Housing prices have grown roughly 250% since 1990, outpacing income growth which is just shy of 100%. "However, such a reliance solely on price and income growth is inappropriate," the report claims. "For a home buyer, what is relevant is not home price in relation to income, but rather the mortgage payment in relation to income." With interest rates hovering around 6.5%, a buyer can simply afford much more house than they could in 1990.
The other major factor we have in Oregon (my opinion, not NAR research) is the continued stream of California buyers flocking to Oregon for the schools, recreation and relatively inexpensive housing. These buyers have undoubtedly fueled the swell in housing prices in spite of local income levels, and will continue to provide such support.
The halt of new construction will help stabilize the high inventory of homes on the market. Prolonged oversupply in the new housing markets have caused this reduction, which will in-turn whittle away at our inventory, strengthen prices and more quickly address demand.
As predatory lenders have been chased out of the market with their unrealistic loan products, borrowers are shifting focus to more stable FHA loans. In 2000 in Oregon, FHA loans accounted for 13% of the market. Today, it's around 2%. The mortgage industry is buzzing with speculation that we may see some of the restrictions eased on income caps and lending amounts in FHA loans - which will lead to stronger housing demand. Rents have also risen dramatically in the past year, which is typically a catalyst for first-time home buyers - many of whom are going FHA.
So the outlook is actually pretty good for Oregon. I'm cautiously optimistic. The report indicates that even with a rise in interest rates to as much as 7.5%, Oregon will still see slow, stable growth. And if interest rates remain stable, things will return to normal faster than otherwise expected.
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