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.

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.