April 2009 Market Action Report

The market action report in pdf.

The link above is the April Market Action Report from the Regional Multiple Listing Service (RMLS). The report supplies good news and supports our contention that the market has changed direction and is in recovery. This month, before we discuss the report, I want to pause and acknowledge with empathy the toll exacted on our clients and our industry thus far.

The Effects Of The Past Two Years On Our Clients…

In our area we have been in a difficult market now for almost two years. In July/August of 2007 when American Home Mortgage suddenly went bankrupt, it was if we all were awakened by the jolt of a powerful earthquake. What could take down a skyscraper lender so quickly?

Builders particularly were hit hard as they were abruptly left holding large inventories of land and unsold homes in various states of completion. Since then new construction has virtually ceased and inventories remain high. Many builders and sub-contractors are out of business while others have refinanced themselves to the limit. Most have not made any money for two years. Lifestyle and retirement for many families have changed dramatically.

The sub-prime mortgage judgment day was followed by aftershocks of unusual size; some were earthquakes in their own right. By the end of 2007 we entered an economic recession and every company fell back into conservation mode. In 2008, the economy cracked under the weight of oil prices rising to historic levels, effectively stealing money from every wallet in America. As these temblors began to dissipate, an enormous jolt hit which was felt around the globe. Seemingly overnight, the financial markets and the banking sector apparently were on the verge of collapse.

Following every crisis, paralysis results while people assess the gravity of the situation and consider the risks in the immediate future. By the 4^th quarter of 2008, the whole US economy seemed to slow to a standstill.

We have clients who have had their homes and land on the market for 2 years. This is exceedingly frustrating, painful, and consequential. Some of our clients have been forced into short sales and foreclosures because they did not have the luxury of time. Current job losses and slowdowns have added insult to injury and remain a chief concern. We hear firsthand what hardships and inconveniences this causes our clients and it weighs very heavy on us every single day. If we could do anything else to cause sales and relieve suffering we would do it in a heartbeat.

Our industry has also been devastated. Recently an auto re-possessor told one of our clients that Realtor® vehicles were their most numerous targets.  Many Realtors® and mortgage brokers have been forced out of business; many agents have cut back on services or cut out advertising altogether. It is common to find Realtor® homes on the market along with our client’s homes for sale.

Although we (and an increasing chorus of industry professionals) believe the bottom of the housing market is past, there remains a lot of destruction to clean-up. The market is going in the right direction but price stability still eludes us in many price ranges. Increasing numbers of distressed sales, and new regulations requiring these properties to be used as legitimate comparables in appraisals, continue to push prices down in some neighborhoods. We find we need to reassess the pricing of all our clients’ properties; the research usually dictates price reductions to remain competitive. We commonly we hear, “we must sell this summer; we cannot carry this through another winter”. Sales will be a win-win-win.

The Good News:

• In the first 4 months of 2009, inventory has been reduced by 9 months.
• Pending sales are up again at a very high percentage (13.9%) over March
• Closed sales are up 10% over March
• The $8,000 tax credit for first time homeowners (or those who have not owned a home in 3 years) has created demand and competition especially for homes under $250k. Many buyers, to their surprise, are running into multiple offers and walking away empty handed.
• Although this week we saw the lowest numbers for housing and apartment starts since records were kept, in the west the numbers went up significantly, bucking the national trend
• Home prices on average in the Portland metro area have retreated to levels in 2006 (not as bad as you may be led to believe)
• The National Association of Realtor’s affordability index shows homes as affordable as in 2004. Realty Times reports, “Thanks to record low mortgage rates and declining home prices, 55 million families – or half of all U.S. households – can afford today’s $200,000 median-priced new home, according to figures released by the National Association of Home Builders (NAHB)…. Based on data from the U.S. Census Bureau comparing home prices, mortgage rates and minimum income needed to purchase a median-priced home in February 2007 and February 2009, a typical family today can purchase a house with $20,000 less in household income and save nearly $500 per month on their principal, interest, taxes and insurance.
• Interest rates are historically low (4.375% for 30 yr fixed) is not uncommon
• Yamhill County is down on average 9% from two years ago. Were any of you thinking 30%? It just feels like that and the media portrays that image.
• It is an exceptional time to buy (perhaps will not be seen again in our lifetimes)
• It is a time for sellers to have hope that stability and change are coming; there is light at the end of the tunnel

We are glad to discuss the market conditions with you and help you understand the value of your property or one you might want to buy.

Sellers, please know that we are enduring the challenges with you and will be faithful to do what we said we would do for you, which is promote your property far and wide so no one can possibly miss it, and then present it is its best light. We will negotiate for your best interests. Call or email any time.

Market Action Report March 2009

For the first time we are hearing positive reports about the housing market in the national media. Although this is a welcome relief from the barrage of distortedly negative news we have been living with for almost 2 years, it is still not a good idea to try to understand our local markets by listening to the news media, which searches out the worst news in the nation to report. Remember, it is never as bad as the media depicts, nor as good as we are led to believe in a good market. And the most basic principle of real estate? All real estate is local, right down to the very neighborhood (Location. Location, Location).

The good news locally:

Anecdotally, we continue to experience heightened buyer activity both in expressed interest (internet activity, showings, and inquiries) and in offers actually being made. There seems to be universal agreement among local brokers (Yamhill County and Portland metro) that the buyer mindset is very different than last year. Although buyers are aggressively value shopping, there is a snowballing confidence that this is the right time to buy; almost an “It is safe to go back into the water” consensus.

Factually, two excellent developments are notable:

1. Portland housing inventory has dropped by 7 months in the first quarter (from January’s 19.2 months at the current rate of sales, to March’s 12 months). This is happening at a time of the year when new listings escalate and normally increase the inventory.
2. Pending sales (accepted offers) are up 28.3% over February. Compared with the same period for the past two years, this is something to write home about. In 2008 the increase was just 5.5%, and 8.3% in 2007 (before the crisis hit). This means that something significant is happening.

There is also good reason to maintain hope:

1. Interest rates are historically low. Buyers are routinely getting below 5% on a 30 year fixed loan. Two recent closing clients got 4.5%! In my entire life, I never thought we would see anything like this. Nothing affects buying power and future profitability like the interest rate. Good Investments are made in the buying, not the selling. You can buy now and enjoy the rewards for 30 years!
2. There are amazing offers, incentives, and deals to take advantage of. Banner Bank’s 3.875% interest for 30 yr fixed, INCLUDING JUMBO MONEY UP TO A $ MILLION for their inventory of 200 new construction homes, is just like getting free money (ask us about this). The First Time Buyers Credit from the Stimulus Plan offers $8,000 as a gift if you have not owned a home in the past 3 years. Our daughter bought her first home last month, filed her taxes, and got $8,000 direct deposited into her checking account within 2 days! Not only are there great deals, but there are ‘steals’ now available as people must unload properties. The National Association of Realtors® Affordability Index already reached a record high in February (see attached). Let us help you buy well…
3. Confidence is up. Although there is still plenty of bad news about the economy (most notably unemployment), there is a growing consensus that the bad news about the housing market is either ‘spent’ or factored in (there will still be plenty of foreclosures). Economists and specialists believe it is an exceptional time to buy and that the housing market is at the very least bouncing along the bottom. Recently two local, well-respected, economists announced they believe both the housing market and the stock market have already hit their bottoms.

What is the Bottom?

The bottom of the housing market is really about two dynamics:

1. A change in direction. I believe the change in direction began in January following the disastrous 4^th quarter of 2008 (which in hindsight will be seen as the bottom). 2008 was a year of decline as we were hit with one blow after another after another. This paralyzed more of the market with each event (recession, oil prices, financial sector meltdown, etc). Although our numbers, by definition of a ‘bottom’, are worse than a year ago, the trajectory of the market is moving forward now and improving. Recovery has begun.
2. The stabilizing and reversing of pricing. This cannot happen until inventory (supply) is reduced and demand (the number of buyers) is increased. This dynamic has been at work for 3 months now and supports the thesis that the bottom is behind us. Does this mean prices are firm and appreciation is occurring? Not yet. Sellers continue to lower prices because many must sell now. Time pressures on others are leading many more to sell at short sale prices, and foreclosures continue to grow. Seller fatigue is forcing some to take very low offers. All of this affects appraisals, which will continue to put downward pressure on pricing for months to come. Still, many times in the first quarter we have seen multiple offers on properties, or buyers getting surprised that when they do decide to offer but the property is already pending. The current buyers have never seen this before and it will stimulate them to be more decisive and timely. This will contribute to stabilizing the market.

Buyers, it is our commitment to know our local markets intimately and to be able to help you buy great investments. We are eager to put our knowledge and experience to work for you and for those you know and love. Please contact us for assistance.

Sellers, our knowledge of the local markets can help you remain competitive in a changing market. Our negotiating skills and strategies can help you protect your assets. Just because some have to sell very low does not mean you have to be one of the casualties. Our marketing exposure can assure that no buyer can miss your property and our presentation persuades that your home is worth what you are asking. We will do everything we can to increase your odds of a timely sale.

Market Action Report for March 2009

NAR Affordability Index

February 2009 Market Action Report

February’s report is more good news! But if one does not think about it critically, it might not appear to be so.

Comparing Data with 2008:

We all know that 2008 was a bad year, first for the housing market, and then for the overall economy. Buyers were difficult to find anywhere, inventory continued to climb to record numbers, more and more sellers moved from default to foreclosure because they could not sell, and by the 4th quarter the patient was completely comatose. The national economy entered a recession in early 2008. There was still significant fall-out from the sub-prime debacle, oil prices shot up dramatically and grounded most people and robbed others of their economic viability, and in mid-September, the financial sector crashed, credit froze, most of the national investment institutions failed in one way or another; many banks were seriously undercapitalized requiring dramatic intervention of the US Government. Wow!

Where’s The Bottom?

1. If we look back a year from now and see clearly that 4th quarter 2008 was the bottom of the housing market (my belief), then what would you expect our current numbers to be? Very low, in fact the lowest they are going to get. We are starting this year at the bottom.
2. If we compare current data (sales etc.) to last year, what would you expect our numbers to be? Discouraging. We are lower than we were a year ago because throughout last year we continued to decline, and then we dropped off a cliff in the 4th quarter. Comparing January or February 2009 with the same months in 2008 is futile. If we are in recovery, the numbers compared to a year ago will not highlight a recovery, they will hide it.
3. But if the bottom was December of 2008, what would you expect the numbers to be? They would be improving from the lows. The trajectory would be the most important factor and the rate of improvement would prove the thesis and define how robust the recovery is. Remember, we could not officially ‘call’ the recession until we were deep into the second quarter of 2008 even though the recession began in the 4th quarter of 2007. In the same way, we will not be able to confirm the bottom of the housing market until we clearly see it in our rearview mirror. For some people that will be perhaps the 2nd or 3rd quarter of 2009; the general public is usually far behind that.

What is the Good News?

1. The comatose patient jolted up in bed in January and began functioning again. This is a radical change from the 4th quarter 2008. We doubled sales in January (pending and closed) compared to November and December combined. Real estate buying activity was up considerably, at a level we had not seen in 2008; it remains very high 3 months later.
2. During February, 62 residential properties in Yamhill County went pending or contingent (accepted offer) and 46 properties closed. The pricing spread of these properties was much more balanced than any time in 2008.
3. In one month (February), inventory dropped by 3 months! If that rate continues (certainly we can dream) we could reduce inventory to normal in 4 months. If not we are still improving regarding the supply of homes.
4. As of the end of 2008, Oregon as a whole showed annual appreciation at -7.05%, most of that coming in the 4th quarter (down 4.24%). But the 5 year appreciation was still 40.69%! Since the recession of 1991 Oregon real estate is up 211.71%! Real estate has always been a good investment over time in spite of the cyclical nature of the market.
5. In the Portland-metro market, 2008 appreciation was down only 5.2%, 1.75% in the 4th quarter. In the last 5 years appreciation is up 48.57%. Sounds like good news to me. See the attachments.
6. Yamhill County is off just 6.5% (average) from its highs over the past two years. Portland metro’s average sale price is the same as it was exactly 2 years ago, less than its peak but still when the market was hot.
7. According to Realty Trac and the Census Bureau, there are 29,940 homes in Yamhill County. In February, 94 homes were bank owned (REO), 113 homes were scheduled for foreclosure auction, and 128 homes are in default (pre-foreclosure). That is just over 1%. Historically, many of the homes in default are cured in the process (payments current or home sold) before going to auction and do not end in foreclosure. Nationally, the lending industry expects about a 2% foreclosure rate in a normal market. This is not the terrible news we hear so much about in the media.
8. Recently I heard it put this way, 97% of the people in Oregon have no problem paying their mortgages, 98% of the people are not in foreclosure, and 90% of the people are gainfully employed. You will never hear things expressed this way; it does not sell news and get your eyes and ears for the advertisers.
9. This week I heard that housing starts have jumped 22% reversing from an 18 year low. This is good.
10. There are many incentive programs available like the NW Home Rush by Banner Bank and Community Financial Corp. They put the inventory of all their builders on sale, 245 completed homes in the metro area; 130 of them on the west side. Prices are below market value, and with their TARP money the bank offered the consumer 3.875% interest on 30 year fixed financing including jumbo money up to a $1 million. This is essentially free money! This has never happened in my lifetime (53 years).
11. We know of another creative builder who through efficiencies offers their buyers instant 20% guaranteed equity and 100% financing for 30 year fixed mortgages, and superior construction. Do you have to be well qualified, yes, but that is also good.
12. First time home buyers (or those who have not owned in 3 years) can get up to $8,000 free if they buy before December of 2009 through the Stimulus Plan.
13. Deals are everywhere, interest rates are historically low, and credit is flowing again available including jumbo money.
14. This week I attended a 2 hour session with noted Oregon economist John Mitchell. Along with all the painful news about the economy, he believes the housing market is ‘bouncing along the bottom’. He noted that in California, housing sales are up 100.5% and their inventory is down to a 4-5 month supply. This sounds like the beginning of a good recovery. California has been a conglomeration of the worst markets in America for 3 years.

The news is very good. If I am right and we have begun recovery, then those who take advantage of the national perfect storm and buy now will be the biggest winners perhaps in a couple of generations.

Are There Still Threats And Reasons For Fear?

The economy is still going down and job losses are sobering. People are stretched, many of them to their limits. Every day we see what hardships are being borne by people who have been affected by the corruption, the foolishness, the greed, the mistakes, and the natural cycles of the markets. We do not minimize the miserable effects on many people or minimize the bad news. We have our boots on the ground and see the faces, hear the stories, know the fear, and feel the losses first-hand.

I believe that the same housing market which was catalyst for the decline of the economy will also be the first to recover and pull the economy out of the ditch. When the markets (both housing and general economy) return to normal, the deals will be gone. Interest rates must go up to get all the excess money out of the economy preventing disastrous inflation. If the economic engineers fail to properly manage the recovery, then with all this money thrown at the problems, we could see interest rates that compare with the early 1980’s. We hope they have learned a lesson and will act prudently.

And fear? We should learn from every threat and challenge that fear itself does far more damage than any event. If we move forward with chastened thinking and reasonable behavior, we will have great opportunities. Fear can serve to sober us, but it should not cause us to lose heart. Perseverance and premeditation are needed for such times.

We would be glad to serve you in any way we can. Please call or email us for assistance. Please forward this to anyone if it would be helpful.

View the Market Action Report for February, 2009.

National Comparisons (end of 2008)

February 2009 Pendings & Sales in Yamhill County

January 2009 Market Action Report

Market Action Report for January 2009

The new report is out in a fuller form and better design. We now have access to individual reports for all over the state and SW Washington. This report covers the greater Portland markets including our focus area, Yamhill County. If you would like a report for another area, I would be glad to get that to you upon request.

The news for January is excellent, but to hear the media talk about it, we continue to sink to new lows and should really go find a high bridge for consolation. This is not true. We are all abuzz with buyer activity and our websites are getting hits like we have not seen in 2 years. Anecdotally, this week I received two offers (good offers) on the same day for the same property which has been on the market for over 9 months. We have another 4 buyers who were seriously looking at this property. This week our daughter, Megan, put an offer in on a new listing in Salem just two days after viewing it and it was already pending. In January Molly put offers in for two clients only to find she was in a multiple offer situations in both. 100% of the many brokers and industry professionals (mortgage and escrow) I have spoken with since early January tell me the same thing (and I always go out of my way to ask everyone I meet). There are lots of buyers looking and offers are starting to flow again.

In this report you will be told that closed sales have hit a new low since records were maintained by RMLS in 1992. They are down 26% since December and 33% lower than one year ago. The data is true, but the interpretation of the media is ignorant at best. Who cares what the difference is since December? The reality is that the market was on life-support from October through December 2008 because of the financial sector meltdown of September. Complete paralysis characterized the market during this time and we could not even buy a showing, let alone an offer!

January’s news is exceptional because the comatose patient awoke with a jolt and is recovering nicely. Although we are at a low point for the past 2 years, it seems clear to me that the bottom of the housing market has come and gone. Pending sales were way up, 52% over December; the significance being only that the patient is responding and is getting better day by day. Pending sales nationally were up 6% in January. This includes all the legendary bad markets we have heard so much about for so long. We hear good things out of California! When you see the percent changed in the area report on page 2, keep in mind that this is a rolling overage for average sales price for the last two years. Though times have been tough and sales very slow, note that percent changed for Yamhill County is just down 5.4%. Is that what you have been hearing in the media???

There is strong pent-up demand among buyers right now. Buyer are finding historically low interest rates, as low as 4.25% on 30 year fixed mortgages and bumping around mostly under 5%. There is currently a $7,500 interest free loan for first time home buyers, or buyers who have not owned a home in 3 years. The stimulus plan, now approved, changes this to $8,000 and it is a gift, not a loan! Call us, or your favorite mortgage broker for details. Buyers also have a smorgasbord of inventory to select from and some of the best prices in years.

There is plenty of bad news for the media to feast on, and they will have a heyday with the economy for some time to come. But the housing market will buck the economic trend and eventually, many believe this year, will pull the economy out of the ditch. Many sellers have suffered greatly in this market and although we have been relatively stable, time has not been kind to us. We have seen more foreclosures and bank owned properties recently, and we continue to see dropping prices, especially among new home builders. But even in these dire circumstances, we have finally seen significant forbearance by lenders and flexibility in dealing with struggling people.

For our buying clients we are excited and will help you find the best opportunities for what will prove to be great investments. For our sellers, we continue to be faithful and aggressive in our marketing and services. We all need sales to remedy our wounds and give us a fresh start. For all those affected by job losses and struggling businesses, we trust that a recovering housing market will aid us all and return us to normalcy.

Right now I see the media pouncing on the economy just as savagely as they did for the last 1.5 years on the housing market. It should motivate me to finish that email about “How to Listen to Bad News”. The reason for the delay is not the lack of fire in my gut but the busy-ness of re-inventing our business model and taking care of lots of clients who really want to sell and buy!

We will continue to report on the reality on the ground to give you the local data and a boots on the ground perspective, not the speculation of the talking heads, or the ignorance of many journalists.

Market Action Report for January 2009

Market Action 2008 Year in Review

There is real good news out there right now:

In the past few weeks, one escrow officer I talked to closed a transaction with a 30 year fixed Mortgage which had an interest rate of 4.25%, no points paid! We got other emails from mortgage brokers publicizing 4.375% interest for the same kind of loan. Also in December we saw the first offering of jumbo mortgages again- 6% up to a million dollars, 6.25% up to $3 million. Although rates are currently vibrating up and down, they are staying under 5%. The stated intent of the economic engineers is to maintain a rate of about 4.5% interest to help with ARM rate adjustments coming this year, and to offer the ability to refinance safely from oppressive loans into manageable loans. This is also intended to ignite buying in the housing sector. If there is anything which will motivate buyers and investors to buy it is an historically low interest for 30 years!

We also saw the complete overhaul of FHA this past year. Its scope was broadened to make it useful for many more people, it became more flexible and user-friendly, and although it raised its down payment requirements, you can still buy a home with 3.5% down. It is true that documentation and credit scores actually mean something again but I think we all want to avoid going through this again. For select areas (everywhere but McMinnville in Yamhill County) first time home buyers can still get a loan with 100% financing through USDA.

So what is the reality as we start a new year?

Interest rates are historically low and inventory (selection) is historically high. Seller fatigue has created some really great deals and most have become ‘motivated and flexible’. The country has been through a deep housing correction where some areas have declined in price more than 30% of the value of less than two years ago. Other areas, such as our area, has had modest corrections overall and more significant corrections in ‘hot’ areas. There is just one ingredient that is yet needed: confidence. Buyers are leery of another blow of bad news and want to have confidence that things are truly on the mend (no more meltdowns, Madoffs, or mortgage surprises).

We know there are buyers out there. We see a great deal of activity on our search sites and we talk with a healthy number of them. Many more are buyers waiting to sell. When the ‘all safe to go back into the water’ signal is given, we think housing sales will rebound nicely. We expect to see investors and ‘lowball-ers’ become active first and they will buy out the desperate and go after all the best deals. First time home buying should remain strong for those who have not destroyed their credit. As more people buy the activity of the sector grows exponentially. The cycle usually recovers from the bottom up. High end homes may take longer in the process but luxury homes also have some immunity from all the market conditions.

Remember that for over 100 years of tracking have shown that the real estate market is cyclical. It always goes down and up, hot and cold. In the long view it has always been growing and expanding and rewarding those who participate. We have been down and cold (or should I say frozen). There are good reasons to believe we are on the edge of recovery.

What about the bad news?

Most people we talk with understand why no one will buy now. Since September who would? Wouldn’t you also wait to see if the sky is falling or not after seeing what we have seen especially during the past 4 months?

The new wave of bad news revolves around the economy. Businesses are suffering badly as a result of the sub-prime mortgage mess and particularly the financial industry meltdown. Both caused a cessation of the normal flow of credit and now both are bringing values down across the economic spectrum. Job losses are hurting many people. This cannot be glossed over and it will have a toll on the housing market.

But the bad news is not evenly distributed. Most (by far) of the bad news about the housing sector related to certain markets (California, Las Vegas, Florida, and Phoenix). The economy is also much worse in those areas plus places like Michigan, Ohio, etc). In Oregon, we have done better than most; in fact for over a year we were one of the top three markets in the nation for pricing stability and low numbers of foreclosures. Time is taking its toll on us.

But… although the economy is still in decline, we think the housing market is poised to recover.

What to do?

We think sellers need to stay on the market now. We intimately know how painful this has been. Do not worry about how long you have been on the market; this is an affliction which is common to almost everyone. We are working with our clients to refresh their listings and rework their market analyses. There is some value loss over the last year, about 5% on average in Yamhill County. Amy will research particular properties and price ranges and we will meet with you this month. The most important priority is to be competitively positioned for selling. Buyers are savvy and knowledgeable, and they are looking for good and safe value.

Buyers should buy! If I did not have all my money tied up in a brokerage I would jump at these historic opportunities. We have not seen such an ideal situation for buyers here in my entire adult life. I remember the 21% mortgage rates of the early 80’s and also when we hoped and dreamed and wished to buy for the amazingly low 8% rate. Are we at the bottom? I think we have hit it. But the truth is that in all markets no one actually sees the bottom. You only know it was the bottom in retrospect. For many buyers, they may move too slowly and arrive too late. It is a strange herd mentality which when everyone is buying we buy, and when everyone is selling we sell. A better way??? Buy when everyone is selling and sell when everyone is buying. I think I stole that from Warren Buffet.

We promise to be faithful to all we promised our clients, buyers or sellers. We have done so in spite of the market conditions and it has cost us dearly. Still, you hired someone to do the job without compromise and with your best interests at the forefront of our minds. We are also investing a great deal of time and money to be flexible, creative, and to stay on the cutting edge of what it takes to get the job done. We have new ideas and mediums to implement for 2009 and we are excited about the prospects. We thank you for your loyalty and trust during this time when we know there is a great deal of frustration to our clients.

Market Action Report December 2008

I want to add my voice to the chorus who are glad to say good-bye to 2008. It was a very tough year for us, for our clients, and for many friends we have inside and outside the housing industry. In order to craft a more optimistic New Year’s message for the coming year I want to summarize what we have all been through recently. It will answer some of the ‘why?’ questions which are inevitable when times are tough. It will be negative but I believe it deals with reality. Trust me to help wash your minds clean with a follow-up message of hope for our new year in a day or two.

The Sub-prime Mortgage Mess:

It has taken me a year to get my mind around the complexity of what has happened over the last couple of years. I owe a great deal of thanks to clients, industry professionals and experts for the education. Here is my year end summary about the most significant issue to hit us in real estate…

We began 2008 deep into the effects of the subprime mortgage debacle. At the heart of this was a relatively new financial technology known as “mortgage-backed securities”. Since the mid-90’s the financial industry pooled mortgages, packaged them, sliced and diced these packages into complex financial securities to sell to the world markets as a highly desirable, highly rated, and presumably safe investments. Mortgages have traditionally been a safe and profitable investment. When mortgages were securitized in this way, it became impossible to actually know where any particular mortgage might be in the mix. In what financial products? In fact, in what area of the world were these problem loans (China, Europe, etc)? When an over abundance of sub-prime mortgages were found to be in the mix, with an unusually high percentage of these going into default, the entire investment vehicle became ‘radio-active’. Soon no one would buy these and no one could sell them. The secondary mortgage market, where loan originators sold mortgages, virtually shut down.

Coinciding with this financial technology was the liberal availability of money, both from the government money supply and from investors. This fueled a buying frenzy, an amazing new housing market expansion, and inflated the now famous housing bubble. This occurred unevenly; in many areas of the country speculation was more extreme than in other areas. Most notably, metro Las Vegas, metro Phoenix, the California markets, and many Florida markets were the most inflated and overbuilt. In Oregon, Bend, Happy Valley (Clackamas), and some markets in southern Oregon were the most affected. The demand for these financial products, and in my opinion, greed to fill the supply, meant that traditional standards of care were cast aside to make money fast. It was common to offer buyers 100% financing (even up to 125%), interest only loans, and there was a proliferation of ‘no-documentation loans’, Adjustable Rate Loans (ARMs) and introductory Rate Loans (which would adjust upward). This resulted in massive risk to investors unaware, and a kind of “land grab” by people as they bought homes they could not afford under the irrational delusion that ever-increasing equity growth would allow them later to re-finance their Adjustable Rate Mortgages (ARMs) and introductory rate loans.

This bubble burst, just like the technology bubble of the late 90’s, which was also fueled by a new technology (the internet come of age) and liberal money. For us in Yamhill County, we did not begin to feel the effects of this tsunami until late July of 2007. The continuing problem continues to be the effects of these toxic, sub-prime, mortgages. The mortgage process has been decimated as many lenders are now out of business, there has been no market to sell mortgages (especially for jumbo mortgages ($417k and up), and investors and buyers are leery of doing anything until a measure of certainty returns to the market. There will also be another wave of mortgage adjustments this next year.

As defaults mounted, high inventory and increasing number of foreclosures caused prices to decline. As the process continued, many people walked away from houses they were making payments on which were no longer worth what they owed. In some markets, the ‘usual suspects’, prices have declined 30-50%!

Although our area of the country has fared better than most, and we held out longer than most, time is taking a toll on us. Prices are now slipping (about 5% in YC and 10% in Portland) and understandably sellers are thoroughly frustrated.

The Oil Crisis:

Spring did not bring us any better news. The cost of oil caused each of us, and almost every business, to suffer more loss. Although the cost of fuel has come down to a very attractive price, it took its toll on personal budgets, business profits and the general economy for a good part of the year.

The financial meltdown:

Beyond the ‘one-two punch’ noted above, who could have ever imagined that such a melt-down could take place? The unsinkable Titanic was not so unsinkable as we all thought. The financial sector has been decimated and propped up by an explosion of government spending. Banks have been infused with cash to prevent a run on banks, major companies have been rescued with billions of dollars, and there is a long line for handouts in the corporate world. Is it any wonder that what few buyers were in the market before September, they are no longer willing to buy until we see if the sky is falling? Most of you know all too well that the housing market froze over for the remainder of the year.

The Election:

We just completed an election where the campaign was essentially two years. It was a very negative process where advantage was gained by floodlighting the bad news and exploiting the negative. The psychological impact on markets and mindsets cannot be overstated. We see this in the trenches as buyers are affected by media messages.

Corruption:

We ended the year with an eruption of corruption in both the financial and political spheres. Can anyone really comprehend fraud perpetrated by the likes of Bernard Madoff? 50 billion dollars!!! So individual retirement accounts, charities, businesses, and the economy suffered another blow of mind-boggling proportions. To add insult to injury the President-elect’s Senate seat is auctioned off by the governor of Illinois and we are reminded that the Chicago political machine is alive and well.

White-out for Christmas:

Retailers often make 50% of their sales income during the Christmas season. In an already short season (late Thanksgiving), the final 12 days were greatly impacted by snow over most of the nation.

On a positive note, it was a gorgeous white Christmas with little freezing rain and ice (normally what we get with cold temperatures). I hope your holiday season was beautiful and refreshing on a personal level!

Market Action Report for December 2008

December 2008 Sales for Yamhill County