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