Late Wednesday night Congress extended the closing deadline by three months for First-Time Homebuyer Tax Credit purchases. The unanimous Senate vote followed a 409-5 House vote Tuesday. President Obama is expected to sign the law immediately.

The extension helps only those that entered into binding contracts by April 30 by giving them until September 30 to complete the purchase. Under current law, buyers had to close by June 30 to be eligible for the tax credit.

The National Association of Realtors estimates that the extra time will help about 180,000 qualifying buyers (plus the sellers depending on those buyers) who would not have met the Wednesday deadline, largely due to factors beyond their control. Mortgage lenders have been backlogged by the volume of buyers trying to close their purchases by June 30.

S&P/Case-Shiller published its home price indices this morning. The C-S U.S. National Home Price Index fell 3.2% in the first quarter of 2010, but remains 2.0% above the first quarter of 2009. Nationally, housing prices have rebounded from crisis lows, but recently have seen renewed weakness as tax incentives end and foreclosures climb.

On a more optimistic note, west coast cities continue to outperform the nation as a whole. Los Angeles, San Diego, and San Francisco have recovered 7.2%, 10.9%, and 16.2%, respectively, from recent lows. San Diego, in particular, has seen increasing home prices for eleven consecutive months.

Portland, on the other hand, reached its lowest index point since April 2005, was 2.8% below March 2009 and 23.0% below the high point in July 2007. Seattle’s recent experience mirrors Portland’s.

What do you think will happen to the Portland numbers next month?

Skip the usual disclaimers; here is what I think:

1. The Portland housing market has stabilized, as evidenced by the leveling of sale prices and the generally balanced inventory.

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2. That stability is fragile. Several threats remain:

• Weak Demand:

Continued high unemployment means fewer qualified buyers, fear of buying amongst those who are qualified, and a general lack of urgency by the buying public. There are a lot of potential buyers waiting for the day they are certain values won’t drop further.

• Mortgage Availability:

The Federal government is scheduled to stop its bailout buying of mortgage-backed securities after March 2010. Without a fluid secondary market, loan originators won’t be able to cash out new loans, and will make fewer new loans at higher cost to borrowers. I have a strong hunch that the Feds will continue this intervention if the secondary market hasn’t started to heal itself by then.

• Interest Rates:

Some economists think 30 year fixed rates will rise close to 7% this year. They’ve said that many times over the past few years. This time I think they’ll be close to right. Perversely, the threat of rising rates will stimulate buying in the short-term, as it has done many times before.

• Employment-Related Distressed Property Sellers:

No job, no money to pay the bank. Have job, keep the home. ‘Nuf said.

• “Strategic” Foreclosures:

Reports are circulating of people who, though able to pay their mortgage, choose to abandon their homes on the theory that they’ll recover faster financially without the house than waiting for the house to recover its value. Credible estimates exist that the likelihood of homeowners doing this increases dramatically when their homes’ value dips below 75% of the secured indebtedness. My hunch is that we’ll hear a lot of these stories from other parts of the country, particularly the housing bubble states, but that the Portland real estate market won’t be affected much further.

• The “Shadow Inventory”:

No this is not a Marvel comic book character. Anecdotal reports are increasing that banks have a huge supply of distressed homes, either about to be taken back, taken back, or foreclosed upon, that will be dropped on the market any day, and that such a flood will sink property values further. No doubt these homes exist, but the number doesn’t become larger by repetition. Banks frequently delay starting the foreclosure process, call it “strategic non-foreclosure,” for a number of reasons (a topic for another post!). Nobody has been able to give a good estimate of this shadow inventory’s size, or how it will be managed, so its hard to know if it will matter in Portland or not. Even if the number is as large as some speculate, one would think the banks will trickle the properties onto the market over time. Imagine Bill Gates selling all his shares in Microsoft: it would be done slowly. Nonetheless, bank-owned or controlled properties will be added to the supply of active listings for a long time to come, thereby putting some downward pressure on prices. It’s just impossible to tell how much.

• Expiration of the First-Time Homebuyer Tax Credit:

I mentioned earlier that I did not think the credit was affecting the Portland housing market as much as the media has reported, so I don’t think its expiration will matter much, either. That said, the credit is a real bonus to an eligible buyer, so best get on the stick if you hope to take advantage of it.  See our summary of the First-Time Homebuyer Tax Credit to learn a few twists on utilizing the credit.

3. So what will the Portland housing market do in 2010?

• Unemployment will fall slowly but steadily throughout the year.

• Interest rates will remain low for most of the year, but finally start creeping up as the economic recovery gains traction and the markets respond.

• Portland median home prices will remain flat for several months, with a slight upswing later in the year. Monthly fluctuations will occur, but the overall trend will be fairly stable.

• Several Portland sub-markets that have been excessively discounted (Forest Heights and parts of West Portland, for instance) will rebound towards the overall Metro Portland trends, giving the appearance of a spike in activity and prices. Of course, if your home is one that sells quickly for more than you expected, this correction will be more than just an appearance!

• Several sub-markets (Lake Oswego for instance) that have resisted price adjustments will show either price drops or excessive standing inventory (again).

• The Oregonian will report a lot of meaningless statistics, and will announce the housing recovery three months late.

• Many buyers will look back at the bottom of the market and wish they had bought earlier in the year.

• Just my opinions. Maybe I’ll be right!

4. Where are the opportunities in 2010?

• Tune in next week,
• Visit the Portland Home Team’s Market Data Center for current market data, or
• Call or email us to discuss any other real estate concern.

Portland Housing Market: 2009 Review, 2010 Forecast

• Monday – 2009 Portland Home Sale Prices: RMLS releases annualized 2009 data for Portland metro and sub-area markets.
• Tuesday – 2009 Portland Home Sale Totals: What type and size homes have suffered the most?
• Wednesday – Active Listing Inventory: Is it true that Portland is flooded with “For Sale” signs?
• Thursday – 2010 Forecast: What we think it all means for the market value of your current or future home.
• Next Week – Opportunities in 2010: There are unbelievable bargains out there, but they’re not obvious.

RMLS recently updated the annual market data for Portland metro and sub-area housing markets. By the simplest measure, Portland home values fell 11% in 2009. The 2008 median sale price was $278,000; 2009 was $247,000. West Portland fell slightly less, about 10%. The 2008 West Portland median sale price was $389,000; 2009 was $349,000.

For 2009 Metro Portland is also 14.8% below the 2007 median sale price of $289,900, and 19.4% below the peak month of 2007.  See S&P/Case-Shiller releases November 2009 Housing Indices to find out how Portland fared amongst the twenty largest U.S. cities.

Price adjustments occurred pretty evenly across home sizes, at least when measured by the number of bedrooms.

Those nice smooth lines, however, mask a lot of month to month variation. For instance, the same data for the West Portland sub-market, graphed in detail at a monthly level, illustrates the wild swings that occur within any twelve month period.

Despite broad statistical measures, values have not changed consistently throughout Portland. Visit the Portland Home Team’s Market Data Center for other current measures, or call or email us for up-to-date information about your home.

Portland Housing Market: 2009 Review, 2010 Forecast

• Monday – 2009 Portland Home Sale Prices: RMLS releases annualized 2009 data for Portland metro and sub-area markets.
• Tuesday – 2009 Portland Home Sale Totals: What type and size homes have suffered the most?
• Wednesday – Active Listing Inventory: Is it true that Portland is flooded with “For Sale” signs?
• Thursday – 2010 Forecast: What we think it all means for the market value of your current or future home.
• Next Week – Opportunities in 2010: There are unbelievable bargains out there, but they’re not obvious.

This morning Standard & Poor’s/Case-Shiller released its November 2009 housing indices for the ten and twenty largest U.S. metropolitan areas. The twenty U.S. city index fell 0.2% from October 2009 and 5.4% from November 2008. Portland rose 0.3% over October 2009 and fell 7.5% from November 2008. Four other markets, all western U.S. cities, (Los Angeles, Phoenix, San Diego and San Francisco) rose in November over October and have seen at least six months of price increases. Portland is also up 2.4% in the seven months since its low point in April 2009.

Since the 2006 peak, the 10-city composite is down 30.0% and the 20-city composite is off 29.2%. The Portland market remains 19.4% below its July 2007 peak.

I like referring to Case-Shiller because 1) it uses a three month rolling average (smoothing out single month outliers), and 2) it measures same home resales (thereby attempting to address varying mixes of sold homes). Its methodology is not perfect, and the information is delayed two months, but its worth a look.

October 2009 months inventory, the number of months it would take to sell all active listings at the current month’s rate of sales, fell to its lowest level since August 2007, the peak of the Portland real estate market. 2,009 home sales closed in October 2009 (up 37% from October 2008). At that rate, October’s 13,101 active listings (a 16% decrease from 16,257 in October 2008) would take 6.5 months to sell. Six to eight months inventory is generally considered balanced.

The Portland metro area median sales price has settled between $240,000 and $250,000 for eight straight months, a range roughly 11% lower than this time last year. The RMLS Market Action Report for October 2009, the source of this data, was released this afternoon.

Balanced inventory and steady prices are two strong indicators of a stabilizing market, and at another time would be cause for celebration. But the general economic recovery is young and fragile, and the real estate market will lag in its recovery. The biggest risk facing the Portland housing market: a “shadow inventory” of potential foreclosures related to job losses. More on that later.

The first graph shows the months inventory history for Metro Portland and West Portland. The second graph shows the median sales price history. More data to answer the question “How is the market doing?” is available at our Portland Home Team Market Data Center, or call or email us for up-to-date information about your home.

First, the headline is true. The September 2009 median sale price for close-in west Portland homes was $371,500, 13.4% higher than the August 2009 median price of $327,500.

The catch is that this statistic derives almost exclusively from the fact that 34% (60/176) of the September closed sales were four bedroom and larger homes, compared to 21% (36/171) in August. Larger homes are generally more expensive, so the median price went up (remember that the median is the “middle” price, sale #86 of 171 in August, for instance). This is the problem I have with local media reports – they usually compare monthly highs and lows to measure market changes, when those monthly numbers were never accurate representations in the first place. Look at the broader trends below.

So what did happen to large home prices? The median price of four or more bedroom homes in Portland that closed in September 2009 was $477,500, 8.3% LESS than the median price of $521,000 in August. How can this be? Put simply, many of the large homes that sold were a little run down in September, so large home price statistics fell, but there were proportionally more of them, so the overall sales statistics rose. And that’s just west Portland! See the second graph below.

Confused? That’s why you should call us. We follow this stuff every day, and we will make sense of it for you.

Regardless of how you feel about Oregon’s land-use planning system, the announcement last night that Metro envisions no expansion of Portland’s urban growth boundary to accommodate an anticipated one million additional people by 2030 is probably surprising. But Metro has done its homework, and development interests will need to marshal all their resources to counter it. As reported in this morning’s Oregonian, Metro says Portland has room to grow inside the current urban growth boundary.

Metro’s announcement and report formally opens a 30-day public comment period featuring seven open houses and five public hearings. Metro is scheduled to adopt a regional transportation plan and an urban growth report, which will formalize population and job projections, by the end of the year. Designations of urban and rural reserves are scheduled for next summer. A Guide to Making the Greatest Place is a concise, downloadable summary with timelines and meeting schedules prepared by Metro.

The “takeaway” for those of us in the close-in neighborhoods: good homes in convenient locations will become more valuable and outperform the general market.

The May RMLS Market Action reported last week that both the average and median sale prices of Portland homes were down 13% from May 2008. West Portland (roughly the area between the Willamette River and Hwy 217, Lake Oswego and the Multnomah County line), however, has experienced different results. Using RMLS’s numbers and measuring methodology, West Portland saw an average sale price decrease of 4.3% and a median sale price INCREASE of 0.7% from May 2008 to May 2009. Price increases? In 2009? See the charts below. 
 

Median Home Sale Prices

View our Market Data Center to stay on top of the Portland real estate market.

Portland State University’s Center for Real Estate, the closest thing we have to a real estate think tank, today released it’s PSU Center for Real Estate Quarterly & Development Journal for the 2nd Quarter of 2009. The lead article is an interesting defense of keeping Memorial Coliseum as a coliseum. Read about this Portland icon at Coliseum Choices: An Asset Too Valuable to Demolish.

Two other articles relate more directly to the Portland residential real estate market. The first, Bursting Bubbles: Portland’s Distressed Housing Market, is a very well-written, succinct summary of the where we are and how we got here, with a focus on the data for distressed properties. The second article,  Housing Market Analysis, is a detailed analysis of the Portland real estate market and how it compares to regional and national markets.

The remaining articles in this issue analyze the credit markets for commercial real estate and the Portland commercial, industrial, and multifamily real estate markets. The journal is well worth a look.