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.

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.

Monday I posted about Portland property tax bills increasing due to constitutionally prescribed increases in assessed values and voter-approved levies and bond measures. The question remains “When is it a good idea to appeal my property taxes?”

First, the Board of Property Tax Appeals only considers assessed valuations.

• It can not determine the amount of tax to be assessed, nor can it consider financial hardship as a basis for changing an assessment.
• Appeals will only be heard for current year values, which is why the only way to affect the Maximum Assessed Value (MAV) on improvements is to appeal the Real Market Value (RMV) of those improvements in the year assessed.
  • The Maximum Assessed Value for improvements is derived by formula, which is discussed more completely at our Portland Home Team web site.
  • It makes sense to appeal an over-estimated Real Market Value for last year’s improvements because it affects both the property RMV and the MAV for improvements.
  • You cannot appeal the MAV later.
• Appeals must be filed between the time property tax bills are mailed and December 31st. BOPTA forms and instructions are available from the Oregon Department of Revenue Property Tax Division.
• If you miss the filing deadline or seek to appeal a prior year’s value, you may still be able to file an appeal with the Magistrate Division of the Oregon Tax Court. More information is available at the Oregon Tax Court’s web site.

So who should appeal their Oregon property valuation?

• You think the real market value of your Oregon property on January 1, 2009 was less than the assessed value (which is usually the MAV). A bargain purchase, such as from a relative or a distressed owner, will be valued at its fair market value, not necessarily what you paid for it.
• You disagree with the county’s valuation of new construction, remodeling, or other exceptions. Since these are not usually identified on the property tax statement, you will need to contact the county assessor to determine the value placed on any improvements.
• You think the Assessor’s Office made a calculation error in setting the Assessed Value.

Call us with your questions!

If your home or recent improvements are assessed for more than what you think they were worth on January 1, 2009, consider appealing your valuation. Call or email us any time if you think we can help.

Nationally, the Twenty City Index showed a 1.2% gain in August over July and a 4.9% increase over the low point in April, 2009, with each month showing a slight increase over the previous month. Portland home prices have also seen four months of modest gains, with the August index showing a 0.3% monthly jump and a cumulative 2.5% gain over April.

Several west coast cities are showing strong rebounds. San Francisco, in particular, increased 2.8% from July to August, and has seen a cumulative 12.5% bounce from it’s low in March this year.

S&P/Case-Shiller released their August 2009 Home Price Indices this morning. 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.

Property tax statements have arrived, and some people are surprised to see their taxes increase from last year by four to six percent. There has been a fair amount of media coverage of this, but I don’t think the “why” has been made very clear. I’ve written more extensively at our Portland Home Team web site, but here is my attempt at a concise explanation:

Oregon property tax basics:

1. Property taxes are based on the property’s Assessed Value (AV) multiplied by the applicable millage rate.
2. Assessed value is the lesser of:
   1. the Real Market Value (RMV), which is the market value on the January 1st preceding the July to June tax year, or
   2. the Maximum Assessed Value (MAV) determined under Measure 50, passed in 1997. Measure 50 amended the Oregon constitution to set MAV at the 1995-96 assessed value less 10%, increasing by three percent (no more, no less) per year thereafter.
3. Millage rates vary by taxing district, but they are permanently limited by Measure 5, passed in 1990, and Measure 50.
   1. The rate limits may be exceeded for bonds, hospital districts, police and fire pension obligations, and levies passed in 1996 and later that meet special voting requirements.
   2. Voter approved bonds and levies raised many Portland homeowners’ 2009-10 taxes more than the dictated three percent increase in MAV.

What has happened to Portland market and assessed values since 1995?

• Overall, Portland market values are now almost exactly 200% of the market values in the 1995-96 tax year, as measured by the Case-Shiller Index of median home sale prices in January 1995 and in January 2009.
• Under Measure 50, Maximum Assessed Values (MAV) for the 2009-2010 tax year are 136.13% of the 1995-1996 assessed values, which supposedly reflected market values at January 1, 1995.
• The graph shows the spread between Portland market values and maximum assessed values over the years. Most homes are now assessed at about two-thirds of what the assessor thinks is their market value.

Call us with your questions!

If your home is assessed for more than what you think is it was worth on January 1, 2009, consider appealing your valuation. More on that Wednesday. Call or email us any time if you would like to discuss your concerns in detail.

Last week OregonLive, the online version of the Oregonian newspaper, reported that the median sale price for a Portland home in August, 2009 was $249,900, down 17.3% from August 2007. That was the peak month of the boom, when the median Portland sale price was $302,000. OregonLive also noted that metro prices had hovered around $250,000 for nine straight months.

West Portland has been more volatile, probably due a smaller data set, which is compounded by a fluctuating monthly mix of small and large home sales. The West Portland median price history, broken down by home size (bedrooms), may be viewed in our Portland Market Data Center.

The graph below shows the median price history for both Metro Portland (blue) and close-in West Portland (red). The 12 month trend lines smooth out the seasonal fluctuations.

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.

NAR reported this morning that the monthly number of existing home sale contracts has risen for six straight months, the first time that has occurred since the Pending Home Sales Index was created in 2001 (the base year in which the index equals 100). July’s value of 97.6 was the highest single month since June 2007, when the index reached 100.7. In the West the index jumped to 112.5, and is 20.0 percent above July 2008. Note that this index measures the number of pending sales, not price changes.

Why has the Pending Home Sales Index jumped? The professional consensus is that falling prices and low interest rates have dramatically increased housing affordability, and the first-time buyer tax credit has further stimulated the number of sales. Nationally, the typical mortgage payment now takes less than 25 percent of “median family income” to buy a “median priced home.” People are buying while both prices and rates are low because they can and because many think the bottoms of their markets have passed. NAR also estimates that 1.9 to 2.0 million buyers will take advantage of the $8,000 first-time buyer tax credit this year, 350,000 of whom would not have bought without it. The number of sales is up and the unsold inventory is down nationally, regionally, and in Portland.

Portland home buyers qualifying for Federal Housing Administration-insured mortgages may soon use the new $8,000 first-time home buyer tax credit as a down payment, US Department of Housing and Urban Development Secretary Shaun Donovan said Tuesday.

The FHA will allow approved lenders, non-profits, and state and local governments to fund short-term bridge loans to be used for down payment funds by borrowers eligible to claim the home buyer tax credit. The borrowers will then repay the loans after getting their tax refunds.

The FHA requires a minimum 3.5% down payment on loans backed by the agency. Details on the initiative will be released next week.