Today’s release of the S&P/Case-Shiller Home Price Indices for March, 2011 reported that the non-seasonally adjusted 20-City Composite Index declined 0.77% since February, falling to the lowest level seen since the national peak in 2006. Twelve cities, including Portland, fell to their lowest levels of the current housing cycle. Portland was down 0.7% from February 2011 and down 7.6% from March 2010.

Other West Coast cities fared a little better than Portland – San Diego, Los Angeles, and San Francisco suffered smaller drops, and Seattle rose a stunning 0.1% from February to March, one of two MSA’s to improve.

Last week we broke out the neighborhood averages that contribute to the overall Portland performance in our post “Portland Home Value Changes Vary Widely by Area.” The precise numbers differ because of differing methodologies, but the trends are similar.

We also demonstrated that non-distressed properties are performing very differently from the reported market averages in “West Portland Housing Stable Through April, Again.”

Call us at 503.222.4300, or visit our Portland Home Team Market Data Center for more real estate information.

Comparing the first four months of each of the past five years illustrates what many have sensed: the close-in West Portland real estate market has been relatively stable for some time.

Media reports headline city-wide averages that include distressed property sales – bank owned and short sale properties. According to RMLS data, West Portland home sales averaged 4.6% lower in price the first four months of 2011 compared to the first four months of 2010. Remove the distressed property sales, however, and the average sale prices even out for three straight years.

Other areas of town may have similar patterns. Call us if you would like to know what has happened in your area.

The total number of homes sold in West Portland has not been as consistent over the same time period. Particularly significant is the volatility of total sales of homes less than 2,000 SF in size, which include almost all of the Pearl District and South Waterfront condominiums.

Curious about your neighborhood? Call us at 503.222.4300, or visit our Portland Home Team Market Data Center.

Data through February 2011 show prices for the 10 and 20 city composites are lower than a year ago, but still slightly above their April 2009 bottoms. The 20 city composite, which includes Portland, was down 3.3% from February 2010. Portland was down 7.0% from February 2010, and hit a new low 28.3% below its July 2007 peak. The 20 City Index is 32.6% below its July 2006 peak.

California’s largest cities saw a continued slide from the interim recovery that began in Spring 2009 and peaked in July 2010. The San Francisco area, for instance, was down 2.6% from January 2011 and a whopping 40.5% from its peak in May 2006.

Case-Shiller reports on nationwide trends. Curious about your neighborhood? Call us at 503.222.4300, or visit our Portland Home Team Market Data Center.

The January 2011 RMLS Market Action Report released this afternoon showed mixed results in Portland Metro area home sales activity.

Portland area closed home sales were up 5% in January 2011 compared to January 2010, but down 29% from December 2010.

The average sale price of Portland homes was 11.9% lower in January 2011 than January 2010, and the median sale price fell 10.4%.

Curious about your neighborhood? Call us at 503.222.4300, or visit our Portland Home Team Market Data Center.

S&P/Case Shiller released the November, 2010 report Tuesday morning, repeating and confirming our earlier report that the average November sales price in the Portland Metro area recorded a one-month drop of 1.6% from October, 2010.

Of the Nationwide 20-city index, only San Diego had a gain (0.1%) in November; Los Angeles, San Diego, San Francisco and Washington D.C. showed gains in the year over year comparison (2.1%, 2.6%, 0.4%, and 3.5%, respectively).

While California appears to bring positive news, nine of the twenty cities hit their lowest levels since the 2006-07 peak, including Portland and Seattle.

Case-Shiller reports on nationwide trends. Curious about your neighborhood? Call us at 503.222.4300, or visit our Portland Home Team Market Data Center.

The Great Recession highlighted a fundamental change in what housing consumers want: homes in central cities and close-in suburbs where one can walk to stores and mass transit. The Brookings Institution published a paper in November, The Next Real Estate Boom, discussing what may be the biggest demographic event since the baby boom itself.

The two largest demographic groups in the country, the baby boomers and their children, together make up half the U.S. population. By way of comparison, the post-World War II vets and their spouses comprised twenty percent.

Baby boomers are downsizing at the same time that millennials seek “vibrant, compact, and walkable communities full of economic, social, and recreational opportunities.” Boomers and millennials alike want small one-to-three bedroom homes in walkable, transit-oriented, economically dynamic, and job-rich neighborhoods. They want homes and commercial space in neighborhoods that do not exist in sufficient quantity in the United States. Where it does exist, such walkable urban real estate has experienced less than half the average decline in price from the housing peak.

Meanwhile, demand for suburban housing is going down, not up. There is now a massive oversupply of suburban fringe development, brought on by decades of policy favoring it – including heavy government subsidies for extending roads, sewers, and utilities into undeveloped land. Houses on the fringe of large metro areas have typically lost twice as much value as metro areas as a whole since the real estate peak.

This trend bodes well for neighborhoods close to downtown Portland and vibrant suburban centers near light rail hubs. It is less promising for remote suburban areas.

What do you think?

If you have attempted to get a home loan recently, whether for a purchase or a refinance, you probably experienced a far more demanding application process than ever before. My Realtor colleagues all comment that underwriting standards over the past two years have become a frequent deal killer. Is there solid evidence that underwriting standards today are too tight?

The chart below shows the default rate for eighteen month old loans by year of origination. Note that the loans placed in 2009 have performed better than any year charted. How is it possible to have such low default rates in an economic environment of nearly 10% unemployment and home values showing hardly any growth?

The conclusion I draw is that loans are going only to the most credit-worthy, least risky borrowers. If loans are only made to wealthy, low risk borrowers, than the default rates will be negligible. But the cost to society is that many credit-worthy borrowers will be shut out of the capital markets.

No sensible person advocates a return to the lax and risky underwriting standards of the bubble years. But over-correcting for past mistakes could backfire for the lenders. Think of all those houses on the market going unsold. Who is going to be able to get financing to buy them? If they don’t sell, what does that do for the lenders?

What do you think?

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.