State of the Market:
- Have We Hit Bottom? The experts agree that generally speaking, the country has “hit bottom”, with various areas lagging behind a bit. CNN.Money.com predicts that the Portland area will hit bottom in Q3 of this year. Our latest RMLS Market Action Report for the Portland area indicates that Portland metro area closed sales increased 18.4% when comparing 2009 vs 2010. Pending sales rose 45% and new listings rose 12.4%. The average sales price declined 8.5%.
(Money Magazine) — The drama is nearly over. After a decade of extremes — the ebullient highs of the real estate boom, then the devastating lows of the bust — calmer forces are beginning to prevail in the housing market.
- Local Lake Oswego Data The RMLS Market Action Report lumps West Linn and Lake Oswego together, but here is some interesting data:
* In February 2010 the average sales price was $457,700.
* The average time on the market was 153 days.
* Pending Sales rose 52.7% in Feb 2010 as compared to Feb 2009.
* The average sales price has declined 9.7% in a rolling 12-month equation (i.e. 3/1/08 – 2/28/09 compared with 3/1/09 – 2/28/10) - Rates are Rising I have clients asking “Is this the right time to buy or should we wait?” One thing we know is that rates are rising. Right now they are still in the 5% range… actually they are up a bit today at 5.125% but overall they’ve been fluctuating between 4.875% and 5.125% for 30-yr fixed. As for more foreclosures to come, and prices lowering… interest rates are rising, some say 7% is possible NY Times… so if you ARE planning to finance, all the experts agree that this is the time to be buying, because even if prices go lower, the fact that the interest rates go up effectively nullifies your benefits.
- Portland Area Rating Improves “Mortgage insurance companies have upgraded Portland’s property value housing trends, meaning that they predict values to be stabilizing in the Portland market.” Pat Goodell, Academy Mortgage
- Tax Credits For first-time home-buyers and “moving-up” buyers, there is still time to find a property you love & get a mutually-agreed deal in place before April 30th. So…. hang in there if you are still looking for that “right” one. Work with your Realtor to narrow the field, or give Dianne or me a call if you are not working with a Realtor. (I love working with Buyers…. it is actually the reason I originally got into real estate.)
- USDA Loans USDA anticipates running out of funds to lend by end-April 2010. If you are thinking about rural properties and considering a USDA loan, now would be the time to ink an offer.
- FHA Mortgage Insurance Premiums Rising FHA’s upfront (financed) mortgage insurance premium increased to 2.25% effective April 5. And/but, if you are anticipating taking advantage of an FHA loan, don’t fret too much. You WILL now have the higher premium, however, it’s not anything that should get you in a tizzy, as it will make very little difference in your mortgage payment. For example, on a $300,000 loan amount, your payment will only increase by approximately $8./month adding in that higher mortgage insurance premium. (This according to Pat Goodell of Academy Mortgage 503 380 0953.)
- “The Deal” One thing I am noticing is that many people are becoming so enamored with “the deal” these days, that some are missing the point of why they decided to purchase to begin with, so I am simultaneously always trying to meet my clients needs & desires in a *property* (i.e. what they are trying to accomplish for themselves in their lives w/the purchase… what they truly like), while at the same time being cognizant of the “deal factor” for them. Keep in mind these things regarding “deals”… there are basically three kinds:
- People who are pricing their homes to sell. They have their own circumstances (down-sizing/relocation/up-sizing/on & on & on), and they are wanting to move on in some fashion. There are plenty of these out there these days, especially as home owners look around and face the fact that they are now competing with so many homes in or approaching foreclosure. There are some very real advantages to buying your home from these folks. Some include: Often these homes are in tip-top shape / You are dealing directly with the owner of the home and as long as the agreed-upon sales price does not dip below what they owe on the property, you are in “Pending” status when you reach mutual acceptance, and /You are negotiating only with the Seller. / You proceed through a normal closing process if you are taking out a loan, and notwithstanding any negotiations or hoops you need to jump through for the underwriter, you will most likely close in 30-45 days.
- Short Sales. These homes’ owners owe more to the bank than what the property is worth in today’s market. The bank is agreeing to take less than what is owed from the Seller. There are many, many banks in existence and each has its own methods and processes, so there is no uniformity of what to expect, with a few exceptions that I will get into in a moment. There may be more than one bank involved if there is a second mortgage or more. There are a few things that you can expect, and they are: * Even if the Seller accepts your offer, the bank is the one (or ones) to give final approval considering that what they will receive is less than what was contracted with the Seller. ***The bank (s) will usually have paperwork that you must sign if you want to be in the running that will change how the property proceeds through the sale process including: Notifying you that they will only accept an earnest money check & no promissory notes/ They will keep your money and wait to see how many other offers they receive / They will not give you a time line on when they will respond to your offer / You are usually on your own with regard to any repairs / It is usually several months before you find out if your offer was the one accepted & get to proceed to close / During this process the property very often stays in “Active” position on RMLS / Very often the paperwork you must sign includes a provision wherein the bank retains the right to accept another offer right up to closing. ***For these reasons, I counsel clients that they must REALLY be in love with a property to proceed through this process. Also, depending on the property, you may be entering territory wherein you know that you will be competing with other offers, so the best advice, if this is the case, is to make this your best offer… especially if you plan to sit out the long process and want to have a happy ending. Don’t try to “wing it”… these are complicated times & even the professionals involved are still feeling out the landscape. There are all kinds of people calling themselves “experts”. Make sure you know what you are doing and ask for licenses if you think people on the periphery are operating outside of their scope of expertise. Talk to your Realtor as to what your options are, and rely on that trusted professional relationship for guidance.
- Bank-owned properties. These homes have usually been through the short sale phase unsuccessfully. The property has either been on the market & not sold, or the owners opted not to try a short sale and have simply stayed in the property until they had to move on as the bank proceeded through their legal remedies to regain the property due to non-payment. These properties are sometimes in sad condition due to hardship (i.e. deferred maintenance), but many times these days, they are in very good condition… a sign of the times & the large numbers of otherwise responsible homeowners who simply found themselves in an untenable position through job loss or other factors. The thing to remember about these properties is that the price is ALWAYS lower than either short-sales or standard “good deals”. The bank wants to move on and prices the home low. The bank is now the Seller and usually acts just like a normal Seller, i.e. Negotiating (tho usually not for repairs)/ accepting or rejecting an offer/Moving on to close with the property going to “Pending” status once it’s mutually agreed-upon/Proceeding through a normal closing process for the Buyer. For this reason: Investors and others are waiting in the wings to pounce on these very often with cash offers, so you have to be quick, and you want to be very careful about low offers, though this can sometimes still be a viable option. Talk to your Realtor about options as they will vary from property to property.
Hope this info is helpful!
‘Have We Hit Bottom?’
Right after I saw your blog post appear in my RSS reader I saw this…
The Portland Housing Blog, April 8 2010 (http://portlandhousing.blogspot.com):
“Multnomah County Defaults Soar
Recent data from the Multnomah County Recorders Office shows notice of defaults growing at an alarming rate as Portland’s housing bubble begins its deflationary journey in earnest.
* Defaults from 2008 – 2009 increased 54.7%
* Defaults for Q1 2010 vs all of 2009 increased 20.8%
* YOY defaults for Q1 2009 vs Q1 2010 increased 23.6%
[There’s an interesting graph]
The actual foreclosure rate has yet to catch up to these numbers…”
Not much sign of a bottom there. The initial NOD rate is the front end of the process. Some months (many months?) after the NOD rate peaks we should expect to see a maximum in the rate and proportion of distressed sales coming through, and only some time after that, as the banks’ distressed REO is sold off, a set of market conditions in which prices have no further reason to fall.
Winston Churchill (1942): “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Geez Neville… “The end of the beginning?” : )
I mentioned is that even with prices predicted to continue to drop till what they are saying is Q3, with interest rates rising, we are “effectively” at bottom here too because the net effect of waiting till prices drop further and taking a hit on the coming interest rate increases nullifies your “net benefit” as a buyer.
Anyway, the sky is no longer falling in that previously we did not know what the heck was going on… now we have an idea. The recession officially ended in, I think it was November. (Tell that to people who have not found a job yet tho!). My blog post stated that the experts agree that we have hit bottom “generally speaking” NATIONALLY, but that some areas are lagging behind a bit. The predictions I cited were for the Portland area to do so in Q3. These are always just guestimates in this kind of unprecedented climate. Now, all that said, foreclosures will continue for the next year or two. We will have “regular” properties competing with them for some time. How that affects any downward trend in pricing is yet to be seen. Banks do something called a BPO (Brokers Price Opinion) which is based on the market/sold pricing trends. If Portland follows the country (which it will) and prices stabilize (as they are starting to in other areas), the bank-owned properties will always be LESS than the others, but may not continue a downward spiral of pricing in the way that we have seen to this point.
Now… the world also could be coming to an end… but I am betting on the other outcome : ) One way or the other, we are all moving forward now, and with a lot clearer vision.
Here is Meredith Whitney, yesterday, on expecting a ‘double dip’ (also known as a ‘second downleg’) in US residential real estate prices, starting this summer:
http://bubblemeter.blogspot.com/2010/04/more-of-meredith-whitney-on-housing.html
Whitney’s career has been built on understanding banks’ balance sheets, and her point is that the wave of foreclosures and consequently REO sales now approaching is bigger than anything we have seen to date.
I don’t think the world is about to come to an end, in fact I’m a willing real estate investor in Lake Oswego watching this market, but I do understand something about supply and demand. The supply of real estate for sale at distressed prices looks like it’s about to increase, and I’m not seeing evidence of any increase in demand.
Of course prices will bottom, but the huge pile of REO, which at the moment is still growing, will surely have to be ‘blown out’ first. Our government, along with others, has been attempting to make that happen by providing cheap loans and extra tax credits for homebuyers, but we’re now into a global government financing crisis and we have more REO than we did before. The only lever this leaves available to shift the REO off the banks’ balance sheets is price.
Neville,
Yes, there is a huge unknown out there waiting for us all, and anyone who tells you he or she can predict the future is to be viewed with skepticism. I CAN tell you that the latest data in the Portland area is that: “Comparing January – February 2010 with the same period in 2009, closed sales increased 27.7%. Pending sales rose 34.7%, while new listings grew a slight 2.1%.” (from most recent RMLS Market Action Report) So… demand appears to be there, and sales appear to be outpacing new listings as far as growth goes.
As for foreclosures, again, they will continue for some time. We were at the proverbial ‘tip of the tail’ going down, and we are there for the upswing too. That said, you and I are both just making available information from economists… and their reports vary. I tend to think that there is ‘reality’ somewhere in the middle. Q3 may be too early for a prediction of “the end” of any downward pricing, and ‘steep’ declines are probably not going to accompany the continuance of foreclosures as the national market stablizes our own price-wise.
My question to you, Neville is… as a ready and willing investor in Lake Oswego real estate, are you choosing from the smorgasbord of offerings now? … or are you waiting. Are you buying cash in Lake Oswego or are you waiting for the rates to go up?
Thank you for contributing to this Blog!