Monthly Archives: February 2012

Just Released Case-Shiller

Posted on by

So who won the annual race for best price results? Would you believe Detroit? Yep, Detroit. The unfortunate homeowners in Detroit have been hit so hard that they finally got a little bounce. Here’s hoping it continues — and that the rest of the country joins in soon.

Tampa and Las Vegas may still have further to go before they are caught, but the rest of this group looks to be stabilizing.

Meanwhile, on the East Coast, not much has changed. Atlanta and Miami continue to fall, Charlotte & NYC are trying to level out while Boston & DC are nearly flat. Remember, too, that these numbers are two months behind the market.

Last, but far from least, is the West Coast. What we see here is that in California, the early selling was overdone, as was the bargain-buying. In all five cities, the current price motion is down. When I say “current” I mean current to this chart. Portland and Seattle are seeing prices firming, time on market numbers dropping and the dispersion of prices narrowing, all of which are usually signs of an impending market turn. There are still a lot of distressed houses on the market and a lot of lenders who are either convinced that buyers are terminally stupid or that the market is going up 20% in 2012. In my view, the lenders are not merely out of touch, but are downright stupid. On the other hand, had they not been greedy, careless idiots, they would not have precipitated the bubble and debacle. But why don’t I tell you how I really feel?  :-)

One Step Closer

Posted on by

We are one step closer to seeing housing prices “behave normally,” which is to say “go up.” Today’s FHFA report shows a small month to month increase in home prices. But my focus is on the chart below. When the red line crosses above zero, the implications of the chart itself are that most cities will be on their way to usefully higher home prices. I suppose I should say, “Useful to Sellers,” since lower prices are preferred by buyers. But no one likes falling prices, not even buyers. So, a few more months may see us into a stronger housing market.

[Chart]

Portland Doing Better than the Nation?

Posted on by

Portland housing prices dropped a lot. Now, however, we seem to be about to recover. I have in mind to bits of information. First, one you’ll like hear about on TV, is the existing home sales report. Sales increased this month, both over last month and over last year. However, prices were down nation-wide. But look at the price chart (below) from Portland’s multiple listing service, RMLS. Prices were at their lowest in March, 2011. This does seem like a really good time to be a buyer: low prices have met low interest rates. If you look at November ’09 through about June of ’10, you’ll think, correctly, that prices might still go lower. And they might. But we are seeing activity now at a level we’ve not seen for a few years, so we the worst may be behind us.

 

What is the likely future of the Eurozone/Greece “problem”?

Posted on by

Step one will be an agreement will be forged between banks, perhaps including an assortment of central banks, and Greek politicians. The only sticking point will be the portion of the debt that has been purchased by hedge funds, then insured by purchasing credit default swaps. The hedge funds will make the most money ifGreeceis forced into bankruptcy; their second best scenario is forGreeceto be able to roll-over the sovereign debt at 50¢ on the Euro. The first situation does not square with the political aspirations of the Eurozone; the second simply forceGreeceto repeat the bailout in a matter of months – 12 months at most. Will the Eurozone politicians have the stomach forGreeceto renounce the debt acquired by the hedge funds? That, along with writing down the debt to 30¢ on the Euro, would go a long way towards making possible Greek economic recovery.

Getting through step one requires the Greek government to make cuts that are well beyond what the electorate will tolerate. The downstream net result, step two, will be that Greek government will be forced to abandon some of the promises and cuts. The Eurozone will most likely tolerate that failure, as it has been doing for years.

Step three will be to return to step one. Eventually, even Greek politicians will figure out that Greece needs both jobs and a workforce that will actually work at those jobs.

But in the meantime, the very, very important outcome will be what doesn’t happen: panic. No disorderly default will mean no panic in the equities markets and no discovery that, once again, the banks and insurance companies have written so many CDSs that they are illiquid or worse. Steps one and two will buy time for the world’s economy to strengthen (absent some other grand and greedy stupidity by the banks and/or hedge funds).

All that means a gradual return of solidity to housing prices in the coastal cities of the US; it means Canada will have a not-very-severe loss of confidence in its housing market; housing prices in England,FranceandGermanywill solidify.SpainandPortugalwill continue to have high default rates, in large part because they are economically mired in the 1930s. On the other hand,China,Brazil and India will continue to prosper, though their outrageously high growth rates (echoes of “Irrational Exuberance”) will move down towards long term stable rates.

The worlds bourses/stock markets will continue to have the ups and downs that are normal; the general trend or, as economists like to call it, “drift” will remain up for the major economies.

Expect slow growth outside of China,BrazilandIndia. But slow growth is better than no growth, and much, much better than contraction.

But if step one blows up – Oh, my! Anything could happen, and the prospects for anything good are very slender.

 

 

The Bottom??

Posted on by

Sure looks like the bottom is in. If so, the bottom will have been hit not in 2012 but in March, 2011. This assessment is based on RMLS statistics, which differ somewhat from the Case-Shiller numbers I display in the the C-S are adjusted for seasonality. They are also two months after the fact, so in 10 days we will see the C-S numbers from December. The lag is no big deal. The housing market is larger than the GNP, so shifts in momentum take a bit of time.

Once again, the strongest markets in the Portland Metro Area were NW Washington County, down 0.9%, and Lake Oswego-West Linn, down 1.3%. The weakest markets were a three way tie between Beaverton/Aloha, down 8.8%, Tigard/Wilsonville, down 8.6% and Hillsboro/Forest Grove down 8.7%. SE Portland was within a statistical gnat’s eyelash of a tie at down 8.4%.

January saw the largest number of closings of any January since the banks destroyed the economy. That is a very hopeful sign.

Yesterday’s Housing Starts was also good news. For three consecutive months the construction industry has started more housing than anytime in the prior three years. That reflects optimism both by the builders and by the banks.

Now, if prices will start back up; if jobs creation will speed up; if our beloved congress doesn’t cut off stimulus before the job of resurrecting the economy is done, we can get back to the business of America’s business.

 

Buy Now or Wait?

Posted on by

Interest rates are very low now. 4% is the “normal” conventional mortgage rate. To see what that means for monthly payment, look at the chart below. Things change a bit for mortgages above $400,000, so-called “Jumbo” loans, so I have not included them. You’ll note the difference a change to 5% interest makes: more than enough for a decent restaurant meal each month.

Buying Short Sales: Part 2

Posted on by

The basic process for buying a short sale is similar to an ordinary sale with one extra step.
As usual, the buyer will make an offer. That offer will be presented to the owner of the house. Once the owner accepts the offer, the extra step happens: the offer will be presented to the bank that owns the mortgage. The bank will accept, decline or make a counter-proposal.

Pretty straight-forward, right? But the reality of “buyer must move quickly while the bank moves ever-so-slowly” frustrates buyers, agents and mortgage brokers. You, as the buyer, need to be prepared for long waits (think three or four months) for a decision by the bank. Once an offer is accepted by the bank, there will be pressure on the buyer to hurry up and close. Why would you put up with this? Just today I was looking at a waterfront condo on the market as a short sale for $390,000. This condo sold nearly six years ago for $530,000. If one were available, a market value transaction would be at about $480,000 based on the offerings in the building. A savings of 20% is a good reason to be patient.

When you look at short sales, you should have your financing lined up and ready to go, and you should take a notebook and a camera with you. These are to document in writing and with photos everything that needs repair so that you can later find out what the costs of the repairs will be. The owner will not pay for any repairs and neither will the bank. So you will want to be sure that you know what to expect in the way of additional costs after you close.

You’ll need your financing letter in hand, whether you make an offer on a short sale or on an ordinary market transaction: a copy of that letter must accompany the offer. In today’s competitive short sale market, supplying proof of ability to buy after an offer is accepted is no longer a viable approach.

Buyer Tips: Buying a Short Sale

Posted on by

Buying short sales is a different experience than buying in a non-distressed situation. Buyer expectations need to be modified accordingly. Sellers are not going to spend any money making the property attractive to buyers nor will they do repairs. Why? Because they have no incentive to do so. They are losing money no matter what, and any money they spend increasing the attractiveness of the house just adds to their losses.

So, as a buyer, if you want to avail yourself of the bargain price that short sales can offer, be ready to take the imperfections as part of the package. If you aren’t ready to do that, stick with voluntary sales, albeit at higher prices.

Buyer’s Tips: Short Sales

Posted on by

Buying short sales is a different experience than buying in a non-distressed situation. Buyer expectations need to be modified accordingly. Sellers are not going to spend any money making the property attractive to buyers nor will they do repairs. Why? Because they have no incentive to do so. They are losing money no matter what, and any money they spend increasing the attractiveness of the house just adds to their losses.

So, as a buyer, if you want to avail yourself of the bargain price that short sales can offer, be ready to take the imperfections as part of the package. If you aren’t ready to do that, stick with voluntary sales, albeit at higher prices.

Bonny-Bauer

Posted on by

Yesterday, in Seller’s Tips, I wrote about a pair of just-constructed houses nearThompson Rd, and area I choose to refer to as “Bonny-Bauer.” That is basically a combination of Bonny Slope and Bauer Woods, the other “Bauer” subdivisions, and the mostly newer construction in between. Today, I will provide all the numbers.

At the moment, there are 33 homes for sale at an average price of $509,000. The median price is $499,950 which suggests pretty good uniformity of neighborhood or a bell-curve (Normal Distribution) or perhaps both. The low price is $370,000 and the high price $760,000, a multiple of just over 2. That is another indicator of a desirable housing mix. The most expensive house is 4,450 sq. ft. and the least expensive 2,000 sq. ft. However, the largest house is 5,170 sq. ft. and the smallest only 1,150 sq. ft. That discrepancy makes the bells go off in my head.

The smallest house is perched atop 2 acres of dirt. In better times, a developer might be inclined to buy the property to subdivide into five or six lots, perhaps not even tearing down the house. At any rate, we know why the smallest house is not the least expensive, which is what we should expect.

The largest house includes about 400 sq.ft. of unfinished space which makes it a little closer in size to the most expensive. Both sit on large lots. The former is an extensive remodel of a 70s house, while the latter is mid-90’s that now has granite surfaces. It is interesting to me, although not significant, that the tax assessor values the larger home at $200,000 less than the smaller. While I am in agreement that the market is likely to value the smaller house at a higher $$/sq. ft. figure than the larger, the difference between $171/sq.ft. and $126/sq.ft. seems excessive to me. It will be interesting to see what the eventual selling prices are.