Author Archives: Ron

About Ron

I've been in real estate nearly forever-- but I have to do something for fun. In addition to brokering houses, I have appraised, appearing in court in Oregon as an expert appraisal witness, I have worked with developers and I have rehabbed both apartment buildings and single family residences. I have the strange notion that looking for a new home should be fun. It is a very serious business: lots of money is at stake. But we can have fun while we look for your next home.

West Coast Housing:Case Shiller part II

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First the usual graph of price changes, month by month, from January, 2000, to the present. We see only small changes from last month, with Los Angeles and San Diego having held value the best, San Francisco the worst. Portland and Seattle kind of squish together, just above San Francisco.

In the second chart we can see that Portland and Seattle have gone from having the worst price acceleration, here meaning ‘most downward’ in April through June of 2011, to being the strongest performers in November and December, 2011. In fact, the only city that hasn’t gotten some better is Los Angeles. That could be because it still retains the most of its price spike of the West Coast City. In fact, NYC and L.A. are almost exactly even in percent of price growth from 2000 to now; Washington D.C. is the strongest by some 20%.

The simple, and likely correct interpretation of these data is that the great real estate collapse that begin 2006/2007 is almost over. If you are looking for bargains, chances are you’ll not do better than now.

Prices in L.A. got pretty high before returning to earth — wherever, exactly, ground turns out to be. Below is the rate of change in the rate of change of prices. In other words, acceleration. Historic norms vary by metropolitan area, but generally range from about 2.5% to 3% in Portland & Seattle to better than 4% in San Diego and Los Angeles. None of the cities have acceleration of zero or above as of this past January, meaning prices were still going down. If what I am seeing and hearing is correct, that is changing with some alacrity.

 

Case Shiller for January: Things Are Better

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This month I’m going to break down the numbers in some detail to try to shed some light on where America’s main supplier of jobs, the housing sector, is going. I’m going to do this across three days: one day for each of my somewhat arbitrary sectors of the country. I will start with Non-Coastal Cities. Coastal cities have, as a general rule, deep water port. Portland’s deep water port is the least effective of any outside of Florida. Deep water ports are important, and have been since the settling here of Europeans. Ports provide import and export opportunities which have profound economic implications. For housing, the most important issue is good-paying jobs.

First let’s look at the usual graph of prices vs time

This chart has changed, but nearly imperceptibly, since last month. That is appropriate. Even though the politicians like to tell lies about how much they can get done if they are elected, they are knowing lies told by liars who want you to pay them to do whatever it is they do. The economy of the United States is, by far, the largest in the world. Think of it as a large luxury liner: it will not start, stop or turn on a dime, no matter how loudly or how often a politician says that he can make that happen. The chart above shows that, after the bubble forming, the bursting, changes have been at a molasses-like speed. Indeed, the granularity, or fineness of detail of the chart above is so large that it is a bit soporific. So, lets look at another chart, that of the change of annual price changes across the past 14 months, also ending in January 2012

The lines on the graph are known as the second moment of price or the acceleration of price change. The numbers on the left are the velocity of the changing prices. Think of it as being like driving a car. If you are driving at a steady speed, be it 30mph or 60mph, the line will be flat as it goes across the chart. Were you accelerating or braking, the line would go up or down. And so it is with housing prices.

The cyan line is Detroit, the hardest hit of major American cities. Houses are selling there for a bit less than 69¢ for every $1.00 paid in the year 2000. Think of it: that is a loss of nearly 3% per year (simple) for the past 11 years. The lower chart shows that money is coming into the Detroit housing market. Each of the last 7 months have produced house prices that were higher than the corresponding month the year before. That is the strongest turn-around in the nation, though from a horrible price base. Denver showed a tiny 0.23% year-over-year price increase this month for the first time in at least 14 months; Phoenix managed 0.95%, also the first in over a year. On the chart, those are the three lines that are above zero. The rest of the non-harbor cities, plus Chicago, are still dropping like a stone. Recovery may be a long time coming for them, though maybe Minneapolis will join the ranks of the recovering soon. It is the gold line that has been rising every month since May except for Halloween.

Tomorrow I’ll look at one coast; Thursday I’ll look at the other coast.

Housing Prices Continue to Solidify

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Today’s New Home Sales report came with rather amusing remarks (not intentionally amusing) from the ignorant reporter who write for Bloomberg and other financial media. In February, new home sales were down by 5,000 units. Dire blatherings. That was 5,000 out of more than 300,000 or less than 2% change. Never mind that the reduction in sales was primarily out of regions devastated by tornadoes during February. And never mind that a median price was more than 6% higher than a year ago.

In the real world, not inhabited by “Every Headline Must Generate Fear or Joy”, these are good numbers. The number of new homes sold slightly exceeded the number built, and they were sold at usefully higher prices. What that means is fewer repossessions and short sales are going onto the market, pushing prices down. The Case-Shiller numbers, which lag the market by more than two months (not unreasonably, but, in fact what buyers are doing today takes 30 days at least to show up in the national activity data base, and that takes another month to make it to publication). So expect May’s Case-Shiller to show price gains, however slight, in Seattle, Portland, San Francisco, Los Angeles, NYC, Washington DC and Boston. Other cities may also show small gains.

The Eurozone crisis is behind us. That’s not to say the economic problems of Greece have been solved; they have not. But the crisis aspect has disappeared. That leaves only a prospective war between Israel and Iran to muck up the economic picture. If that war comes into being — let’s hope it doesn’t, for everyone’s sake — estimates are that oil will go up $30/bbl which translates to about 65¢ to 70¢ per gallon of gasoline.

If the US congress, acting in concert with the president (have I lost my mind? This is an election year) chooses to repeal hedger status for large banks, nearly half that price rise will be avoided. The question that should pop into your mind is, “How do banks qualify as hedgers for crude oil? They neither produce it nor use it to make other things?” The answer is that they successfully lobbied GHW Bush to change from non-hedger to hedger status. The song-and-dance used was that the banks needed to service clients. Now the banks and their clients dominate the market, effectively making supply and demand a secondary factor in pricing. Oligopolies, which effectively these players have become, destroy the functioning of markets. There is a remedy but thus far no one on Capitol Hill is discussing it seriously.

Steady As She Goes

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The economy has returned to its pre-crash level, expanding about 2.5% per year. The danger the economy faces is a repeat of 1936: withdrawing economic stimulus too soon. The good news is that the chairman of the Fed is one of the three or four most expert experts on what went wrong in the 1930s, which is why he has announced that rates will remain ultra-low into 2014. The bad news is that politicians are, at best, economic idiots. There is hue and cry from the ignoramuses in both political parties to end the stimulus.

Amazingly, the politicians don’t even bother to look at the British economy. British politicians decided that the correct remedy for an economy in free-fall was the same one that was tried disastrously in 1930 – 1933: balancing the government’s budget. The Brits got the same result this time as they (& the US) got 80 years ago: an economy that continues to shrink, shedding jobs for all except the most wealthy.

Today’s New Housing Starts/Permits were almost the same as they were last month. 700,000 new dwellings and 700,000 permits for new dwellings, a solid though certainly not overly expansionary number.

While more jobs and better jobs are much needed, each quarter brings more jobs than the quarter before. The numbers continue to say the housing market is solidifying along with the economy. Our leaders in both political parties need to remain Stead As She Goes.

Evidence of a Nearby Market Bottom Mounts

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The housing supply remains tight at 6.5 months. That is from a combination of fewer houses coming to market, meaning fewer distressed sales, and more buyers.

New sales were up 13.6% and sale pendings were up a whopping 32.5% while new listings dropped 4.6%. Unless more inventory comes into the market, we are likely to see the months of inventory dip below 5 months. Hard to imagine prices won’t start up then. Although my experience qualifies as “anecdotal” not “statistical,” I’m already seeing some builders raising prices a bit. Despite this bit of optimism, prices on RMLS were down about 6%, year over year.

Last months best performances were turned in by Lake Oswego-West Linn where prices rose 4/10%; NW Washington County where prices were up 0.3% and North Portland where prices were down only 1.8%.

Those areas still under a lot of stress were Beaverton, – Aloha, Tigard – Wilsonville, Hillsboro – Forest Grove and SE Portland where prices fell between 7.8% and 8.4%.

Southwest Washington, meaning Vancouver, Camas, Hazel Dell, Battleground and the other nearby communities, saw prices dip more than 10% year over year. Inventories there stand at 7.7 months, but that area is also seeing a sharp rise in numbers of sales along with a reduction in new inventory.  Perhaps equilibrium will be reached there by autumn.

Next week the Feds issue their monthly housing starts report, and I will undertake another round of looking at what houses and condos asking prices look like in Northwest Portland.

 

Just Released Case-Shiller

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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

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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?

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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”?

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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??

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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.