The Dew Is on the Bloom Again in Real Estate

As we settle into the fall of 2012 there is a strong consensus that the housing market is on the way to recovery.  From the Kiplinger Letter—“Hallelujah, Housing is firmly on the Upswing” (Sept. 28) to Money Magazine—“Home Building Surges to 4-Year High”  (Oct. 17) and “A New Housing Boom” (Oct. 12) there overriding sentiment is that housing—and prices—are on the upswing.  Even the RMLS’ “Market Action Report,” that most unsentimental of publications, allowed this past week that “the market recovery is solidifying.”

While metrics vary among different sources, all report that Portland housing appreciation is doing well, quite well.  The RMLS reported Oct 15 that based on September sales the average sales price year-to-date of $272,200 is 2.9% higher than the average price in the same period last year, while the 2012 year-to-date median of $230,400 is 3.8% higher than the median last year.  Zillow reports that prices in Portland have “rebounded” 4.8% since they hit bottom a year ago—marking the biggest year-over-year gain since April 2007.  (Zillow says that the current median home value is $224,300, on par with the same pre-crash level as April 2005.)

Is all this sustainable? Zillow “Real Estate Market Reports” is making a place for itself alongside Standard and Poor’s Case-Schiller Index and is becoming a reliable data source for metropolitan and national housing trends.  Zillow’s most recent “Home Value Forecast” shows more growth, albeit slower growth, on the horizon with values increasing 1.7 percent nationwide over the next year.  It notes that the pace of the housing recovery has been uneven from market to market, with home values increasing rapidly in some areas and faltering in others. In the Phoenix metro area, for example, values are up 20.4 percent year-over-year. But in other areas—such as the Atlanta metro, where home values declined 4.8 percent year-over-year—values continue to fall.  That said, Zillow opines that the recovery is not in jeopardy.

“We’re likely seeing home values fall back into the negative range in some markets due to the close of the traditional home-buying season,” said Zillow Chief Economist Dr. Stan Humphries. “While that doesn’t mean the recovery has come off the rails—in fact, most markets have hit bottom—it does present a confusing environment for consumers. Looking forward, we expect to see home values bump along the bottom for some time, before increasing at a slow and steady pace.”

For the Portland Metro area the two factors that are most likely to goad—or inhibit—the continuing housing recovery are—you guessed them—interest rates and inventories.

In September the Federal Reserve launched its third quantitative easing program (QE3) and set it to run . . . indefinitely.  Quantitative easing is a tool used by central banks as part of their monetary policy to stimulate the economy.  Basically the government pumps money into the economy by buying bonds, treasury bills, etc.  QE3 will most certainly keep the lid on interest rates well into the foreseeable future.

And inventories will remain at low levels as far and long into the future as your correspondents can see—no true “glut” of homes is likely to reach the market for several months, going into years.  We predict it will take at least two years for the housing market to recover enough to bring inventories into line with demand.

One of the reasons inventories are low is that the stream of foreclosure properties back into the market has slowed to a trickle.  Many state attorneys general—Oregon’s among them—have put the banks’ foreclosure processes under close scrutiny.  The attorneys general have alleged that bad banking practices—think the robo-signing and MERS scandals—may have lead to a wave of illegitimate foreclosures across the country.  Banks have reacted by slowing the foreclosure rate, and slowing the reinfusion of REO properties back into the market.

Sure and steady, it looks like the housing recovery is going to hold the course it set for itself back in April of this year.