5 Simple Graphs Proving This Is NOT Like the Last Time

5 Simple Graphs Proving This Is NOT Like the Last Time

With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:

“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”

There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.

1. Mortgage standards are nothing like they were back then.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.

2. Prices are not soaring out of control.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.

3. We don’t have a surplus of homes on the market. We have a shortage.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.

4. Houses became too expensive to buy.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:

5. People are equity rich, not tapped out.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.

Bottom Line

If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.

What’s the Effect of the COVID-19 health crisis on Portland Real Estate?

The Portland real estate market has begun to show signs of weakening from the critical efforts our state and our citizens have been making to curb the spread of the COVID-19 virus.  Governor Kate Brown has not curtailed real estate activity.  Her Executive Order can be summarized in one sentence: If social distancing requirements (minimum of 6 feet) and additional sanitizing criteria cannot be met, the activities cannot be conducted.  In response, the Oregon Association of Realtors, the Portland Metropolitan Association of Realtors, independent brokerages, and their agents are adapting quickly to new means of marketing and selling residential properties:  Listing appointments, contract negotiations, and marketing activities are being conducted via Zoom, FaceTime, and related technologies.  Homes are being shown ‘virtually’ with 3-D tours and FaceTime appointments.  Real estate brokerages are implementing strict precautions that comply with CDC guidelines to protect their agents, their clients, and other participants in real estate transactions from the spread of the virus.  (As examples, homes for sale now need to have adequate sanitization products prominently available for any visitors; agents only are allowed to open doors, turn on/off lights, etc; all visitors are encouraged to leave their hands in their pockets and maintain strict social distancing protocols, etc.) 

We anticipate further restriction of real estate sales in Oregon as we bend into the curve of the COVID-19 outbreak already experienced by neighboring California and Washington.  What’s the Outlook for the Real Estate Market? In light of the Governor’s Executive Order and the real estate industry’s response, we are seeing the market begin to react.  New listings, pending sales, and closed sales are down about 9% in comparing the last week’s reporting period with the previous week.  Withdrawn and Canceled listing are up 9%. 

Long time readers of our “Notes from Shannon and Jeanne” may recognize an old chestnut from our archives:  As Jean Dixon, one of the best-known American self-proclaimed psychics of the 20th Century, said, “If you must predict, predict often.”  Many expert predictions about the COVID-19 crisis draw comparisons to the market disruptions we’ve experienced in the past.  9/11 is most often called attention: it, like COVID-19, was a rare experience that was not systemic in nature.  It happened and it didn’t last long.   It was not caused by an economic or “systems” breakdown, but by an external event.  Therefore, it’s reasoned, the economic and political structures in place before the crisis will be unaffected by it and normalcy will return as soon as the dust has cleared.

  “What 9/11 has in common with what is happening today is that this shock has also generated fear, angst, and anxiety among the general public.  People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick.  The same parts of the economy are under pressure – airlines, leisure, hospitality, restaurants, entertainment – consumer discretionary services in general.”  [David Roseberg, Chief Economist, Gluskin Sheff and Associates] 

We watched a Facebook video which likened the effects of the damage from COVID-19 on the housing market to the effect of a tornado (the 2006 – 2012 housing collapse) versus a snowstorm (9/11):  A tornado passes through in a hurry and leaves devastation in its place, there’s a need to rebuild, While a snowstorm can be devastating, once it melts the infrastructure to start up again remains.  We appreciate the comparison and love the prospect of a fast recovery, but we aren’t quite on board with the analogy.  This analogy fails to note that a whopping snowstorm can leave a significant flood behind as it leaves, not exactly leaving everything open for immediate business.  Importantly, the severity of the Coronavirus is not being felt by one city on one day.  Here we do not mean to minimize the impact of 9/11; it was catastrophic for our country.  However, the coronavirus is marching through the country, at different rates, and leaving country-wide devastation in its wake.  Its damage will probably not be systemic, we may not need to rebuild the financial industry.  The true effect of the coronavirus on the housing market won’t be felt for at least another month.  And it will depend on the duration and severity of the crisis – both largely undetermined at this time – before we can begin to talk about probable outcomes with any authority. 

Stay safe.

Pristine Fernhill Mid-Century

JUST LISTED!

$675,000

Large, beautifully maintained, Mid-Century Modern with irresistible charm and endless possibilities. Generous spaces throughout. Outstanding landscaping features and lush plantings. Sprawling basement with enormous craft area, oversize family room and utility space. This home has great colors, good light, and the feeling that someone with impeccable style lives here.

MLS# 20457168  

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1950 Stylish Mid-Century

SOLD!

$369,000

Beautifully updated and bright one-level ranch with fully-remodeled kitchen and bath, mechanical updates, Schoolhouse lighting, hardwoods, detached one-car garage with lots of storage, and a professionally landscaped and fully-fenced yard with plenty of space to garden and entertain.
-MLS# 20567878

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2020 Market Update

Greetings in the New Year! It’s time to send out the annual market update. But it’s never too late, because not a day passes without us answering the question, “What’s happening in the market?”

2019 Year End Summary:

  • Homes appreciated 2.5%
  • Median sales price increased from $400,000 to $410,000
  • Inventory is historically low
  • 30 Year Fixed Average 4.25%
  • Source: RMLS

2020 Predictions:

  • Homes are predicted to appreciate 5.4%
  • The median sales price will increase
  • Inventory will continue to be low
  • 30 Year Fixed predicted Average 3.8%
  • Source: Freddie Mac

Portland Metro and the real estate market are going steady. Our real estate market is stable & sustainable due to steady growth in the job market, increasing wages, low interest rates, low inventory, and continued population growth.

We are often asked about Portland’s past heartbreaks and high’s in real estate, specifically “The Bubble.” Around 2007, a pricing crash resulted from overbuilding, unchecked lending practices, and speculative investing. None of these factors are contributing to appreciation or demand today. The high came after the bubble, hyper-appreciation during 2012-2017 when real estate went crazy after buyers jumped off the fence and started buying, again. A large number of real buyers (truly qualified, larger down payments and many cash buyers) came back into the market and took advantage of very low prices, which resulted in dramatic appreciation up until 2017.

The past is in the past, and we are here to help you navigate the real opportunities and challenges of 2020. Affordable homes on the market are increasing nationally, although more of a challenge in Portland. National builders, like Lennar, are making 40% of their inventory affordable homes. There have been some indications of flattening job growth, however, some economists point to the inability to actually fill the jobs that are available. January 2019 started with higher inventory than the year before, benefiting buyers. In contrast, January 2020 started with lower inventory by almost 1100 homes, benefiting sellers and resulting in multiple offers since the New Year. New players in real estate offer buyers and sellers options to transact real estate, but what are the pros & cons? Never dull, and we’ve got the answers to all your questions. 2020

Recommendations: Buying? It’s definitely time to look for the right house. Interest rates are awesome and Portland real estate is a sound investment. Selling? Don’t sell yourself short, the market can be great for sellers. Let’s prepare & promote your home and get you the best price while the conditions are in your favor. We’d like to hear about your goals and dreams for a home, and are always ready for your business and referrals! Much success to you in 2020!

Charming Victorian Retreat

Charming Victorian Retreat

SOLD!
$374,900
Charming Victorian Retreat in Foster-Powell. Create a
studio in the light-filled upper space and an urban farm on the generous
lot. Chicken coop is already in place! Welcoming front porch, cozy living
room with high-efficiency wood stove. Two bedrooms plus a bonus office/small room. Fully fenced private yard. Newer electrical panel and
high-efficiency gas furnace. Refurbish the fixer garage for storage/
workshop space, Newer roof on covered outdoor space.
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Stunning Clinton Renovation

Stunning Clinton Renovation

SOLD!
$669,000
Another masterful studs-out renovation by Chris Layon. Updated vintagecharm & modern function. Sharp design features an open kitchen &
master on main. Refinished original floors, matching original millwork,
pocket doors. Versatile, functional, fun space up. Redesigned stairway to
roomy basement w/outside entry. Full-on mechanical upgrades;
meticulous kitchen & bath renovations. The heart of our desirable,
vibrant Clinton neighborhood!

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Elegant Buckman Townhouse

Elegant Buckman Townhouse

SOLD!

Beautifully maintained townhouse on a quiet, tree-lined street in the vibrant Buckman Neighborhood. This elegant 3 bedroom, 2 1/2 bath home has generous and light-filled indoor spaces and welcoming outdoor spaces, fun front patio and inviting back deck surrounded by a charming, professionally landscaped yard with low voltage outdoor lighting and hot tub pad. Open kitchen with updated appliances, vaulted master suite with balcony, updated master bath with step-in shower and dual sinks, fun party room in basement, over sized garage and amazing storage throughout.

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1911 Linnton Cottage

1911 Linnton Cottage

JUST SOLD!

Welcoming & light-filled cottage nestled between charming Linnton & Forest Park. Enjoy sweeping views of Mt. St Helens and the Willamette River throughout the home or perched on your tree-top porch. Lovingly updated spacious main with 2 bedrooms and 1 bath with easy potential for additional finished space on the lower level, all on an over-sized lot. New foundational structure, updated electrical panel and new high-efficiency heating system. Easy commute to downtown and N. Portland, adjacent to running and hiking trails of Forest Park. Take advantage of this opportunity to own a unique home in a distinct location.

See more photos HERE, and check out our virtual tour HERE