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.

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!

High-Density Zoning Update

High-Density Zoning Update

Portland has some interesting new higher density zoning coming our way.  There’s a plan in the works that changes the density of some of our neighborhoods, especially along transit corridors.  It’s big. We’re happy to chat with anyone about what’s happening behind the scenes if you’re curious. 

Think ‘that’s not me, I live in a single family zone’? Currently in-process in the House of Representatives is a proposal from House Speaker Tina Kotek to allow multifamily in single family residential areas.  It’s a throwback to the old days when Portland neighborhoods were a mix of single family and a few duplexes and triplexes mixed in.  The proposed plan adds duplexes to single family zoning in Oregon cities with a population of 10,00 or more and cottage clusters and up to fourplexes in Oregon cities with populations above 25,000. You can read more about this here…

Change is coming!

Portland Home Pricing Update

Portland Home Pricing Update

Data isn’t out yet for May, but April RMLS Market Update reported a 5.5% sales price increase year over year.  Although we’re still appreciating, it’s not at the rates of the past. Sales are slower. It’s still a sellers’ market, but one that requires more patience for sellers.  Inventories of homes are rising, which allows buyers more choice.  Buyers are getting more determined to find the perfect home, rather than any home that will work.  Homes are taking longer to sell, even in our robust spring market.  It’s a transition in our market we’re adjusting to. Check out this link for more information…

Portland Summer Events

Portland Summer Events

And just like that, Summer is here! Or it certainly feels like it. No one does summer quite like Portland, we think; with a wealth of amazing festivals celebrating cultures, the arts, delicious food, beer and cider, etc. This is definitely our favorite online calendar for local events. Event Brite breaks things down into event types to make for easy browsing. Scooperbowl All-You-Can-Eat Ice Cream Festival at Pioneer Place, anyone? Start planning your summer now!

Setting Our Sights on 2018

Setting Our Sights on 2018

February 2, 2018

Depending on who you talk to, the upcoming 2018 real estate market is going to follow the faltering footsteps of late last year’s market (more about that in a second) or it’s going to rocket off the launch pad come spring, just like it has done every year since 2013.

No one doubts that the market slowed perceptibly last fall, and the stats go a long way to prove it: the RMLS of Oregon reported a steady decrease in closed sales in September, October, November, and December, with each month recording fewer sales than the previous month. December’s sales figures were off an astonishing 10.3% from November’s anemic performance, and many people – Realtors, title companies, and mortgage brokers – have been troubled since last October about the fallout that an extended downturn could rain down on the industry.

Mind you, not everyone is unsettled about the market having faltered, and many market observers have even welcomed the news. First time home buyers, particularly pressed to the max by limited inventories and fierce competition, certainly benefited from the slow down. In late December the Oregonian headlined a story, “Year-end lull a rare sign of normalcy in housing market, but will it last?” that profiled the respite first-timers have gotten recently, and, as the title of the article suggested, raised concerns that the party may not last very far into the new year.

Your loyal reporters are of the mind that this past fall’s market malaise was a blip on the screen, albeit it a pretty bright one. We anticipate the market’s going to run hot again this spring:

  • Inventories of for-sale homes will remain discouragingly low well into the foreseeable future. While new housing starts rose to a 9-year high in October, we’ll need several more years’ home building activity to catch up on demand. The industry is unanimous in calling out low inventories as the single biggest factor that will affect the 2018 housing market.
  • Employment will remain stable and wage growth – which we acknowledge has not been able to keep up with housing price growth – will continue as Portland – and the nation as a whole – is faced with very low unemployment figures.
  • Interest rates picked themselves off the floor this past year, and there’s not much doubt that we’ll see further rate increases this year, to 4.5 – 4.75%, but in the big picture, rates will remain remarkably low.

  • We’ve tolled the bell for several years about in-migration from other states, particularly California. Two or three years ago we wrote, “If one-quarter of one percent of Californians is displaced by drought, that’s 80,000 people. . . .” Let’s update that sentiment for 2018: if one-quarter of one percent of Californians is displaced by drought, fire, flood, and landslides, that’s 80,000 people.

Notes from Shannon and Jeanne

August 9, 2017

Dear Portland Housing Market –Long May You Run?  Portland-area home prices climbed 8.9 percent during the year ending in May, according to the S&P CoreLogic Case-Shiller Index, an increase second only to Seattle’s 13.3 percent rise.  And bronze medal finisher Denver rounded out the podium with a 7.9 percent increase, meeting late-2016 forecasts that the three would lead the nation in price appreciation this year.  (Read our Portland Market Update for the latest statistics and a Portland area-by-area appreciation report.)

Portland’s price appreciation has slowed since a year ago, when prices were up 12.5 percent, and, reporting sluggish market activity in July and August, area agents are asking each other today, “Is these just a typical summer’s market doldrums, or is a protracted slow-down shaping up ahead of us?”

Our market has been on a long march upward, with steady growth since the market recovery began in late 2012. Most observers point out the leading forces driving this market have been low inventories of homes and low mortgage rates; recently we’re reading more reports that new home buildings starts have stalled, which will exacerbate matters in the future.

But that little business about interest rates. . . .

There’s growing interest (pun) in what effect the rising Fed Reserve rate may be having on home sales.  In June the Fed raised short-term interest rates by a quarter point, marking the Fed’s third rate hike since December 2016.  That’s not at all what economists foresaw; the consensus among them late last year was we’d only see two, or, at most, three rate hikes this year.  In fact though, with reports from the Federal Reserve Board that its members are steadfastly optimistic about the health of the economy, and less and less worried about creeping inflation, there’s a strong likelihood the Fed will raise rates once or even – gulp – twice again before the end of the year.

It’s like that adage about boiling a frog, there’s going to be a point where raising the temperature on interest rates is going to kill off some buyers.  Remember, the factors that have spurred on this hot market have been limited inventories and affordable mortgages.  We’re keeping a close watch on the market this month, and, going into September, we’re expecting to see our customary bump in sales activity between Labor Day and late October.  If we don’t get the bump, and interest rates continue to rise, will consumer sentiment falter?  Will buyers take a rain check on moving until next spring?

Portland Poised to Lead the Nation Again in 2017.

Portland Poised to Lead the Nation Again in 2017.  As we near the end of the second month of 2017, we see a strong consensus among all market forecasters that Portland housing prices will be among the nationwide leaders again.  Look to Portland, Seattle, and Denver, as last year, to lead the pack.

How Much of a Good Thing?   Industry experts predict that Portland home values won’t rise as fast as they have over the past two years, but Portland will still outpace the national average.   The drumbeat – strong demand and limited supply –  will produce anywhere from 5.5% home appreciation in our Portland market, according to Zillow (https://www.zillow.com/portland-or/home-values/), to as much as 11.1%, according to Veros Real Estate Solutions, a company that specializes in property valuations and analytics.  The National Association of Realtors is hanging with Zillow and forecasts that the Portland market will see 6.6% price appreciation this year.  It’ll be fun to see whose prediction wins out when we review the numbers next February.

Just What’s Pushing Our Market Ahead of the Pack?  The Portland and Seattle markets are benefiting from robust economies, growing populations, and continuing low inventories of for-sale homes.

Here in Portland the economy is in full swing.  The unemployment rate, at 4.6%, is the lowest we’ve seen here since those halcyon dot com days back at the end of the last century.  The job market’s strong and growing at 3.5%.  Take note: economic growth is no longer limited to just high tech industry; instead, it’s spread across a wide spectrum of different industries.  Our economy is more diversified than at any time in the State’s history, and with broad diversity there’s greater economic stability.

And people are continuing to stream into the Metro area: the most recent data from the US Census Bureau shows we added 40,621 new residents from 2014 to 2015. That’s 4.6 people per hour, 24 hours a day, 365 days a year.

Housing supply on the other hand has not kept its pace with our growing population.  Doh.  We’ve not seen more than two months’ inventory of for-sale homes since March 2015, and even with all the multi-family housing starts we’re seeing here, we’re not likely to see any significant improvement in housing inventories for at least another two years.

Anything Scary Further On Down the Road?  Well, no, apparently not in the short term.  Interest rates are predicted to remain well within reason for the year, with most analysists putting the year-end mark at 4.75 – 5.0% for the conventional 30-year fixed rate mortgage.  Pat Stone, Chairman and CEO of Williston Financial Group (WFG) and WFG National Title Insurance Co., spoke before a group of Realtors last week and said the outlook for the Northwest, regardless of whatever may come down from Washington this year, points to a robust market “at least” all the way through the first half of 2018.  We’re on board with Pat.

Is Portland Fighting Climate Change through Home Sales?

In December 2016, the Portland City council voted to require home energy audits as a part of the home sales process.  The requirement will take effect in January 2018.  We’ve yet to see how it will play out. Advocates say it’s a step toward meeting our 2050 City action plan for an 80% reduction in carbon emissions; opponents say it is an undue burden on sellers.  The audit would give a home an energy efficiency rating between one and ten by which buyers could compare one property to another.  Voluntary audits have been around since 2009, but the rating did not get much attention during a home sale.  Very few homes obtained voluntary ratings, less than 2%, so many homes coming to market did not have scores.  Therefore, energy efficient homes with score rarely had other homes to compare with.

It turns out Portland’s commercial buildings have been subject to this requirement since 2015.  Since about half of all carbon emissions from buildings come from residential housing, rolling in single family residences helps a great deal with the overall reduction goal.

The Realtor associations have opposed this requirement as one more unnecessary burden on a home’s sale.  Critics say the audit could be used against a seller, or used to negotiate improvements to a home during a sale.  Note: we typically negotiate repairs rather than improvements during the process.

Ready for the inside scoop?  We’ve been in favor of this for a long time.  This has not been a popular stance among colleagues. Disclaimer: no doubt we’ll have bumps along the way.  It will make the process more complicated.  It is already quite complicated, but that’s why professional assistance is needed.  There are a small number of environmentally-minded realtors in Portland that have been proponents of this policy all along.  We have consulted with home buyers for years on home improvements, it has been disheartening to discourage a potential homeowner/seller to forgo energy improvements, and opt for an Ikea kitchen instead (no dis meant to Ikea).  We believe this requirement will balance Portland values with more flashy cosmetic upgrades – with an energy score, both home investments will have a way to be visible to buyers.  R-38 insulation as sexy as a farmhouse sink?  Coming your way.