February’s report is more good news! But if one does not think about it critically, it might not appear to be so.
Comparing Data with 2008:
We all know that 2008 was a bad year, first for the housing market, and then for the overall economy. Buyers were difficult to find anywhere, inventory continued to climb to record numbers, more and more sellers moved from default to foreclosure because they could not sell, and by the 4th quarter the patient was completely comatose. The national economy entered a recession in early 2008. There was still significant fall-out from the sub-prime debacle, oil prices shot up dramatically and grounded most people and robbed others of their economic viability, and in mid-September, the financial sector crashed, credit froze, most of the national investment institutions failed in one way or another; many banks were seriously undercapitalized requiring dramatic intervention of the US Government. Wow!
Where’s The Bottom?
1. If we look back a year from now and see clearly that 4th quarter 2008 was the bottom of the housing market (my belief), then what would you expect our current numbers to be? Very low, in fact the lowest they are going to get. We are starting this year at the bottom.
2. If we compare current data (sales etc.) to last year, what would you expect our numbers to be? Discouraging. We are lower than we were a year ago because throughout last year we continued to decline, and then we dropped off a cliff in the 4th quarter. Comparing January or February 2009 with the same months in 2008 is futile. If we are in recovery, the numbers compared to a year ago will not highlight a recovery, they will hide it.
3. But if the bottom was December of 2008, what would you expect the numbers to be? They would be improving from the lows. The trajectory would be the most important factor and the rate of improvement would prove the thesis and define how robust the recovery is. Remember, we could not officially ‘call’ the recession until we were deep into the second quarter of 2008 even though the recession began in the 4th quarter of 2007. In the same way, we will not be able to confirm the bottom of the housing market until we clearly see it in our rearview mirror. For some people that will be perhaps the 2nd or 3rd quarter of 2009; the general public is usually far behind that.
What is the Good News?
1. The comatose patient jolted up in bed in January and began functioning again. This is a radical change from the 4th quarter 2008. We doubled sales in January (pending and closed) compared to November and December combined. Real estate buying activity was up considerably, at a level we had not seen in 2008; it remains very high 3 months later.
2. During February, 62 residential properties in Yamhill County went pending or contingent (accepted offer) and 46 properties closed. The pricing spread of these properties was much more balanced than any time in 2008.
3. In one month (February), inventory dropped by 3 months! If that rate continues (certainly we can dream) we could reduce inventory to normal in 4 months. If not we are still improving regarding the supply of homes.
4. As of the end of 2008, Oregon as a whole showed annual appreciation at -7.05%, most of that coming in the 4th quarter (down 4.24%). But the 5 year appreciation was still 40.69%! Since the recession of 1991 Oregon real estate is up 211.71%! Real estate has always been a good investment over time in spite of the cyclical nature of the market.
5. In the Portland-metro market, 2008 appreciation was down only 5.2%, 1.75% in the 4th quarter. In the last 5 years appreciation is up 48.57%. Sounds like good news to me. See the attachments.
6. Yamhill County is off just 6.5% (average) from its highs over the past two years. Portland metro’s average sale price is the same as it was exactly 2 years ago, less than its peak but still when the market was hot.
7. According to Realty Trac and the Census Bureau, there are 29,940 homes in Yamhill County. In February, 94 homes were bank owned (REO), 113 homes were scheduled for foreclosure auction, and 128 homes are in default (pre-foreclosure). That is just over 1%. Historically, many of the homes in default are cured in the process (payments current or home sold) before going to auction and do not end in foreclosure. Nationally, the lending industry expects about a 2% foreclosure rate in a normal market. This is not the terrible news we hear so much about in the media.
8. Recently I heard it put this way, 97% of the people in Oregon have no problem paying their mortgages, 98% of the people are not in foreclosure, and 90% of the people are gainfully employed. You will never hear things expressed this way; it does not sell news and get your eyes and ears for the advertisers.
9. This week I heard that housing starts have jumped 22% reversing from an 18 year low. This is good.
10. There are many incentive programs available like the NW Home Rush by Banner Bank and Community Financial Corp. They put the inventory of all their builders on sale, 245 completed homes in the metro area; 130 of them on the west side. Prices are below market value, and with their TARP money the bank offered the consumer 3.875% interest on 30 year fixed financing including jumbo money up to a $1 million. This is essentially free money! This has never happened in my lifetime (53 years).
11. We know of another creative builder who through efficiencies offers their buyers instant 20% guaranteed equity and 100% financing for 30 year fixed mortgages, and superior construction. Do you have to be well qualified, yes, but that is also good.
12. First time home buyers (or those who have not owned in 3 years) can get up to $8,000 free if they buy before December of 2009 through the Stimulus Plan.
13. Deals are everywhere, interest rates are historically low, and credit is flowing again available including jumbo money.
14. This week I attended a 2 hour session with noted Oregon economist John Mitchell. Along with all the painful news about the economy, he believes the housing market is ‘bouncing along the bottom’. He noted that in California, housing sales are up 100.5% and their inventory is down to a 4-5 month supply. This sounds like the beginning of a good recovery. California has been a conglomeration of the worst markets in America for 3 years.
The news is very good. If I am right and we have begun recovery, then those who take advantage of the national perfect storm and buy now will be the biggest winners perhaps in a couple of generations.
Are There Still Threats And Reasons For Fear?
The economy is still going down and job losses are sobering. People are stretched, many of them to their limits. Every day we see what hardships are being borne by people who have been affected by the corruption, the foolishness, the greed, the mistakes, and the natural cycles of the markets. We do not minimize the miserable effects on many people or minimize the bad news. We have our boots on the ground and see the faces, hear the stories, know the fear, and feel the losses first-hand.
I believe that the same housing market which was catalyst for the decline of the economy will also be the first to recover and pull the economy out of the ditch. When the markets (both housing and general economy) return to normal, the deals will be gone. Interest rates must go up to get all the excess money out of the economy preventing disastrous inflation. If the economic engineers fail to properly manage the recovery, then with all this money thrown at the problems, we could see interest rates that compare with the early 1980’s. We hope they have learned a lesson and will act prudently.
And fear? We should learn from every threat and challenge that fear itself does far more damage than any event. If we move forward with chastened thinking and reasonable behavior, we will have great opportunities. Fear can serve to sober us, but it should not cause us to lose heart. Perseverance and premeditation are needed for such times.
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