All the news has been awful about the housing crisis and home values declining, but I hear it’s not so bad in Portland. What’s the truth? What is the state of Portland’s real estate market?

“Let me share with you again the latest statistics from our local RMLS, as of May 2008. We are seeing two parallel trends: for the second consecutive month we’re seeing a downward trend comparing May 2008 with May 2007, yet a current month-to-month upward trend, when comparing this May with April. Closed sales and pending sales are down from a year ago, yet up from last month. Similarly, while inventory remains about twice that of last year, it has gone down from 10.3 months last month to 9.2 months currently. Both average and median sales prices declined from May 2007, yet “both are up over their April 2008 marks; the average sale price rose 3.1% ($335, v. $325,000) and the median sale price was up 4.5% ($287,500 v. $275,000). Most tellingly, in nearly every geographical area in metro Portland, when comparing the average sales price for the last 12 months vrs. the average for the 12-month period prior to that, we continue to see price appreciation.”

We’ve been discussing “average” and “median” prices and these encompass the “Portland Metro” area. However, we can find more specific information from sectioned areas, such as North, Northeast, Southeast, Gresham/Troutdale, Lake Oswego/West Linn, West and so on. So, just as one example, the “average market time” for Northeast Portland was 54 days, the “average sale price” was $351,400, median was $280,000, and the % change in price comparing the last 12 months (7/1/07-6/30/08) with the 12 months before (7/1/06-6/30/07) was an appreciation of 6.7%!

In fact, when perusing the % change for all Portland metro areas from the June statistics, all areas showed appreciation except 4: those were Gresham/Troutdale (-1.1%), Milwaukie/Clackamas (-8.0%), Tigard/Wilsonville (-0.6%) and Mt. Hood/Govt Camp (-10.7%).

I realize the last several paragraphs have been quite figure-heavy, so let’s back up a bit and take a broader view; see the forest for the trees, in effect. All real estate markets are local: you’ve heard it time and time again — “location, location, location.” We are going through a “correction” not unlike the stock market. The prices that seemed to be escalating out of control in 2004, 2005 and 2006 couldn’t last forever, so our market has “cooled” and this is the result. I began to notice the decline by Spring of last year and by the Fall most realtors knew our market was changing. By this Spring, the public has become well aware of the change. We are now in a classic “Buyer’s Market” and the buyer has the advantage when sellers and buyers come together to consider the sale of property. There is a glut of inventory (unsold homes looking for buyers), much longer market time (76 days now compared to 55 a year ago), fewer buyers looking, and many sellers “motivated” if not outright desperate to get their homes sold. So, many sellers are not only reducing their prices, but are willing to make more and more concessions to the buyer, not only to attract buyers, but to keep that buyer under contract and move them to a successful closing. These concessions may be the inclusion of appliances or other personal property, thousands of dollars spent on repairs, thousands of dollars credited towards the buyer’s closing costs, flexibility regarding when the sale closes or when the buyer moves in, ad infinitum. “Everything’s negotiable.”

While “all real estate markets are local” we are not immune to national or even international markets and these are having an effect here on the Portland market. Even though we have gone through these tough economic times relatively unscathed (Portland has a number of times been ranked in the top 3 of the best real estate markets in the country; or, put in other ways, among the least affected by the “housing crisis”), we have suffered. Sellers are having a hard time realizing the gravy train of the last few years has ended, and many still think if they bought their home two years ago, they should be able to sell it today for 20% more. In fact, their home may be worth about the same as they bought it for; in some cases maybe even a little less. Wading through all the figures above, I can tell you from a “personal, on the ground” point of view that “the market” in my eyes and experience has remained relatively, generally, fairly flat for more than the last year or so. The good news is that in the last month or so I’ve seen and felt an uptick in activity and more interest and movement. Whether this trend will continue or not, only time will tell. Every day, Portlanders hear national news coverage about home prices going down, down, down, and mushrooming foreclosure rates, and so on, and all this gloom and doom news has taken it’s effect on us and our market. The “Catch-22” of a Buyer’s Market is that there are fewer buyers - how’s that for irony?! When the time is ripe to go out and buy, the very best time to buy property, people get scared and restrained and postpone their plans and so the perfectly good homes sit on the market, and the cycle perpetuates itself. The less buyers buying, the more we have a “Buyer’s Market.”

Let’s break down the general from the specific from another point of view, and as it relates to appreciation versus depreciation and “location”. Again, this reflects my experience and judgement “on the ground” as I work day after day as a Realtor in Portland. The good-looking, well-kept, “in-demand” homes that are most popular with most buyers (Bungalows, Old Portlands, the older homes with “charm and character”) that are located in popular, “in demand” neighborhoods such as Overlook, Kenton, Arbor Lodge, Laurelhurst, Moreland/Sellwood, Ladds Addition, Mt. Tabor, Buckman, Irvington, Alameda, Dolph Park, Beaumont Village, Alberta Arts, Hollywood, Multnomah Village, Burlingame, First Addition, and so on and so forth –these homes are still selling relatively quickly and at higher prices. However, newer homes, town homes, most condos, even and finally Pearl loft condos, and homes in those areas that are not “hip” or “in” or in great demand, and that tend to be further out and further away from downtown, these are the homes that may have seen a dip in price and are taking longer and longer to sell.

Any realtor who tells you that business is great and the market is great is either very rarely, exceptionally lucky, or is lying. This market can be tough for home sellers, and my heart goes out to those who really need to sell their homes and are not getting the best advice they could. It is always about price. Sellers need to be realistic and work with a trusted, experienced Realtor who understands changing markets, and the home needs to be priced in tune with this market in order to attract buyers and get sold. Sellers should also appreciate, particularly if they’ve owned the home for five or more years, that they have benefited from some of the highest appreciation rates we’ve ever seen, roughly from 2002-2006, which more than make up for what may be a mild decline in the last couple of years. So be happy for the equity that you have accrued.

BUYERS: my advice to you, and I cannot say this strongly enough — it’s a Buyer’s Market so NOW is the time to get out and buy! I cannot begin to tell you how many buyers I’ve worked with that have become scared by all the negative news out there and cancelled or postponed their plans. Other buyers who, like the amateur gambler who walks into a Vegas casino, sure that they’ve “got the system” to beat the house, are (in their minds) cagily trying to “time the bottom” of our market to “get the best deal.” I think this is a foolish and impossible venture. You will never “time” the bottom exactly and most often when you think you’ve found it, you will realize in quick order that it’s already passed you buy, and you should have bought months, if not years, before.

Home supply and pricing is not operating in a vacuum. We are simultaneously dealing with the infamous “credit crunch” or “lending crisis” you’ve also been reading about all the time. Many say that the oversupply and nefarious and way-too loose lending practices of the last several years actually caused the “housing crisis” but, at any rate, these are inextricably intertwined. Here’s a fact: it is harder to get financing today than it was 6 months ago, and 6 months ago it was much harder to get financing than it was a year ago. Somehow, miraculously, interest rates are still hovering at all-time, historic lows, but I can guarantee you — this will not last. Just as the stock market has been quite volatile these past several months, so too the lending industry; while interest rates have “more or less” remained quite low, every day or so they are jerking up and down in response to a host of factors, real and imagined. Just last week, they started out where they have been for quite some time, in the low 6’s (around 6.3% or so), but by week’s end, they were up a half-point to approximately 6.75 or so. We are also seeing an inflationary cycle emerging. You all know the costs of gas and food have been going through the roof, and no one expects any great relief on those issues soon, and no one believes, in the long run, we’re going to see a significant decrease in either commodity. As inflation emerges or gains speed, up go the interest rates. Talk with 100 lenders and I venture to say that 99 out of the 100 will predict interest rates to go up. Apart from the actual, plus anticipated, rise in interest rates, we have already seen an increase in loan fees, and I again am willing to promise you those fees will be rising and rising. Banks know how to make money, that’s one thing you can count on. To offset the substantial losses they’ve incurred from all the bad debt you’ve heard about, how are they going to get their money back? They raise their fees, that’s how. They’ve raised fees, I believe, twice in the last six months, and I’m sure that’s not the last we’ve seen. On top of increased rates and increased loan fees, it gets harder every day to get approved for a loan. I don’t care if you have good credit, a good job, you name it. Call it overcompensating for the ease with which banks were practically giving away money a couple of years ago (and got us into this mess to begin with). Now, they want more documentation; and higher standards; and more verifications; and more and more requirements. They keep raising the bar, making the prospective borrower pass through more and more hoops. I don’t see that getting easier any time soon. And as an aside, all the more reason not to be singularly myopic and restrict your shopping for “the best rate” alone, but to look at other factors when choosing your loan officer. Always find someone experienced, honest, detail oriented, that takes the time to listen to your needs and goals and also takes the time to get the “whole story” about you: your assets and liabilities, your full financial and occupational and life background, so you two together can review and ascertain the best loan program that will work for you.

So, for you smart-alecky buyers out there who are waiting and hoping to get “the best deal” — even if the home you really like may cost 10 or even 20K less in six months as compared to now, when you factor in the increased loan fees and higher interest rates, I’m willing to bet you’ll probably be the worse for waiting after all. Talk with any lender and review some hypothetical scenarios, and compare the figures for yourself.

Okay folks, I realize this article’s been awfully long and heavy-laden on the figures, and maybe even a little lecturing and, nice Jewish boy that I am, maybe even too kvetchy but I’ve done my best to cover a lot of ground and give you a good look at our current market. It can be complicated and it can take some time to wade beneath all the misinformation out there and take a hard, serious look at the facts of our marketplace. But here’s the good news: if you’re wanting to sell a home you’ve owned for at least 4 or 5 years, you likely have substantial equity in it by now, still, and you should do fine. And if you want to buy a home, I repeat, go out and buy one — this is your time in the sun! So much to choose from, no rush, no (usually) competing and multiple offers, and with a good agent, no reason not to get a great “deal” in terms of price, terms and/or other concessions.

This is a particularly good time to buy if you fall into one of three groups: first-time buyers, “move-up” buyers (those who need to sell their existing home but want a larger home or one in a nicer neighborhood, etc.) and investors. For “move up” buyers, whatever fractional declines in profit you may foresee from the sale of your current home, you’ll more than make up for the difference by the “deal” you get when buying the more expensive home in this market. And while it’s NOT generally a good time for “flip” buyers — always a risky and care-needed proposition — it’s a wonderful time for investing in real estate to buy and hold as rentals. 1031 exchanges have long been one of our government’s gifts to you for those interested in building wealth, and this is a fantastic time to think about 1031s.

Most importantly, be healthy and happy in your home!

Zach Newman is an experienced, reliable and trusted Realtor in the Portland area. He is an agent for Re/Max Equity Group and he is a longtime member of PABA - Portland’s GLBT Chamber of Commerce. Call Zach at 503.287.8989 or visit his website at: http://www.equitygroup.com/zach. 

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