Wednesday, June 4, 2008

Northwest Real Estate 'Next Shoe To Drop'

National City released its first quarter 2008 report last week and once again Oregon and the rest of the Northwest remains severely overvalued.

The appearance of Northwestern states among the worst price performances vindicates our model performance, as we noted in previous reports that the Northwest seemed precariously overvalued and likely to be the “next shoe to drop.”

Here is a quick summary of Northwest markets and their overvaluation ranking out of 330 markets. Bend drops to number two (Atlantic City, NJ is now number one) but most of the other cities moved up on the list.

The second chart shows the median home price for Oregon metro areas; all areas now show a downward trend.

Now that prices have fallen consistently we can look at the decline since market peak. Medford peaked in the second quarter of 2006 while Corvallis peaked in the third quarter of 2007 so this chart aligns those peaks at zero and compares the rate of decline since then. Bend and Medford have both fallen more than 9% while Portland has only fallen 4%.

The next graph shows Oregon metro valuations since the mid 80’s. Anything above zero indicates overvaluation, but doesn’t guarantee a price correction.

Finally, The National City report covers 330 metro areas and encompasses 93% of all housing units. The overvalued regions are shaded red while the undervalued regions are shaded gray. Things don’t look good for the Northwest.