Monday, October 6, 2008

Portland real estate market stalls; prices will drop further

Ryan Frank profiles several local home owners who are currently trying to sell their homes in Portland. One of the homes was featured here on my blog last week. Does Ryan read this blog?
From the Oregonian:

The pitch on Craigslist is compelling.
"Desperate seller needs offer today!!" the ad blares for a five-bedroom home on a Camas, Wash., cul-de-sac. "Present an offer with a price you think will fly. You might be amazed!"
When asked about his motivated seller, broker Curt Raihala wondered which one.
"I actually have quite a few motivated sellers," he says.
Now is not the best time to sell a home.
In fact, 2008 is the worst time to sell a home in the Portland area since at least 1997.
The housing market is flooded with far more homes than buyers are demanding.
Today's oversupply means buyers can drive for bargains, which helps explain why prices are falling.
That Camas home tells the story.
Ralf Fuchs, a 43-year-old who works for a construction business, bought the 3,500-square-foot home in September 2006 for $648,913.
He expected to stay while he worked at his company's Vancouver office.
But eight months later, the company shut down the office and moved Fuchs' job to the Washington, D.C., area. He put the house up for sale for $708,000 in May 2007 and moved east the same month.
Eighteen months later, the house sits empty and Fuchs is still waiting for a buyer. He's had just one offer but he said it included such ridiculous terms that he wouldn't consider it.
"I'm very frustrated because I have to pay the mortgage and rent here," Fuchs said of his East Coast home. "My biggest problem is I'm a six-hour flight to maintain the house."
He's now asking $519,000 -- 20 percent less than he paid -- and willing to entertain any serious offer. He's eager to sell so he can buy a home near his new job. Even with the drop, he has not considered giving the home back to the bank.
"I feel terrible. Absolutely terrible," Fuchs said. "Like my business in construction, you have to stop the bleeding. I'd rather take the hit now."

One of the principles of economics is that rational people think at the margin. Meaning they will choose the option which brings them the most satisfaction. For home sellers a higher selling price will bring a higher satisfaction. Homeowners are choosing to cut their asking price now and see what happens instead of paying the mortgage for six months to see if someone will bite.

Portland homeowners’ face a dilemma: “Do I cut my asking price by $15,000 today or keep paying a $2,500 mortgage payment for six months and hope to get a full price offer.”

It sounds like local homeowners are accepting the fact that the market has stalled and their best option is to cut their asking price.

Here are Ryan’s other profiles:

$1 million home near Oregon City
Hillsboro home built in 2005
Split-level in Southwest Portland