Case-Shiller Index adjusted for inflation

It has been a while since I showed the Case-Shiller Index adjusted for inflation. Home prices go up for two reasons: first is a change in the value of the home, second is a change in the value of the currency used to purchase it. The second variable is called inflation. Removing inflation will allow us to isolate the actual value change in the housing market.





Oregon was in a very nasty recession in the 80's and home values suffered as a result. Some statistics (foreclosure rates & unemployment rate) for the current recession already exceed those levels set in the 80's.





If you ever read an article that says Oregon has the highest real estate appreciation rate over a 20 year period it is because of the depressed starting point set in the 80's.





The first graph compares the index adjusted for inflation and the index not adjusted for inflation.





The next graph shows Portland compared to some 'bubble cities' and some 'non-bubble cities'

Home values in cities like Dallas and Charlotte only increase in price as a result of inflation, so real estate isn't really an investment as much as a hedge against inflation.

The graphs are fairly clear, Portland was not one of the worst cities but it certainly did have it's own little bubble.

Homeownership no longer viewed as path to build wealth

From MarketWatch:

Nearly half of American adults who participated in a recent survey said they no longer believe that homeownership is a realistic way to build wealth, the National Foundation for Credit Counseling reported on Monday.

The findings, from a recent survey of about 1,000 people, run counter to the long-held perception that a home should be part of a person's financial strategy, the NFCC said.

"It had been considered the cornerstone of wealth building," said Gail Cunningham, spokeswoman for the NFCC. Homeownership had been a significant tool that most people felt was necessary to prepare for retirement, she said.

Sorry for the delay in posting. I was out of town last week and forgot to schedule some posts.

Portland unemployment hits 12.3% in May

Here are the metro area unemployment rates for May:

1,000 show up for entry level positions in Newberg

From the Oregonian:

Oregon's high unemployment rate was on full display in Newberg Thursday and Friday as nearly 1,000 people showed up to apply for service-related jobs at an upscale hotel and spa.

The job fair to fill about 160 positions at The Allison Inn & Spa continues today at Joan Austin Elementary School in Newberg.

That kind of turnout underscores the dismal prospects for the unemployed, said Josh Harwood, a senior state economist. "At some point, any job becomes a good job."

For the third straight month, Oregon's jobless rate of 12.4 percent ranked second nationally, trailing only Michigan.

Job fair organizers said they expected a strong turnout, but were floored by the 600 applications submitted Thursday. At one point, those at the end of a very long line faced a three-hour wait to be interviewed for jobs at the front desk, restaurant, bar, spa and maintenance and engineering department.

"People just kept steadily coming in," said Sonja Haugen, general manager for Springbrook Properties, the Inn's developer. "Every two or three minutes, we'd get someone new."

The 85-room Inn is scheduled to open Sept. 23 on land owned by the Austin family, which also owns and operates A-dec Inc., one of the world's largest manufacturers of dental chairs and equipment.

Haugen said she didn't know how many of the 100 A-dec employees laid off in February due to a business downturn might end up being hired to work at The Allison. "We're looking for people with appropriate qualifications for each position," she said. "If they have qualifications for a particular job, they will be considered along with everyone else."

While most of the people applying for jobs at the Inn seemed to come from around Yamhill County, a number also reported living in Washington, Multnomah and Marion counties, Haugen said.

If the job fair was held in Portland it would have drawn over 2,000 applicants. This is why I favor Gov. Kulongoski's plan to offer low level, low wage temporary jobs. There is a tremendous over supply of people qualified to be gas attendants and front desk clerks who will not be able to find jobs right now and who choose not to go back to school. The plan basically allows the state to get some labor in exchange for the weekly unemployment check.

'California immigrants can never win in Oregon'

From the New York Times:

Zachary Lauritzen, a student teacher at Summit High School, on Bend’s west side — the side some residents call “Little California” — said he was teaching a lesson in government when the topic prompted him to ask how many students had lived in California.

“Half of them raised their hands,” Mr. Lauritzen said.

“California immigrants can never win in Oregon,” said Philip J. Romero, an economist who has advised governors in both states. “In a boom, ‘They are crowding the roads and bidding up house prices.’ In a bust, it’s: ‘They alone caused the price of my house to drop by hundreds of thousands of dollars. They came up here without a job, and now we can’t absorb them and they’re competing for my job.’ ”

It is an interesting article-nothing new but good nonetheless.

Register Guard gets it right!

I often criticize the local media for their far from accurate view of the real estate market so I figured I should give credit when they get a story right.

From the Register Guard:

This May, it would take 8.1 months to clear the inventory at the current rate of sales. Last May, the number was 8.6 months, according to the monthly Regional Multiple Listing Service report.

The numbers are way down from January, when the inventory of unsold homes would have taken 20.6 months to clear at the rate homes were selling.

But real estate professionals say the long-awaited decline in inventory is not a sign of imminent recovery of the local housing market. “I’m not optimistic that it will shift much from what we’re seeing now,” said Marcia Edwards, vice president of the Prudential Real Estate Professionals.

The article contains several realistic quotes from Realtors. I have no clue how Diane got them to be realistic but it is a nice change.

Once again The Columbian's summary for Vancouver wins the award for best spin and lowest integrity.

Bargain-hungry home buyers have started to step back into the Clark County real estate market, according to a report issued Monday.

Experts say the renewed interest in Clark County home-buying is being spurred by a host of factors, including an overall 14 percent drop in median selling price. In May, the RMLS reported the median price — half sold for more, half for less — was $215,000, down from $250,000 the same month last year.

"There are some pretty good buys at the lower-end," said Scott Mikel, a broker and owner of Scott Mikel & Associates in Vancouver.

Mikel believes the May increase in pending home sales will translate into an increase in closed home sales by August.

The 'overall price drop' listed in the article is wrong. That is the year-over-year price drop. The overall price drop is 20%.

Portland RMLS Market Action Report – May 2009

The Regional Multiple Listing Service released the Market Action Report this week and the median sale price for May 2009 was $250,000; this is a 13.0% decrease from the median sale price for May 2008.

The Portland residential real estate market peaked in August 2007 with a median sale price of $302,000. Prices have now fallen 17.2% from that peak.

Months of supply (total inventory/monthly sales) sits at 10.2 months compared to the 9.2 months of supply for the same month last year. A balanced market has about 7 months of supply.

The first graph compares the median and average sale price with the months of supply. Click on any graph for a sharper image.

The second graph shows the total supply of homes available for sale. This is simply a calculation of the months closed sales multiplied by the months of supply. There are currently 14,555 homes for sale; this is a decrease of 15.8% from the same month the year before.

The third chart shows closed sales by month. There were 1,427 closed sales during the month; a decrease of 23.4% from the same month the year before.

The fourth chart shows new listings by month. There were 3,879 new listings during the month; a decrease of 25.1% from the same month the year before.

The final graph shows how affordable the median priced home is for a family of four. History indicates the ratio is usually between 2.5 and 3.0. Prices would have to fall 19.0% from the current median for the ratio to reach 3.0.

Scamps closes doors

From KGW:

All five Scamps pet stores in Oregon and Washington have closed after the company that operates the stores filed for bankruptcy, KGW has learned.

A lawyer for Norstar Inc. filed with the US Bankruptcy Court on June 15, citing the current economy as a reason behind the filing.

“It’s a difficult economy, companies don’t survive, “ said Howard Levine, attorney for Norstar, Inc.

The company filed for Chapter 7 protection.

Scamps Attorney Howard Levine told KGW: "All animals were sold prior to them (Scamps stores) shutting down."

In late 2008, Scamps came under fire for allegations they knowingly sold sick animals.

A KGW investigation revealed customers who purchased dogs that immediately had health problems. KGW discovered that five animals purchased from Scamps within the past four years had health problems that ranged from dislocated kneecaps to parasite-related infections and roundworms.

I always felt sorry for the animals in the small cages there so maybe this is a good closure.

Sam Adams defaults on 'investment' properties

From the Oregonian:

Embattled Portland Mayor Sam Adams is facing foreclosure on two houses he owns in North Portland but says he is catching up on his payments.

Hyperion Capital Group filed a notice of default on Adams' residence in Kenton. The mayor still owes $134,000, and according to the notice, has failed to make monthly payments of $1,023 since February. An auction has been scheduled for Oct. 16 at the Multnomah County Courthouse.

Hyperion also filed a notice of default on the house next door. Adams owes $122,393 on that loan and stopped making monthly payments of $959 in February.

County records show that Wells Fargo Bank may have purchased the loans.

"I am behind," Adams acknowledged Tuesday. He earns $118,144 a year as mayor.

"I've had to pay significant upfront legal fees, and now I'm getting caught up on my mortgage payments," he said. "That's all I'm going to say. This is a private issue."

Adams is under state criminal investigation after admitting that he lied in the run-up to the 2008 mayoral race about a 2005 sexual relationship he had with an 18-year-old legislative intern.

Everything is a private issue for Sam. A quick check of Portland Maps confirms Adams as the owner. It is also important to point out that Sam filed personal bankruptcy in the late 80's.

Only two weeks until the recall efforts begin.

Oregon unemployment rate sets new record

From the Oregon Employment Department:

Oregon’s seasonally adjusted unemployment rate rose to 12.4 percent in May compared with 11.8 percent (as revised) in April.
The 12.4 percent reading was the highest on record since the current series began in 1976, topping the previous high mark of 12.1 percent set in November 1982.
The state’s unemployment rate remains more than twice as high as its year-ago level of 5.7percent in May 2008. The U.S. seasonally adjusted unemployment rate rose to 9.4 percent in May, from 8.9 percent in April.
In May, Oregon’s seasonally adjusted nonfarm payroll employment declined by 100 jobs, following a drop of 8,100 (as revised) in April. The May employment figures were by far the smallest job loss of any month over the past 10 months.

RealtyTrac ranks Oregon 12th for foreclosures

RealtyTrac released their May 2009 foreclosure data last week and Oregon ranks 12th in the nation for per household foreclosures.

There were 78 notice of defaults last month, down 93% from the same month the year before. The bank files a notice of default when a mortgage payment is late and attempts to reconcile the issue out of court have failed.

If the homeowner doesn’t pay the default balance within 90 days then the bank records a notice of trustee sale with the county and schedules a trustee's sale. There were 2,276 notices of trustee sales last month, up 456% from the same month the year before.

Total Foreclosures are up 94% from the same month the year before. Total foreclosures include: notice of defaults, notice of trustee sale, and bank owned real estate.

The best way to compare state foreclosure rates is with a penetration or per household rate. Here is a comparison of the regions states. A larger number indicates fewer foreclosures. Oregon is experiencing one foreclosure for every 525 households.

Here is a heat map from Realtytrac.

Park Avenue West deails

Ryan Frank wrote an article about Tom Moyer's stalled Park Avenue West building downtown. It doesn't really provide many new details but is a great summary of the impact of the project. You can read the article here.

Some South Waterfront units are starting to sell

From the DJC:

Atwater Place in Portland’s South Waterfront neighborhood opened about a year ago, just as the economy was turning south and fewer people were buying condominiums.
The 214-unit, upscale waterfront condo tower fell victim to the effects of a credit crisis, rising unemployment and the bursting of the real estate bubble.
Atwater units are still not selling as fast as originally anticipated, but Todd Prendergast, a principal broker with Realty Trust, said he’s been encouraged by buyers’ interest in the tower and other South Waterfront buildings in the last two months.
Eight Atwater units have sold in the last month, compared with a rate of about one or two per month over the winter. The building is about 30 percent sold.
Prendergast acknowledged that some of the activity is normal for this season, as buyers start to emerge after winter.
He said another factor that could be spurring sales in South Waterfront is lower prices. He said that drops have been as much as 30 percent from the original asking prices – as much as $300,000 for some units.

Charles Turner drops asking price below one million

The stalled housing market continues to impact Charles Turner's flip project at 2356 NW Hoyt St.

He just dropped the asking price another $50,000. The new asking price is below $1 million ($999,950 to be specific).

The Original asking price in October 2008 was $1,195,000.
In January he dropped the asking price $45,000 to $1,150,000.
In February he dropped the asking price $25,000 to $1,125,000.
In March he dropped the asking price $25,000 to $1,100,000.
In May he dropped the asking price $50,000 to $1,050,000.

Total reduction is $195,050 or 16% and the home has been on the market for 8 months.

Records show Charles purchased the 'fixer upper' in May of 2008 for $535,150.00 under SAPPHIRE DEVELOPMENT LLC.

We do not know how much Charles has invested into the property but we do know he is personally liable if the LLC defaults.

Should the UGB expand?

From the Oregonian:

The Metro regional government wants your thoughts on a controversial assumption: That the Portland area can accommodate up to 300,000 new homes by 2030 without expanding the urban growth boundary.
The Metro Council distributed its preliminary report earlier this spring, and will release the official draft in September. Comments are due no later than June 30.

The report assumes that the growth can be absorbed through a combination of zoning changes, density increases, clearing polluted "brownfield" sites, incentives for housing
near transit centers and new financing tools to pay for infrastructure.
The council particularly wants comments on:
* The report's assumptions about the range of possible population and employment growth.
* The report's assumptions about the potential to accommodate more growth in urban centers, transit corridors and employment and industrial areas.
* The "policy questions" on page 9 of the executive summary of the residential report and pages 18 and 19 of the employment summary.

This is why I reject the assertion that the Urban Growth Boundary (UGB) restricts the housing supply leading to more stable home prices. It can expand at political whim and doesn't restrict growth any more than a tight pair of jeans prevents you from gaining weight.

While I reject the UGB I feel our slow development approval process restricts housing supply because it takes so darn long to get things approved, but 'bureaucratic nightmare' doesn't sound as hip and progressive as 'UGB'.

U of O index shows signs of the economy stabilizing

Professor Duy released the U of O Index of Economic Indicators for April this week.

The University of Oregon Index of Economic Indicators™ rose 0.3 percentage points in April to 85.1 (1997=100). The slight gain was driven by improvements in four indicators —Oregon initial unemployment claims, the Oregon weight-distance tax, U.S. consumer confidence, and the interest rate spread. Remaining indicators deteriorated during the month, and all indicators are down compared to six months ago. While the increase is welcome, most indicators remain at levels consistent with ongoingrecession in Oregon.

As a general rule of thumb, a decline of 2.5 percent (annualized) over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market

Similar to March 2009, Oregon labor market data were mixed. Initial jobless claims continued to decline as the pace of economic deterioration eases, and now stand at their lowest level since last October. While the trend is improving, the level of claims suggests that overall nonfarm payrolls will decline further. Indeed, employment services payrolls— largely temporary-help agencies—remain in decline, down 29.7 percent from the same month last year. Overall, nonfarm payrolls (not included in the index) fell by 9,500 jobs during April, while the unemployment rate rose to 12.0.

On housing starts

Residential housing permits (smoothed) fell again to just 766 permits. The hoped for stabilization in housing markets remains elusive; price declines have not been sufficient to compensate for tighter underwriting and an increased pace of foreclosure activity. The recent rebound in mortgage rates also threatens to slow the path to recovery.

Summary

Persistent weakness in the UO Index indicates the Oregon economy is likely to remain in recession for the foreseeable future (three to six months). The pace of the deterioration appears to have lessened in April, with a six-month annualized decline of 9.4 percent compared to 11.8 percent for the previous month. The improvement is welcome, but falls short of a conclusive bottom, and there remains no indication the job market will improve significantly this year.

Portland developer turns into lender

From the Oregonian:

Portland condo king Homer Williams is pursuing a surprising new business.

With the residential real estate market struggling, Williams has turned to a newly hot commodity: failed bank loans.

Williams confirmed that he's the man behind BCC Fund I Limited Partnership, which the FDIC identified this week as the successful bidder for two packages of loans from the defunct Bank of Clark County.

The FDIC auctioned the loans last month from the Vancouver bank that failed in January.

Williams declined further comment. But according to the FDIC, BCC Fund 1 paid just more than $2 million for one bunch of loans with an outstanding balance of $6.1 million. BCC also successfully bid $3.3 million for a group of 53 other loans with an outstanding balance of $10.3 million.

That means BCC paid about a third of the outstanding balance of the loans.

McCormick & Schmick's close original restaurant

From the Oregonian:

Around 40 servers, bartenders, managers and cooks sat down at McCormick & Schmick's original restaurant at noon today and learned that the historic eatery wouldn't be opening for dinner.

A landmark decked in green awnings at the corner of Southwest First Avenue and Oak Street, the restaurant was another victim of the economy after the Portland company said it couldn't successfully negotiate a new lease with the building's owners.

"This is difficult for us, too, this is our town - where we live and where we work," said Bill Freeman, chief executive of the 94-restaurant chain since January. "We are committed to Portland and we will continue to look for other restaurant opportunities here that make sense for us as we go forward."

After today's lunchtime meeting, Freeman said, the company planned to immediately set up a series of interviews in hopes of placing all 38 hourly employees into similar positions at other local restaurants.

Seasonal trends point to bottom in Vancouver market...just like last year

Julia Anderson keeps trying to talk the market higher.

From the Columbian:

After what one local real estate broker called a “gruesome” winter, pending sales of existing homes in Clark County are improving as low interest rates and incentives spur buyer confidence.

Pending sales in the county grew 17.4 percent in April, well ahead of the 6.7 percent national increase for the same month that was reported Tuesday by the National Association of Realtors.

“Our office is up about 50 percent from the first two months of the year,” said Gene Thompson, owner-broker of Equity Northwest Properties in Vancouver. “We saw a sharp jump in March, with April consistent with that for pending sales.”

The health of the U.S. housing market, mired in a three-year slump, is one of the key issues facing the economy. Though sales may be recovering, analysts cautioned that prices will take longer to stabilize because of the glut of unsold properties for sale. Prices are unlikely to rise until foreclosures start declining, and that’s unlikely to happen before the end of next year.

In Clark County, the median sales price in April was $218,250, down from $249,764 in April 2008.

Portland & Bend rank #1 & #2 for unemployment increase

From the Oregonian:

Unemployment jumped more during a year's period in greater Portland-Vancouver than in any of the nation's large metropolitan areas.
The jobless rate jumped 6.9 percentage points from April 2008 to April 2009 -- to 11.6 percent, not seasonally adjusted -- in the Portland-Vancouver-Beaverton area, the U.S. Bureau of Labor Statistics reported today.

For the second consecutive month, Bend's one-year unemployment-rate increase was the nation's second highest among all metro areas, behind only Elkhart-Goshen, Ind. The Bend metro area's April-to-April increase was 9 percentage points, reaching a jobless rate of 15.6 percent, not seasonally adjusted. Elkhart-Goshen jumped 12.7 percentage points, to 17.8 percent in April.

Portland office vacancy rate projected to hit 20%

From the DCJ:

He calls himself an optimist but his predictions are grim. Raymond Torto, global chief economist at CB Richard Ellis , believes 2009 will be the worst year ever for commercial real estate in the U.S., both for leasing and property values.

But it won’t be the worst year for Portland, which typically lags behind the rest of the nation in regard to economic indicators, according to Torto. He said that Portland is projected to reach its peak vacancy rate of 21.5 percent in the second quarter of 2012. If that holds true, it would be the second-highest vacancy rate in the city’s history, one-fifth of a percentage point below the high reached in the first quarter of 1986.

Torto attributed the long lag primarily to new office space entering the Portland market.

“Oregon has dug itself into a hole (economically),” Torto said. “It translates to less demand for real estate.”

On Wednesday, Torto relayed his research to Portland’s real estate professionals during a conference at the Hilton Executive Tower hotel.

Torto warned that the region is perhaps worse off than the rest of the nation.

His findings for Oregon served as a gut check for real estate professionals.

“We’re all expecting doom and gloom,” said Jacquline Ritchie, vice president of business development for Wells Fargo, who listened to Torto’s presentation. “We got it.”

But Torto isn’t bereft of optimism, even if it’s tempered. He told real estate professionals that a rebound will be quick and decisive.

“When the market does turn, it will do so very quickly,” he said.