Tuesday, June 8, 2010

Goldman Sachs: Portland Real Estate Market Ranked 3rd Highest in Nation for Downside Risk

Rather ironically, in April it was Forbes reporting that Portland and Seattle housing markets were among those poised to experience the most precipitous declines in home prices over the next couple of years vs the rest of the nation. Now we have a report from none other than Goldman Sachs showing similar outcomes (Portland ranking the 3rd most risk prone housing market in the nation) via their own research:

From Goldman US Economics Analyst: 10/22 - House Prices Have Not Bottomed Yet June 4, 2010

"We predict the largest house price declines for Las Vegas, Seattle and Portland (Exhibit 6). While high home vacancy rates and steeply rising delinquencies are expected to push down prices in all three areas, some interesting differences emerge. Price declines in Las Vegas are projected to be front loaded, as negative price momentum and excess supply lead to near-term price declines, before valuation undershoots sufficiently to push up prices. For Seattle and Portland, the model projects back-loaded price declines as house prices currently look overvalued."


"First, much of the stabilization of house prices since early 2009 appears due to government housing policies, including (1) the homebuyer tax credit, (2) the Fed’s purchase of mortgage-backed securities and (3) temporary mortgage modifications through the Obama administration’s Home Affordable Mortgage Program. We have estimated that these housing policies have temporarily boosted house prices by around 5%. Second, the housing market remains plagued by enormous excess supply (Exhibit 3). Despite recent improvements, both the homeowner vacancy rate and the months’ supply of single-family homes for sale remain well above historical levels. Third, the mortgage market remains troubled. Mortgage delinquencies have continued to rise from their already elevated level."


Portland and Seattle are "back-loaded" because the peak of the bubble occurred in the Pacific NW 2-years later than the rest of the country. Incomes in the NW are not capable of sustaining structurally higher housing prices nor bubble era mortgage debt. Unemployment is as big a problem in Oregon as most anywhere in the nation. Regardless of our groovy retail, the creative class, urban planning, or the shitty weather -it will not be "different here".


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