Oregon Foreclosure Rates and Unemployment Rates Are Now Among the Highest in the Nation

Although the Pacific NW and Oregon real estate prices have fared rather well in the housing bubble/bust thus far, recent data suggests that our turn at the whipping post has arrived with respect to mathematical reality. NPR provides the latest data via Realty Trac and the BLS with excellent interactive heat maps of foreclosures, unemployment, and median household incomes:



Better yet, the data can be drilled down to the county level, and with a quick mouse over, it's rather apparent that Deschutes, Yamhill, and Columbia counties are experiencing painful foreclosure rates well above most of Oregon and the nation. Note that most of Western Oregon falls under the "High foreclosure rate" category when compared with the rest of the country.



For those who've been paying attention, heat maps such as these did not look nearly this bleak for Oregon or the NW last year at this time. Many are aware that we were late to the housing bubble party (peak prices) by roughly two years (2005 vs 2007).

Soon many more will become painfully aware that we will not avoid the skull pounding, dehydrated, muscle cramped hangover that awaits the vast majority of Western Oregon's real estate market. It's becoming ever more apparent that it's not going to be "different here" regardless of taxpayer funded stimulus, media touted green shoots, or NAR cheer leading.

As a recent poster noted, Portland and Seattle are at the very top of MOM price declines in the recently published Case-Shiller Index. The Great Northwest is catching up to the rest of the country, even though we were in fact a late arrival to the high priced debt binging real estate party.

Welcome to the hangover Oregon. We are now awakening to the reality of real wages & cash flows vs. very real debts. It's not going to be a pretty picture. There are a massive amount of Alt-A and Option-ARM mortgages resetting/recasting in the NW now through late 2012. Leverage (debt) on real estate promises to be a recipe for financial disaster in Oregon at least through late 2012. The odds of finding a "greater fool" to buy under water real estate are slipping swiftly away. As a result, prices will inevitably fall from here until Oregon's employment situation recovers significantly.

Oregon One of Five States to Receive $600,000,000 from Treasury/Taxpayers to Prevent Foreclosures

Rainy Oregon found itself amongst a distinguished group of US States today slated to receive a fresh $600 Million in taxpayer funds via the US Treasury to prevent (or at least delay) an ever growing number of foreclosures. Unemployment played a large part in deciding which states were allowed to line up at the trough to feast on even more taxpayer dollars aimed at fixing their ailing housing markets:

"The Obama administration unveiled Monday $600 million in financial aid for five more states with high unemployment that have been slammed by the housing bust. The funding is for North Carolina, Ohio, Oregon, South Carolina and Rhode Island.

It comes on top of the $1.5 billion in funding announced last month by the Obama administration for Arizona, California, Florida, Michigan and Nevada, which all have deeply depressed home prices."

Oregon's share of the $600 Million bailout only adds up to a paltry $88 Million, and will do little to prevent the inevitable, regardless of the sunny predictions from your local realtor or elected politician:

"States have several options for using the money, including assistance for unemployed borrowers facing foreclosures and modifying mortgages."

“As Oregon families continue to navigate our struggling economy, nothing is more important to unemployed or underemployed homeowners than the ability to avoid mortgage delinquency and keep their homes,” U.S. Rep. David Wu, D-Ore., said in a statement. "These much-needed federal dollars will give our housing finance agencies resources to bolster their foreclosure prevention and housing market stability work.”

The first round of taxpayer money via the Treasury/HFA program was allocated to the following states: California, Florida, Arizona, Michigan, and Nevada. Perhaps the fact that Oregon now finds itself in similar company should tell us all something about the immediate future and grim reality surrounding our housing market? Or is the housing bubble going to be somehow "different" in Portland?

HAMP 3: Principal Reductions / Debt Forgiveness

Yet another version of the HAMP program was announced today by the White House. This new twist will see that taxpayer funded TARP money will pay banks and lenders to forgive mortgage debt (typically 2nd liens) and also decrease the outstanding principal of 1st mortgages that are underwater to affordable front/back end debt/income ratios. Subsidies will also be given for those who can make no mortgage payment at all.

Meanwhile, over half of all the taxpayer funded loan modifications already performed by the growing frenzy of new government programs designed to fix the housing market have defaulted (again) after just nine short months.

Lastly, for owners up to date on their mortgage payments, who did not irresponsibly take cash out of their house in a HELOC, or whose house is not underwater, there is no bailout for you. If you're a renter it's the same story. There is nothing for you but ever increasing taxes so as to "help" keep homes affordable. That's rather ironic.

If the government truly wanted affordable housing, they'd force banks to mark their balance sheets to market again (as in the past until March 2009), allow prompt corrective action and foreclosures to clear the bad loans, and let home prices fall back in line with wages. If our elected officials truly cared about affordable housing, they'd let the free market take it's lawful and natural course. That would work out well for everyone -except the banks, mortgage insurers, and the NAR.

Who has more influence in Washington: US citizens or the FIRE economy?

Will Gold Signal the Bottom in Housing?

Many who follow housing prices have a keen sense that we're not at the bottom yet. Unemployment/incomes, government spending/stimulus, foreclosures/short sales/REOs, Federal Reserve QE/MBS purchases/printing, interest rates, and the value of a US dollar all play a part in the nominal price of a house. Real vs nominal home prices pose an interesting discussion.

Prices are a funny thing, depending on the currency one uses. Regardless of whether you're a gold bug, or you think of gold as a barbarous relic, it can provide an interesting barometer with respect to history. Gold has been a measure of value, a store of wealth, and a liquid portable asset for several thousand years of human history.

Granted you cannot pay your taxes in gold anymore, nor can you buy a house or groceries directly with gold in America today. However, you can trade physical gold for the local paper currency on any continent and in any country. That's been the case for thousands of years planet wide, so from a historical perspective it may be worth while paying attention to the price of houses per ounce of gold.

I stumbled across a great chart recently that I thought some readers may find interesting. Keep in mind that this chart has three key tenants: The price of homes in dollars, the price of gold in dollars, and the price of homes per ounce of gold. The Y-axis on the chart represents how many ounces of gold one would need to buy an average/median range house per historic Case-Shiller numbers.



When studying the chart, it may be relevant to know that the Federal Reserve Bank was granted control of our currency in 1913, FDR confiscated gold from all US citizens by executive order 6102 in 1933, and the US dollar left the gold standard (internationally) under Nixon in the early 1970s. US citizens were prohibited from owning or hoarding gold bullion and coins from 1933 until the early 1970s. Currently, central banks around the world hold the vast majority of all the gold ever mined. All of those historical facts influence the chart. The source and related commentary can be found here:

More Ugly Housing Data

Portland RMLS Market Action Report – February 2010

The Regional Multiple Listing Service released the Market Action Report this week and the median sale price for February 2010 was $235,000; this is a 9% decrease from the median sale price for February 2009.

The Portland residential real estate market peaked in August 2007 with a median sale price of $302,000. Prices have now fallen 22% from that peak.

Months of supply (total inventory/monthly sales) sits at 12.9 months compared to the 16.6 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 closed sales for the month multiplied by the months of supply. There are currently 13,093 homes for sale; this is a decrease of 8% from the same month the year before.

The third chart shows closed sales by month. There were 1,015 closed sales during the month; an increase of 18% from the same month the year before.

The fourth chart shows new listings by month. There were 3,902 new listings during the month; an increase of 12.4% 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 10.6% from the current median for the ratio to reach 3.0.

Foreclosures, Short Sales, or REOs?

HAFA is the acronym for the new taxpayer funded housing market rescue program from the government designed to facilitate short sales at the hands of the NAR. It will be an interesting story as to whether foreclosures, short sales, or REOs will end up clearing the 7.4 million unit log jam of non-current home loans that the banks and the federal government are choosing not to deal with in a traditional free market manner. It should be obvious to all by now that the bubble will not be allowed to "pop". The correction will sound more like a long slow whisper in the mighty pines of the great Northwest.



"What the above chart should call attention to is the aging of loans in the default pipeline. Again using LPS data, for all loans more than 90 days in arrears, the average days delinquent is now at 272 days—up from 204 days in early 2008. For loans in foreclosure, the aging numbers are even more staggering: loans in this bucket average 410 days delinquent, up from 260 days delinquent in early 2008.

Ponder those numbers for just a second. On average, severely delinquent borrowers have gone more than 9 months without making a mortgage payment—and yet foreclosure has not yet started for them. For those borrowers who are in the foreclosure process, it’s been an average of 13.6 months—more than one full year—since they last made any payment on their mortgage."

Many a mortgagor utilized the housing ATM in the form of HELOCs in the last decade to fund home improvements, vehicle purchases, dream vacations, and credit card payoffs. The second liens have become more than just a small road block when it comes to sensible mortgage modifications for both the borrower (underwater) and lender (at risk of default):

"Second lien holders, when they exist, effectively determine whether a short sale can proceed—and there is zero incentive, whether through the Treasury’s HAFA program or otherwise, for a second lien holder to voluntarily vaporize their note.

Unless, apparently, money can be passed under the table. As seen in a story first broken by Diana Olick at CNBC, we’re already hearing reports of short sale fraud involving second lien holders attempting to extort dollars from seller’s agents directly, outside of the HUD settlement statement.

Government’s implicit endorsement of short sales via the HAFA program seems only more likely to increase this sort of pressure. Regulators now face a very unique conflict of interest, and it will be interesting to see how this is resolved: on one hand, violating RESPA helps grease the wheels of a short sale, something the administration wants to see happen; on the other hand, violating RESPA is a federal offense.

All of which means that second liens aren’t just a little stumbling block to short sales; they’re a boulder the size of Texas."

Before our housing market clears and we have normalcy, it is quite possible that neither foreclosures nor short sales will show us the way toward a stable housing market. REOs are going to have a strong hand in dealing with delinquent loans and long forgotten properties that are currently not marked to market on the balance sheets of the biggest of big banks.

"Thanks to effective intervention from the government, we won’t see REO volumes soar to peak levels anytime soon—but we will see elevated inflows at least through mid-2012, out of necessity. And those inflows should be seen as the road to recovery by anyone watching real estate."

Read the entire story from Housingwire

Another Government Remedy to Cure What's Ailing Our Housing Market: NAR Controlled Short Sales

In a never ending quest to repair all that is broken with America's housing and real estate markets, the federal government is riding to the rescue once again. For those who are confused or just plain unaware of the ever growing number of housing market rescue programs, perhaps a recap is in order. In less than one sweet short year, the federal government has offered the following new taxpayer funded incentives:

• Money to buy a home (home buyer tax credit)
• Money to stay in a home (HAMP/HAMP2)
• Money to leave a home (NY Times)
  

"This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions. For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around."

Those "in the know" when it comes to real estate are well aware of the precarious nature of short sales and their abundant potential for shady insider dealing. The proverbial icing on the cake for the new government program can be found in the devilish details:

"Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it."

Yes, you read that correctly. The NAR will determine what each and every short sale is worth, the owner will be kept in the dark, and the free market via foreclosure auction will essentially be held at bay. This new taxpayer funded program takes effect in your neighborhood on April 5th, 2010.

Note the closing paragraph on Page 2 of the NY Times article.

Redfin enters Portland market

From the Portland Business Journal:

A controversial residential real estate company is expanding into Portland.

Seattle-based Redfin rebates a portion of agent commissions to clients, which is illegal in Oregon. The company plans to challenge the law; in the meantime it will instead donate a portion of buyer-side commissions to local charities.

“There’s no reason for this law to exist,” said Redfin President Glenn Kelman. “It’s such a silly law.”

Redfin typically charges clients that want to sell their homes a 1.5 percent fee. Typically, sellers’ agents receive 3 percent, or half the customary 6 percent commission charged on real estate transactions.

When representing buyers, Redfin rebates a portion of what it earns over the first $5,500 back to the buyers.

Redfin hired a Portland market manager in February and hopes to duplicate the rapid growth it enjoyed after its 2004 debut in Seattle, where Redfin claims to command between 3 percent and 5 percent of the home-sale market.

The privately held company operates in 13 markets. Kelman said Redfin had revenue between $10 million and $20 million in 2009 and will double that in 2010 by expanding its market share and geographic reach. In addition to Portland, it is expanding to Phoenix and to New Jersey.

Oregon outlaws kickbacks and rebates but is silent on commission levels. That means agents can negotiate lower fees if the goal is to compete on cost. Many real estate brokerages already operate that way.

Dean Owens, deputy commissioner of the state’s Oregon Real Estate Agency, isn’t familiar with Redfin, but finds its rebate model overly complex.

“Cut your fee. If that’s what you want to do, (just) cut your fee,” he said.

Kelman said the company’s commission structure is a major reason it’s been so successful.

“We’ve done thousands of transactions, always notify the lender and we’ve never had trouble. The safe conclusion is that this is legal,” Kelman said.

Representing both the buyer and the seller is perfectly legal in Oregon but refunding a portion of your fee is illegal.

I wonder how much money Realtors will have to pay the state legislature to keep the current law in place.

This American Life: Scenes Closer to Home

How many hours of your life have you spent working for money?
How many hours watching TV or listening to the radio?

Inquiring Oregonian minds may enjoy spending just ONE hour listening to this great piece of journalism from Chicago Public Radio. The play by play commentary on the FDIC seizure of the Bank of Clark County is a stark reminder of how close to home/Portland the financial crisis and housing bubble have struck those we know and love.

• Does Portland have a glut of condos? Do you know someone who owns or rents a condo?
• Do you know someone who had deposits/loans with Bank of Clark County? Umpqua?
  
• Ever shopped at a Circuit City?
  

And for those condo dwellers in Portland thinking "that could never happen here"...Portland will soon have many yet to be determined condo dwellers dependent on a fire hydrant for their water (hat tip to Leigh):

"The Portland Water Bureau will soon begin shutting off the water to multifamily housing buildings that have not been paying their water bills."

Shaff says that if the bill is still not paid, the bureau will send its portable water station to the building on the day the water is shut off. The station, which is used a large community events, connects to fire hydrants and offers water to the public.

“The tenants will be able to fill water bottles and pots and pans,” Shaff says. “There’ll have water to drink and cook with and flush their toilets"

Featuring Random Homes for Sale in Portland, Oregon: The "Stuck in the Middle" Edition

Every now and then it's rather fun and educating to find a random home listing (or four) online, and discuss it with local residents. I find these examples of current listings quite interesting:

What will NE home #1 sell for in 2010? 2012? Does it matter that the headline listing says it's 2,888 sq ft, yet public records say it's more like 1,735 sq ft? Portlandmaps.com lists the market value at $388k.

What will SW home #2 sell for in 2010? 2012? Does it matter that it's a 2 bedroom condo with only 1,400 sq ft? Portlandmaps.com lists the market value at $496k.

What will SE home #3 sell for in 2010? 2012? Does it matter that it has blue awnings? Portlandmaps.com lists the market value at $405k.

What will NW home #4 sell for in 2010? 2012? Does it matter that Portlandmaps.com lists the market value $70k higher than the asking price? Square footage in the listing vs public record is amiss here as well.

These dwellings all have something in common (besides annual property taxes above $4,000 each). They're not in the Jumbo category, but they're certainly not in the "1st time home buyer" category either. They are stuck in the middle somewhere. What will happen to home prices in the middle as Portland's housing market corrects from its bubble years?

A more important question beckons those who follow Stumptown real estate. What would it cost to rent vs buy these homes in Portland on a monthly basis in 2010? 2012? After all, the BLS uses "Owners Equivalent Rent" formula for the published CPI figure.

MBA Announces a "Bridge to HAMP"

The MBA (Mortgage Bankers Association) has announced their support for a new federally funded program to extend forbearance on delinquent home loans. MBA along with the White House, US Treasury, Fannie Mae/Freddie Mac, and HUD have collaborated to bring US housing markets more relief from harsh economic realities facing the real estate industry.

Under the new program, borrowers (including those on unemployment) would be responsible for payments equal to 31% of any reported household income above $300 monthly.


The Press Release:

"Under MBA's proposal, loan servicers that participate in this program would reduce monthly payments to an affordable level based on household income. Borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75 percent of the borrower's previous salary."


The Details:

"Unemployment Benefits – Borrowers must apply for unemployment benefits when eligible. Borrowers must have nine months of unemployment available to be eligible for nine months of forbearance."

"Savings – Verification of liquid assets is required before entering into the second phase." "However, if 31 percent of household income is less than $300, guidelines would suggest no payment is required during the first phase of the forbearance."


The dark real estate reality from Paul Jackson who attended the MBA announcement:

"The shock and dismay from many servicers in the audience was actually audible, and I saw plenty of executives shaking their heads in collective dismay. Not because they don’t want to help troubled borrowers, mind you – but because they understood what capitulation looked like when they saw it."

"But the servicer isn’t on their own in this proposal: servicers would have access to a mutant cousin of the FED discount window, called a Low Cost Advancing Vehicle (LCAV), which would see the U.S. Treasury “supply reasonable funds at a fixed rate to participating mortgage servicers to facilitate advances of principal, interest, taxes and insurance for the extended forbearance period."