“Statistics: The only science that enables different experts using the same figures to draw different conclusions.”  Evan Esar (1899 - 1995)

We’ve been abused by statistics.  Let’s make sure we know what the statistics mean:

Median -  If you array all the sold properties in order of sold price, the median sold price is the one that falls in the middle.
Average -  If we add up all the sold prices and then divide by the number of solds we will get the average sold price.

While these two statistics are the most commonly quoted, neither of them give us any help in pricing an specific property.  In fact, both may lead a buyer or seller to a wrong conclusion. Sellers want to believe that prices are still going up. Buyers want to believe that every seller is on the verge of foreclosure and should be happy to take any offer.

We in the business know that prices on individual homes, for example, have been falling, modestly here in the Northwest but dramatically in some other parts of the country. We also know that most sellers, although they may want to sell, are not in dire straights.

For Sellers:  If you don’t need to sell and are not willing to be realistic in pricing, don’t bother entering the market.  If you need to sell, your home has to be priced very competitively, be as clean and attractive as possible, be accessible for showing, and be marketed appropriately by a professional REALTOR who understands this market and where the buyers are.

For Buyers:  A REALTOR can find you a “steal” of a home. A REALTOR can find you the home of your dreams. They are not likely to be the same home. What is most important?  Are you waiting for the bottom of the market? Well, as a colleague in Orange County says, “No one is going to ring a bell to tell you when it is the bottom of the market.”  It might be next week, or next month, or next year. Or maybe it already happened last month! Right now we have lots of homes available, pricing is better than it has been for years, and interest rates are still at historic lows. If you are a buyer who intends to live in or hold a property for five years or so, this is a terrific buyer’s market. If you are a “flipper” looking to sell for a quick profit you probably ought to sit it out for a while.

Dave Koch, CRB, e-PRO is a Vice-President of RE/MAX equity group, inc. and principal broker of its Lake Oswego office. He has a BA in Economics and an MBA in Finance. He has served as President, Clackamas City Association of Realtors 1989; Founding President of RMLS 1990-1991, and President, Oregon Association of Realtors, 2002. He was selected as CCAR Realtor of Year 1992; Million Dollar Club, Broker of the Year 1996; Portland Metro Association, Realtor of the Year 1997; and Oregon Association of Realtors, Realtor of the Year, 2002.

The new real estate bubble is building fast…it is different than the last bubble which was made up of a huge over-supply of homes and the blind reliance on the hope that the prices of homes would continue to accelerate at a record pace forever.

This new bubble is comprised of buyers.  Did all the buyers who would have bought in the last year disappear, or are they just waiting for good news?

Much like  the TV show ,“Lost”, whose characters seem to frequently disappear and then reappear, the buyers who disappeared when the big, sloppy Real Estate Bubble burst are, for the most part, still there.

Which buyers will probably not return for a very, very long time?  The “flippers” have pretty much disappeared.  Many of them were very clever individuals who bought a run-down house, cleaned it up, and then sold it for a healthy profit.  Were it not for rampant price inflation, they would not have been as successful.  Many of them are now sellers.

Another category are those buyers in the last few years who were able to get into a home even though they had no money, no credit, and not enough income to pay the initial payment, let alone the huge increase in payments lurking around the corner after the bubble burst.  Again mortgage brokers, lenders, appraisers, and the people who insure and purchase these loans were counting on continued price inflation to keep pushing prices upwards and protect their investment. 

But in most areas of Oregon and  Washington, those buyers who had no business buying in the first place were in the minority.  Most homes being sold were being sold to people who have a real desire to own the home they live in and could afford to do so. Another group was investing in residential real estate for the long haul and understands the cyclical nature of the real estate market. 

Why do I feel most of the delayed buyers are still out there?  Take a look at the numbers:

• The US jobless rate averaged around 4.5% in 2006 and 2007….the lowest in six years. 

• Our so called recession economy in the U.S. added 1.1 million jobs in 2007.  (Buyers with jobs…what a concept!)

• The Federal Reserve has lowered short-term interest rates six times recently, which means the cost of housing should go down, and the cost of debt for US citizens will also decrease.

• More than half of the families in the US now earn more than $54,000 per year.

• The net worth of the American household has risen for 19 consecutive quarters.

• More than 20% of the population of  Oregon moved here from out of state in the past 10 years.

• The State of  Oregon projects almost 100,000 people between the age of 40 and 79 to move into the Portland Area, or almost 1,000,000 into the State in the next 10 years.

• Average wages for Americans have risen by 8% in the last two years.

• During the same period, there were nearly 2,000,000 new households formed.

• Employers are planning to hire 16% more college graduates in 2008 than they did in 2007.

In my visual of this new Buyer Housing Bubble, each one of these statistics is a gigantic shot of air into the bubble.  More people,  more jobs, more college grads, more people moving into the state, more families being formed, lower interest rates, lower prices…this new bubble is getting very big very fast.  I really hope it doesn’t burst like the last one. Rather it would just make that funny “ffftttttt” sound when somebody lets go of a full balloon and it flies around the room.   

Listen for the “ffftttttt” when the media begins to talk about good economic news rather than use scary stuff to attract readers and viewers.

Things are looking pretty good right now.

As always, these are just my opinions.  Sometimes I am right! 

Gary Taylor, CRB, GRI is the principal broker for the Sunset Corridor office of RE/MAX equity group, inc.  He currently serves on the Board of Directors and is Chairman Elect of the Regional Multiple Listing Service. He was awarded the PMAR Realtor of the Year for 2007, the Million Dollar Club’s “Managing Broker of the Year” for 2006, the Oregon CRB of the Year in 1996, and WCR Member of the Year in 2001. He was also a Notary Public in 1974. He can be reached at 503-495-5577 or garyt@remax.net

To read the local newspapers, you would think that our real estate market is in the tank.  No one is buying.  Nobody can sell their house.  What a mess!  How can anybody make money in a real estate market like this?

Let’s look at this mess for a minute.  The Portland (and Seattle) markets are the least affected of all major West coast cities by the “crash” in the real estate market.  House prices are holding pretty much steady with a slight decline in some areas and a slight increase in others. 

I was in downtown Portland early one Sunday morning in late November and had a hard time navigating around all the street blockages due to the “lifts”.  Lifts are what  commercial construction people call lifting mechanical equipment to the top of buildings that are under construction or extensive renovation.  Gigantic cranes blocked the streets.  Really big equipment that, for the most part, looked like HVAC (heating, ventilation, and cooling) units were being hoisted to unbelievable heights.

My immediate thought was that I had no idea this much commercial construction was taking place. That is the sign of a VERY healthy economy!  A healthy economy means the creation of new jobs and the creation of new jobs means the creation of new home buyers!  I love it!

But what about all the doom and gloom I’m reading about in the papers?  First of all, the City of Roses is a huge exception to the rule…the residential real estate market is down a little but still flourishing. There are families moving into our fine city literally by the thousands.

Second is that the media would have you believe that all purchases of residential real estate are primarily a financial decision.  This is simply not true.  Most purchases of residential real estate are due to the very unusual need for a family to have a roof over their heads.  What a revelation.  Right now mortgage money is cheap and readily available to those with reasonably good credit and a job.  Many families would rather own that roof over their heads and will save money for a down payment and buy a house. 

But even if I concede that, for many, buying a house really is an investment first, it is STILL a good market.  My simplified investment strategy is buy low, sell high.  This is not rocket science.  For some reason that really puzzles me, many people want to invest in real estate when the market and prices are at their highest and then panic sell and complain when prices are low. 

Now is the time to buy.  Oh, you want to wait until prices are at the very bottom.  I see.  The problem with that theory is you probably won’t realize there was a very bottom until prices have already begun their climb up again.  For the average investor or even homeowner, real estate is a long term investment and with the exception of the past couple of boom years, has never been a vehicle for quick profits. 

Remember, the house you don’t buy today will never go up in value for you.  The house you buy today and sell down the road in a few years will almost certainly be a good investment for you and your family.

As always, these are just my opinions.  Sometimes I am right!

Gary Taylor, CRB, GRI is the principal broker for the Sunset Corridor office of RE/MAX equity group, inc.  He currently serves on the Board of Directors and is Vice Chairperson of the Portland Regional Multiple Listing Service. He was awarded the PMAR Realtor of the Year for 2007, and the Million Dollar Club’s “Managing Broker of the Year” for 2006.  He was also a Notary Public in 1974.

Loan programs have been cancelled, standards have tightened,and lenders have imploded.  Have buyers run out of options?

Far from it!  The truth is that mortgages written today are more solid than ever, safe for buyers as well as lenders. Interest rates for conforming mortgages are still at very reasonable, historically low levels.

While it’s true that many of the looser and more extravagant financing options are gone or going away, buyers still have options. Here are some of the programs available from reputable lenders:

• Traditional

• FHA

• VA

• ODVA

• Flex 100

• My Community

• Oregon Bond

• Programs for First Time Homebuyers

While there may be a lot of panic in the markets today, the cycle will run its course as it always has. Lenders who have stayed focused on professional service and results for their clients remain on solid financial ground and are available to meet the needs of buyers today.
 
from: Equity Home Mortgage, which was founded in 1997 through a partnership with RE/MAX equity group, inc. and Eagle Home Mortgage LLC.  Eagle Home Mortgage, LLC is wholly owned by Lennar Corporation, who is currently the second largest home builder in the U.S.

Instead of guessing about the income needed for someone to buy your home, have your favorite lender print up a flyer giving 3 different ways the buyer can finance.  I have done this for years and it is amazing how many times a seller has said something along the lines of: “It is amazing that someone could put $120,000 down on my house and their payment is over $3,000 per month…who can afford that?”  This might help adjust your expectations to be more realistic.  For lending information and assistance, go to www.equity-home.com.

If you have a question about a legal issue, you will need to consult with an attorney.  Do not rely on your real estate agent for legal issues…they are licensed and educated in REAL ESTATE!

If you have a question about the tax ramifications of selling your property, you need to talk to an accountant. Do not rely on your real estate agent…they are qualified in REAL ESTATE, not accounting!

In July of 2002 if new listings were to cease, it would take 4.7 months to sell all the houses at the then rate of sales.  In July 2007, it would take 30 DAYS LONGER THAN THAT! Yup, it would take 5.7 months to sell all of our listings at the current rate of sales.  TERRIBLE!  We have almost 1/3 more homes to sell than we did five years ago! 

Look at closed sales for the year to date for July 2002 at 2,337 vs. 2,624 for July of this year!  THAT IS A 12% INCREASE IN SALES!  THAT IS TERRIBLE!  Wait A minute…a sales increase is actually a good thing. 

In July of 2002 the average market time was 61 days.  The average market time this past July was 52 days!  THAT IS TERRIBLE! 

Appreciation must be TERRIBLE!  In the market we are in, prices are dropping like a rock!  For example, our office does a lot of business in Hillsboro/Forest Grove, and the annual appreciation rate year to date in 2002 was 5.7%.  This year, for the same time period, it dropped clear down to 10.8%.  Isn’t that UP almost double?  In Gresham, the appreciation rate went from 1.2% to 12.7%.  What a travesty!  The Regional Multiple Listing Service (RMLS) showed three areas in July of 2002 that had negative appreciation, and none in 2007.

We are in a state of emergency in this country regarding foreclosures.  They are at an all time high.  Well, they are at an all time high in Illinois, Michigan, California, Colorado, Arizona and Florida.  In our area, foreclosures are actually down.  Foreclosure rates in

 I don’t pretend to ignore the fact that the real estate market is much different today than it was a couple of years ago.  Financing is more difficult.  The real estate market is and always will be very cyclical in nature. 

The problems in the early 1980’s were much different.  High interest rates (12% to 18%) were prevalent.  Unemployment was high.  Today we have good employment, a bustling economy and low interest rates. 

While we face a different set of problems today, they are not yet, and probably won’t become overwhelming…unless you let them, and that would be TERRIBLE!

If you don’t have a safe deposit box, get one.  Store your valuables there that you can fit.  If you have valuables that won’t fit in the box such as a stamp collection, rare books, or those lovely porcelain commodes from Austria, find a place to store them securely.  Perhaps at a neighbor or relative’s home, or in your PODS.

If you take any type of ‘feel good’ medication, keep only a very small amount in the bathroom and hide the rest.

Have your REALTOR^® place a lockbox on your house.  You need to have it ready to be shown nearly 24/7.   If a REALTOR^® with a buyer has a choice of showing a house that is easily accessible, versus one that is difficult to show, which one do you think gets shown?

Provide a Home Warranty for the buyer.  You will save yourself a lot of potential headaches after the sale for a very low amount.   If the furnace doesn’t work when the buyer turns it on this Fall, think of how much money you saved by including this simple warranty.  Go towww.ahswarranty.com and learn more. 

More next week…

Be honest…Is your house (at least partially) a mess? Cluttered? Landscaping overgrown? Inside need paint? Front steps, porch and door look dull? Go to www.3stepstosold.com and order the very simple and pleasant DVD to help with ideas of what needs to be done. Or, ask your real estate professional for resources for “staging” your home for sale.

Your roof, gutters and windows all need to be cleaned.  The roof is a large percentage of the view of the house from the street. A neglected roof and overflowing gutters can be yelling at a potential buyer:  “If you think I look bad, wait until you see the inside!”

Here is a tricky one:  Animal excretion smells.  I don’t care if YOU can’t smell it. Cats, dogs, birds and even Willie the Ferret create unpleasant odors to those who are not used to them. While your home is on the market, it should be a ‘Pet Free’ zone.

A garage is for cars.  It is not a storage area for all the stuff you don’t currently (and probably never will) use again. Go rent a ‘POD’.  It is a huge box into which you can put all your old skis, couches, snow tires, golf clubs and bicycles with flat tires. You can find information at www.pods.com. You lock the box and the PODS company hauls it away and stores it.  Wish I had thought of that idea. The garage will look larger with all the stuff out. The front of the house will look better without your cars (that you could never fit in the garage) in the driveway. The buyers will now be able to get an idea of how much of THEIR ‘stuff’ they can fit into the garage.

More next week…

You should have a prelisting inspection.  Also, repair or replace any of the larger items on the inspection report. Doesn’t it make sense for you to take care of any problems with the home before you agree with a buyer on a sales price?  Costs too much?  A $300 home inspection can actually make the seller money.  Do you have to replace the dry rot in the deck?  Bet you can get it done for less when you have time to get several contractor bids and the contractor doesn’t need to have the work finished in 6 days. 

LP siding? Replace it! The buyer is just going to subtract the cost of replacing the LP siding from your price anyway.  As a bonus, your house will look almost new with freshly painted siding, and perhaps smooth along the selling process.

Do you have an underground oil tank?  Get it decommissioned and the soil tested now!

More next week…

We’re living through very historic times in the mortgage industry—times that people will refer back to for decades to come.  And in recent weeks, there has been increasing angst and consternation over the state of the mortgage industry.

One of the larger lenders in the U.S., American Home Mortgage, was recently forced to shut down operations. But why? What is happening, what does this mean to you and where are things headed next? Let’s take a look at what is happening, so that you really understand the truth behind the headlines.

Over the past several years, many loans were made to homeowners with somewhat non-traditional or “non-conforming” situations, be it a poor credit history, inability to document income or any number of factors that do not fit within the traditional “box” for home loans. These loans are often called subprime or Alt-A, meaning that they are somewhat riskier in nature than “A” credit, prime or traditional loans. There were also many adjustable-rate loans done that were considered somewhat “exotic”—that some homebuyers were well suited for, but may have been sold to many others that did not fully understand what they were getting.

Another type of non-conforming home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417,000, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae and Freddie Mac. If the loan amount is higher, it can certainly be done—this is called a jumbo loan—but the end money comes from private institutions, not from the large government-sponsored entities of Fannie Mae and Freddie Mac.

Most non-conforming loan product rates popped significantly higher, almost overnight.  Here’s what happened:

The end investor for subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure have been on the rise, partly due to the fact that credit tightening and a soft real estate market have meant that many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher “risk premium” for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed their purchase at a given rate, this increase to the risk premium means that instead of paying $101,000 for a $100,000 loan that will bear interest, they may only be willing to pay $95,000 for that $100,000 mortgage to account for the risk. Multiply that times thousands upon thousands of loans…and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting.

This is called a “liquidity crisis,” and is exactly what happened to American Home Mortgage—there was no mismanagement, but they simply got caught holding too many “hot potato” loans, forced to sell them at massive losses…and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a margin call. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished.

This is exactly like margin calls in the stock market. If you have a loan against a stock that is losing value, you will get a margin call and need to pay down the loan, as the underlying stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses…the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared—and likely over-prepared—for increased risk premiums down the road. Even though loans above $417,000 are not presently suffering from increased delinquencies such as the subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can’t afford to take on any margin of risk.

What happens next? The major damage is probably already done and the present situation will likely settle out over the coming year. Lenders will stop pulling products off the shelf and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize.