“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.