Wednesday, September 06, 2006

OR Housing Bubble: Still Unpricked, But...

As if Americans needed more trouble on the economic horizon, the national housing market picture has quickly turned sour:
The Office of Federal Housing Enterprise Oversight reported Monday that home prices nationwide appreciated only 1.17 percent in the second quarter - an annualized rate of only 4.68 percent and the sharpest decline in quarter-to-quarter appreciation rates since the agency first started indexing housing prices in 1975.
For those of you counting along at home, that's the worst quarterly reading in 31 years, going back to the days of President FORD, for heaven's sake. Other statistics echo the clarion sound of a years-long national boom grinding to a halt:
The Commerce Department reported that sales of new homes dropped in July by 4.3 percent, the largest amount since February, while the inventory of unsold homes climbed to a record high. And sales of previously owned homes fell 4.1 percent in July to a 21/2-year low, according to the National Association of Realtors.
Yet, here in Oregon we're still wearing those Alfred E Neuman "what, me worry?" grins--and the shit-eating is nowhere more voracious than in Bend, which has become the #1 hottest market in the country for home prices. The fast-developing Deschutes County town and its environs saw a 7.37% increase in prices just over the last three months, and for the 12 months ending in June the rise was a phenomenal 36.65%. Put another way, if you bought a house in Bend last summer for $300,000, this year it's likely to be worth over $400,000.

Statewide, Oregon is mostly following Bend's lead,racking up a near-20% annual increase--good enough for 4th-highest in the country. The Portland, Salem, Eugene and Medford areas all showed strong growth, within or near the top 50 markets in the country.

But before you head on over to the MLS listings and call your mortage broker, you might want to heed some experts who believe that the recent good showing simply means a downturn is being forestalled in our area. According to The O, Portland's time may have been as soon as last month:
The most recent data from the Portland Regional Multiple Listing Service for July showed a cooling that the national figures -- which cover three months through June 30 -- don't include.

The Portland area's median home price dropped to $274,700 in July, from $280,000 in June, according to the RMLS. Coming during the seasonally strong summer housing market, that was the first time since 2002 that the June-to-July period recorded a median price decrease.
Ouch--and Bend may not be immune either, as the Bulletin notes:
A slide in home sales numbers and, in some cases prices, in areas that have traditionally fueled Bend's population growth - California and the large cities of the West Coast - will eventually dry up the capital that people in those markets need to relocate to Central Oregon, in [Bend financial advisor Bill] Valentine's view. And risky mortgage loans could still push thousands of buyers into default if interest rates rise and housing prices decline, possibly flooding already weak housing markets with more inventory and pushing the nation into a debt-driven recession.

"We haven't even begun to descend yet," Valentine said. "We're at the tip of the iceberg." In Bend, inventories of homes on an acre or less swelled 249 percent from the first of the year through the end of July, according to an analysis of Central Oregon Multiple Listing Service numbers posted on RE/MAX Equity Group Realtor David Foster's Web site.
If you think there's anti-incumbent fervor brewing already for the November elections, wait for what will happen if home prices really start falling instead of barely increasing, as they have begun to in Portland.

Of course, we can't always have things perfect--if prices rise too high too quickly, the risks exist for greater, more untrammeled growth, an influx of land speculators from other states, and the shutting out of all but the biggest income earners when it comes to living the American dream and buying a home. If prices fall, there is a mountain of debt built on adjustable rate mortgages that is going to overwhelm buyers who went cash-poor in order to get in on the boom. That means bankruptcies, defaults, and a general slowdown in the state economy. The best Oregon can probably hope for is a bubble that stays at least partially inflated for as long as possible, deflating slowly enough to prevent a major economic shock that could eradicate all of the catching up the state has done since the last recession. A silent prayer to the real estate gods while holding your amortization schedule might be in order.