I picked up a couple of interesting bits of news this week about the economy. Thought I would share:

Last week’s Pending Home Sales index from the National Association of REALTORS® (nar) went up 7.3% in November, the highest level since April of 2010.  The 2010 numbers were pumped up because of buyers that were in the market to take advantage of home buyer tax credits available then, that are not available now.

NAR chief economist, Lawrence Yun (and one of Inman’s 100 most influential)  said,  “Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines,  but contract failures have been running unusually high. Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage”.

I think that some some contract failures are preventable, especially when both the buyer and seller want to see the transaction through — having the right team in place, real estate professional, lender and title/escrow in place, can make a huge difference on an individual basis. Local markets and individual circumstances drive the reasons for contract failures.

According to NAR, It should be noted that “Pending home sales are not affected by the recently published rebenchmarking of existing-home sales because the index uses a different methodology based directly on contract signings, and is adjusted for seasonality.

and

According to USA Today, news sources and the Bureau of Labor Statistics, the, U.S. unemployment numbers are the lowest in 3 years.  “The U.S. job market strengthened in the second half of 2011 and added 200,000 jobs in December while the unemployment rate fell to 8.5% from a revised 8.7% a month earlier.”

Bright spots.  I’m looking forward to serving your Real Estate needs to 2012.  If you have questions about Corvallis, Albany, Philomath or other mid-Willamette Real Estate feel free to get in touch.

Contact Dava

Corvallis, Oregon Housing Market Ranked 9th Most Over Valued – Is that a Fair Assessment?

Recently, I answered a posted question on Trulia.com, which related to a CNNMoney.com post that ranks Corvallis, Oregon as the 9th most overvalued housing market.  I’ve been asked about the study in person a few times… here’s what I think.

The study was done by IHS Global Insight and PNC Financial Services. The terminology used are “overvalued” and “undervalued”.  The study ranks Corvallis, Oregon as  the 10th  most “overvalued” market  in the study (there were only 399 markets included in the study—one has to wonder about the sample size) .

On one hand I’m completely aghast at the use of the terminology.  The definition of market value is “a price at which buyers and sellers are willing to do business” (Webster’s ninth new Collegiate Dictionary).  So, by the very definition of market value, how can a market be “over” or “under” valued? The published article is unclear about what the “percent” relates to (percent of what?).  Is it the number of homes on the market that are “over/under valued?” Or is it the total number of homes in the community (if so, where did they get that “value” from)?  Is it a comparison of number of home on the market or sold in relation to the median house price?  None of the data I reviewed tells you what any of it really means.  I searched the web in general  and the web site for both PNC Financial Services and IHS Global Insights could not locate to the actual study.

With only a surface evaluation at my disposal, I have to say, I am more than a little skeptical about comparisons or rankings of such diverse cities.  Seriously, Corvallis is in a list with Honolulu, Hawaii; Bangor Maine;  and Bakersfield, California? Not much commonality. Perhaps it would make more sense to compare college towns to college towns (See the Coldwell Banker  Home Price Comparison Indexes — there’s one  index for College Towns and one for select markets) or towns with similar features and sizes.

The study says it is based on select data: “These judgments are determined by comparing median home prices, local interest rates, population densities and income, plus historical premiums or discounts that areas have exhibited over time.”

 If you want to look at the “premiums” that Corvallis has to offer and length of time for the “history”, I have to say, Corvallis is not the same place it was 20 years ago. What are the “historical premiums or discounts”, and who is deciding which of these factors is significant. The term “overvalued” may be relative to who is doing the shopping and what the current “premium” list is…

How long is the history? It does not appear that there is any consideration for supply and demand; and important factor in a community like Corvallis.

Interest rates are very much based on national pricing (at least as long as Fannie Mae and Freddie Mac are still around) not locally set, so the rate climate really has a limited effect. 

Corvallis is a very small market. Median home prices fluctuate (and drop) when the upper end of the market is slow and/or when there is limited inventory in the entry level available. For a significant portion of 2009, entry and mid level housing was more active than any other price point because of low interest rates, inventory and tax incentives. When more homes sell in the entry and median levels, the median and/or average is bound to move down. It is simply how the math works (Median is the center point between the highest high and the lowest low, more weight at the lower end, drives the median down.) Based on what I know about individual home sales and the market in which I work, I am not clear on how the median can be a valid statistical point in our market. The sample is simply too small.

The variance in the study between 2006 and 2010 for Corvallis is under 5%–many of the communities on either end of the scale exhibit much wider variances between  the 2006 study and the 2010 study. That (almost 5%) is not much of a difference when you are comparing the same figure to other communities. To me it is an indication of a comparatively stable market (relative to the overall economic climate). Other communities, especially those where the bottom dropped out, show wider variations. The communities that are now rated extremely undervalued took big employment hits, have high foreclosure rates, did not control growth and/or a combination of those factors.  

Do not get me wrong. I do not think that any community that is immune to the impact of the current economy. However, I do not think that we are in for the fall that one might derive from this report. Jobs will determine that.

It was not until this last housing cycle that homes were considered short-term investments. In the past, most investors were looking at purchasing investment properties on the basis of cash-flow.  Appreciation was a bonus. Flipping was done only by the most experienced investors and with appropriate types of financial backing.

The last paragraph of the article is the most significant. “The bottom line, at least for a few years, is that the average buyer should forget about home purchases as investments. The good news is that, long-term, their home values should appreciate.” That sounds more like a return to normal to me.

I’d like to know what you think?  Please post your comment or question.

Five things I’m looking forward to in 2010 and Change in the Corvallis Real Estate Market

As 2009 comes to a close, it will be nice to put a cap on it and move onto a better 2010.  I, for one, am looking forward to some positives in the economy and the Corvallis real estate market.  Recent economic activity would lead one to believe that the country is coming out of an extremely difficult economic period — some say the longest recession in decades.

What I think we’ll see in the coming new year:

1. Slightly higher, but still very appealing interest rate environment, at least for the first half of the year.  Not the really extra-ordinary rates hovering at five or slightly under, but more like the low sixes, which historically (and if you can remember the early 1980s really very much better than seventeen percent or higher.)

2. Buyers, both first time and move (up,over,down) buyers taking advantage of tax incentives (written contract must be in place by 4/30/2010; closing by 6/30/2010)

3. Locally good levels of inventory without the impact of extreme high levels of foreclosed properties. Basically, a more balanced market.  Making it a better market for everyone.  As the markets that tend to feed Corvallis and the mid-Willamette Valley continue their recovery they will provide a little “stimulus” to our economy.

4. Better employment rates as the economy crawls out of the recession hole.  Employment is the one factor that will really change the course of the current economy.

5. Along with higher interest rates, may come a more relaxed, perhaps I should say, sound, approach to underwriting.  Not the take a pulse, give a loan attitude that helped create the mess, but realistic and reasonable, as banks re-enter the mortgage business and become less fearful of risk.

All in all, no matter what the economy does, how the real estate industry deals with ups and down, we are all just and we will continue to adjust and do what we need to do to live our lives the best way we can.

Wishing you all a happy, healthy and prosperous 2010.

Related posts:

Questions and Answers about the Expanded/Extended HomebuyerTax Credit

Homebuyer Tax Credit De-Mystified

Richard Smith CEO of Realogy on CNBC about the Tax Credit

How Would You Spend Your Tax Credit?

COLDWELL BANKER REAL ESTATE STUDY FINDS CONSUMERS’ ANTICIPATED ‘SMART SPENDING’ OF HOMEBUYER TAX CREDIT WILL AID ECONOMIC RECOVERY

83 Percent of Current Homeowners Surveyed Say They Would Spend Tax Credit on Repaying Existing Debts, Home Improvements, Savings/Investments and Household Expenses

Coldwell Banker Real Estate LLC today announced the findings from a new survey that looked at how the recently expanded federal homebuyer tax credit, which opened up the credit to existing homeowners, might impact the economy.  Of the more than 1,000 homeowners surveyed, 83 percent responded that if they were to purchase a home and qualify for the tax credit, they would engage in “smart spending” or put the money toward paying off existing debts, home improvements, savings/investments, or everyday household expenses.  Only 6 percent of respondents indicated that they would spend the money on what are commonly referred to as luxury items such as a vacation or a shopping spree.

According to the survey, the top way homeowners would spend their $6,500 tax credit in a “smart” way would be to pay off debts (34 percent), followed closely by making home improvements (29 percent) and putting it into savings and investments (28 percent).

In addition, Coldwell Banker Real Estate found that 20 percent of homeowners indicated they were more likely to consider purchasing a home than they were six months ago, after learning about the $6,500 federal tax credit. The tax credit, which previously only was for first-time homebuyers, is now available to existing homeowners who sign a binding contract before April 30, 2010 and close on the purchase of a home before June 30, 2010. To learn more about the details of the expanded homebuyer tax credit, go to www.coldwellbanker.com

If you’re considering purchasing a home in Corvallis, Albany, Lebanon or Philomath (and surrounding areas of the mid-Willamette Valley); I’d like to help you meet your goals.  I work with buyers and sellers at all price levels. Please get in touch and we can get started today.

Other resources for information about the tax credit:

National Association of Realtors frequently asked questions about the tax credit

I.R.S. information abut the tax credit

Richard Smith checks in with CNBC regarding the current condition of the real estate market, projections about the economy and mortgage interest rates, the condition of FHA (Federal Housing Administration). A very insightful and calm discussion about the anticipated response to the tax credit extension/expansion.

Richard Smith is CEO of Realogy (parent to Coldwell Banker Corporation and others) and the world’s largest brokerage operator.

On Wednesday, October 14th, I attended a presentation titled: “How Recovery Will Come to America and Oregon”by Dr. Bill Conerly.  The focus of his talk was on the cause of the recession and the economic forecast for the next 18 months or so.  His presentation was well organized, down to earth and “plain language”.  A few of the key points were:

• It is absurd to think that one person can change the jobs problem in a short amount of time.

• Housing starts drive the GDP (Gross Domestic Product¹).  If this recession were truly a “housing problem” we would not have had a recession of this magnitude, nor would it have been global.

• Demand for new housing tapered because construction of new homes exceeding demand.  At one point, the supply was 70 homes for every 100 people (people, not households); it should be at about 45.

• Factors affecting housing demand:

• Immigrant workers without jobs moving back to country of origin (migrate out)
• Divorced couples staying in the same house become of economic factors (rather than creating new households)
• Grown kids moving back to parent households

• There are too many vacant homes.  There is no immediate solution.  Vacancy rates will be slow to come down. The dip in “Owned” vacancy rate is attributable to first time home buyers moving from rentals to homes that they own.  This is pushing the problem from one sector of the market to another.

• The public’s attitude drives the economy.  Fear creates an environment where there is no spending on discretionary items, which leads to a down turn on retail sales (“retail sales fell off a cliff”.)  The first component of the recovery is retail sales the second is money supply.  In the short run, this is difficult, but it also provides the seeds for recovery.  When people stop spending, they start saving.

• 10% unemployment actually equals 90% employment.  The 90% that have jobs think that maybe they dodged the bullet; they have money in their pockets and create a pent-up demand environment.

• The recession is over. The recovery is a process. It is like having fallen 9 feet down in a 10 foot hole, you have to climb out.

• We are unlikely to see a big change in that (the non-spending) attitude — this recession has caused the “de-blingification” of America.

• Change will happen in gradual shifts.

• Challenges (factors that could limit economic growth) in the changing economy:

• The financial stress of a growing economy
  1. Credit limitations
     1. Credit card companies cutting back (which was needed, but could have an impact anyway)
     2. The risk is main street business, small businesses especially, are not necessarily looking good for line of credit extensions (typically subject to annual review).  Bank examiners are afraid of looking bad, so are being very conservative.  Not necessarily taking into consideration that a small business surviving the bad economy is a good thing – looking strictly at profits, which may be minimal for the last year or so.
  2. Vendors may not be able to deliver
     1. Lack of ability to stock shelves—the current economy has created an environment where existing inventories have been reduced
     2. May be unable to gear up to meet demand
  3. Human resources – challenged to find staff to deliver in a change market
  4. Big companies may wait and hold off on large purchases; will be in “wait and see” mode before making decisions on spending.

• It will be important to watch and track consumer trends to determine if they want to go upscale or take a more moderate approach.

• The biggest concern for the immediate future is to curb inflation.  This is a very contentious issue; the forecast is the Fed needs to slow the economy at the right time.  It is very likely that in March or April the Fed will hit the brakes hard.  Long-term interest rates are likely to climb even sooner.  If the Fed waits until later, it is likely that the inflationary period will be worse.

• In the past, there have been economic downturns where Oregon was distinctly Oregonian.  This time it is a national recession. We have movement into the labor force affecting the unemployment rate, but it is actually, not that much worse if you look at jobs as a whole.  Oregon tends to be a large work force in manufacturing and construction, both of which were hard hit.  We have a high minimum wage, which affects job creation and retention, there are population shifts, where people are coming into the state, and start looking for work adding to the unemployment numbers.

• What every business leader needs to think about are what are the challenges going to be?

• Consumers should prepare for tighter credit regulations, higher interest rates, and limited home price appreciation.  

^{1Gross domestic product (GDP) price index. Measures the prices paid for goods and services produced by the U.S. economy and is derived from the prices of personal consumption expenditures (PCE), gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment. It differs from the gross domestic purchases price index in that it ignores price changes in imports of goods and services and includes price changes in exports of goods and services.}

Charts provided by Bill Conerly, data used in these charts were obtained from government and private agencies. Visit Bill Conerly’s Blog