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|Tuesday, July 16, 2013|
BY EVAN SWANSON | OP-ED CONTRIBUTOR
When a fellow mortgage professional shared with me that one of his customers had recently lost in a bidding war to purchase an older home when a competing buyer offered $35,000 above the $340,000 list price and waived the right to an inspection, I thought I had been transported back to 2006-2007, when multiple offers, escalator clauses and irrational behavior were the norm.
You don’t have to work inside the real estate industry to know just how competitive the housing market currently is. Almost daily, the media is reporting the latest housing data, which confirms that home prices are rising, inventories are low, foreclosures are down and some houses are selling in hours instead of weeks or months.
Indeed, housing has been hot during the first half of 2013. According to the latest reading of the Standard & Poor’s Case-Shiller Home Price Index, values in the Portland Metro region have increased by nearly 13% during the 12 months ending in April. The last time home prices increased by this much on a year-over-year basis was October 2006, and we all remember how that ended.
In case you’re curious, the average year-over-year appreciation rate for the Portland Metro market is 5.22%, according to the Case-Shiller index, which dates back to 1987.
Therefore, the current pace of home price increases is more than two times the historical mean.
The current frenzied pace in the housing market, coupled with the painful memories of the crash from only a few years ago, can leave one wondering if home values are headed for the cliff once again. I do not believe this to be the case — in fact, I believe we’re actually in the midst of a sustainable recovery.
What makes this housing market recovery sustainable are two important facts. First, a much greater proportion of the population in the state of Oregon can actually afford to purchase a home in today’s environment, as opposed to that of 2006-2007. Second, the requirements for obtaining a mortgage are far more significant today than they were at that time.
First off, let’s have a look at affordability. According to John Burns Real Estate Consulting (JBREC), an independent real estate research firm, the percentage of households that can afford to purchase a median price home with a 5% down payment in some of the major Oregon housing markets is far higher today than it was in 2006.
During the previous housing boom, subprime loans, stated income qualification, and zero down payment for investment property purchases were widely available. The loose lending standards opened the floodgates for all sorts of folks to enter the realm of homeownership and investment property acquisition, even when they could not afford to service the debts.
Today, subprime loans are extinct, stated income loans have been essentially banned, and investment property buyers must come up with at least 20% down payment in order to buy a home. (Homes purchased for primary residence can still be purchased with significantly less than 20% down.)
Taken together, the fact that more people can afford homes at the current price level and that mortgage borrowers are being approved for loans in a more thorough manner will result in fewer distressed sales in the future. Therefore, I do not believe we’ll enter the vicious cycle we experienced in the crash where a wave of distressed sales hit the market and brought down prices, which then subsequently encouraged another wave of homeowners to enter into foreclosure, and so on and so forth.
While I do not foresee housing prices falling off a cliff like they did in the post-subprime era, I would also like to make it clear that I do not believe that housing prices will continue to rise at double-digit appreciation rates forever.
So what will slow the pace of price hikes? Over the past 10 weeks, mortgage rates have increased by over 1.00%, the sharpest increase within this short a time period in more than 50 years. So although mortgage rates are still low from a historical perspective, the impact of the rise in rates will affect affordability and weigh on demand in the coming months. In fact, according to the aforementioned JBREC Affordability IndexTM, the Portland housing market is currently very close to what is considered to be fair value, while Salem and Bend remain undervalued.
I suspect that the frenzy we are currently experiencing is temporary and that by Q1 2014 we’ll see housing prices increasing at a pace closer to their historical averages. From that point forward, job growth will play a major factor in the health of the housing market. Here’s to hoping that the next several years will bring sustained growth.
Evan Swanson is a mortgage broker and certified financial planner with Mortgage Trust Inc.
Editor's note: Oregon Business accepts op-ed columns on topics relevant to the state's business community. See op-ed submission guidelines here.
Thursday, October 02, 2014
More than 5,500 employees from 180 organizations throughout the state participated in the 100 Best Nonprofits to Work for in Oregon project.
Friday, October 17, 2014
BY TOM COX | OB BLOGGER
How can you move from a command-and-control leadership model to one of true empowerment and accountability? David Marquet did, and he took notes along the way.
Thursday, September 25, 2014
BY KIM MOORE
A conversation with leading partners at law firms in Portland and eastern Oregon, followed by October's powerlist.
Wednesday, October 22, 2014
We didn’t intend this issue to have an election season theme. But politics has a way of seeping into the cracks and fissures.
Wednesday, October 22, 2014
BY AMY MILSHTEIN
Meetings get a bad rap. A few local companies make them count.
Wednesday, October 22, 2014
BY JESSICA RIDGWAY
Bob Dethlefs, CEO of Evanta, balances work and play.
Friday, October 24, 2014
How does your workplace stack up against competitors? How can you improve workplace practices to help recruit and retain employees? Find out by taking our 100 Best Companies to Work for in Oregon survey!
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Is your business ready to join us in the call for action? This opening panel includes Oregon businesses who will discuss why they signed the Oregon Climate Declaration, the investments they are making to reduce carbon emissions, and how their actions are affecting their companies.
Get ready for two days of special events produced with the EPA, Portland Timbers and ISOS before and after the GoGreen Conference on October 16.
Rotary’s Oregon Ethics in Business aims to raise consciousness about business ethics by honoring exceptional companies.
Barran Liebman’s annual employment law seminar is an industry classic.
Business leaders descend on Portland in December for the region’s largest environmental conference and trade show.
More than 400 "Change Makers" will gather to invest in a socially sustainable community.