Sunday, May 08, 2005

In Portland The Debate Changes: Should I Sell?

In Portland, home prices are rising and rents are falling. Which is going to change? "Portland's median home price has grown from $170,100 in 2000 to $210,000 at the end of 2004. By the end of March, it had surged again, to $223,000, according to the Regional Multiple Listing Service. That's a 31 percent gain since 2000."

"The average monthly Portland rent over the same period dropped 14 percent, to $704 from $801. Vacancies at some apartments are at 20-year highs."

The writer does what most do these days; ask a realtor. " Brad Vincent, president-elect of the Portland Metropolitan Association of Realtors says, 'You'll lose the chance for potential growth and tax benefits. Overall, the benefits for owning are clearly better.'" Realtor Brian Pienovi agrees, 'Our appreciation is real, 10 percent. If you figure that on a $250,000 home, that's $25,000 in one year.'"

"Jim Straub, a Eugene owner of rental houses and duplexes said, 'I see an advantage to selling my home now because the market is red hot, people are paying ridiculous prices for property. "If your goal is to buy low and sell high, you should get out while the getting's good."


At 10:59 AM, Blogger John Law said...

what did shiller say? homes gained 1% over inflation a year? it's just not sustainable base on income growth. at some point lenders are going to hold back and things will get ugly.

At 11:23 AM, Anonymous Anonymous said...

Don't miss the real irony of this story. Portland's RE performance is really poor by relative standards. A 31% gain in 5 years? That's only 4.6% annualized. You get a better deal in fixed income! They may indeed not be in a bubble there.

At 11:29 AM, Blogger goleta said...

With both social security and medicare funds running out of money, huge FED and state government deficits, and medical expenses going up several times faster than inflation, how will the 77 million boomers pay for their medical expenses after they retire in the next 3 to 15 years?

They will sell their homes and move to apartments or nursing homes and use the money for their medical and other needs.

Give me a reason how can the RE bubble be sustained when boomers need to sell their homes?

At 11:59 AM, Anonymous nostradamus said...

During the '90s stock market bubble, we heard a growing clamor that stock prices were unsustainably high and disconnected from fundamentals.

Sure, there were a few "New Era"-type bulls who felt that the Internet (or whatever) had created an atmosphere for unlimited prosperity. But most observers felt that stocks would fall, sooner or later.

And, of course, they did.

But with today's housing mania, except for those considered "perma-bears", the worst that most analysts expect to happen is a flat period while housing digests its gains.

Why did so many come to believe that stocks would crash yet can't envision housing crashing? I think it's because most parts of the country have never been thru a housing bubble. In California, we have been through quite a few. We know how they end. But this is a new experience for many markets. We've never had a national boom, let alone a global boom.

When fundamentals (incomes, population growth, rents, etc) no longer match prices, you know that we are due for a correction. The higher prices go before the correction, the more damaging the correction will be. It's that simple.

I think the best-case scenario is for home prices to flatten or slightly decline while incomes, population and rents rise to narrow the "fundamental" gap. The problem is that this process takes many years, perhaps even a decade or more. I don't think buyers today are at all prepared for this scenario---and this is the "optimistic" view.

At 5:29 PM, Anonymous LV_realprop said...

Funny that Portland RE has appreciated anything over the past 3-4 years considering that their economy is far from strong. Consistently ranking in the highest areas for unemployment for metropolitan areas it must be outside influences(hmmm, California?) affecting any appreciable gains for Portland homeowners. Then again, all fundementals have been thrown asunder across the country so why shouldn't Portland get in on the action. hehe...

At 9:36 PM, Anonymous Anonymous said...

All my friends here expect 10% a year. They count the money each month.

Renting is for suckers they all say.

California effect? There's nicer places in the mid-west where you don't put up with the rain, poverty, and meth problems. Meth is a real problem here. In schools and everywhere. Not to mention the constant rain.

This can't continue. Hey, everyone isn't a big shot #1 shoe company manager!

Doesn't anyone put a negative spin on this bubble for first time buyers? Whatever happened to affordable housing?

This bubble sucks!

At 11:08 PM, Anonymous Anonymous said...

Move to the mid-west

So, yes, Alan, congratulations by making the world safe for speculators and enriching the few at the expense of many, by encouraging the misallocation of capital and punishing savers, by destroying the returns of labor in relation to the returns of financial speculation. Yes, Alan, for many, you have destroyed the American Dream. Go east young man, go east young woman, but not too far. Be sure to stop somewhere in the middle!

At 2:37 PM, Blogger Thomas said...

Just a thought, in case my RE bearishness is misplaced:

What factors could conceivably justify ownership commanding a significant premium over renting?

The only one I can think of is control -- if you own your house, you and your sentimental 4-year-old kid won't be tossed out of your bedrooms because the landlord decided to move back in or sell.

Favorable tax treatment of ownership doesn't help much; the residential mortgage interest deduction is barely enough to defray the costs of property taxes, insurance, and maintenance. Certainly it's not enough to justify a premium of an additional $1,000 per monthly payment.
Then there's the factor of future appreciation -- but wouldn't the discounted value of that appreciation already be built into the market price? The only way a person could make money from future appreciation would be if he were convinced, correctly, that appreciation would be even greater than the market expected.

Seriously, bulls -- what am I missing? What on earth justifies this particular asset class being priced so high that there is effectively a negative return on investment, other than the prospect of appreciation from the price going even farther out of whack with fundamentals?

At 11:22 PM, Anonymous Anonymous said...

Probably just the control you mentioned other than the "expected" appreciation.

If you move into an apartment complex in a city with stricter condo-conversion law, you are less likely to be thrown out.

It is tricky to find a nice apartment complex though, and you will have to pay a premium over private landlords.

In SF Bay Area a 650K 2/2 condo can be rented for about $1800. A 2/2 in a nice complex can be up to $2500. (6% I/O mortgage payment for a 650K home is nearly $3500 after prop tax, fees, and deductions)


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