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Goodbye ‘05, Hello ‘06
Some final thoughts on the year that was and the year that will be:
A Bubbly Hangover – As the year wore on and after several consecutive rate increases by the Fed, a lot of people were waiting for the sky to land on their heads. But bubble fears gave way to more level-headed predictions. In all but the most hyped and overpriced markets, U.S. communities should see appreciation gains closer to historical averages in 2006. The Portland metro market averaged nearly 15% appreciation gains in 2005. Rising interest rates could cool things a bit, but I believe Portland will continue to see above average gains next year.
Sellers Wield Ultimate Power – Early in the year, so much of the Portland-area market had tipped in favor of the seller. Multiple offers, escalation clauses, no seller concessions, low housing inventory, ‘as-is or nothing’ terms. Buyers had very little leverage in 2005, but I expect (hope) things to be a little more balanced in 2006.
So Many Questions – Will Portland’s relative affordability and livability features continue to drive out-of-state investment? Will Portland’s suburbs continue to absorb families attracted by stable schools and outpriced by urban living? What choices will first-time buyers have in the Portland market? Just how many more $400K+ condos can be supported in the Pearl and South Waterfront? These are just some of the things I plan to keep tabs on in the months to come.
And lastly, a new year’s resolution:
I hereby banish the word ‘bubble’ from my vocabulary in 2006. Hereafter, I will have to make do with phrases like ‘soft landing’ or ‘correction’.
On to 2006! I look forward to helping any and all of you with your real estate needs or questions.
Oregon Cracks Top 10 Fastest Growing States
The U.S. Census Bureau released 2005 growth stats and Oregon moves into rarefied air as the 10th fastest growing state the country. Oregon grew 1.4% in 2005 and is now the 27th most populous state with 3.65 million inhabitants.
Assuming the majority of the almost 50,000 new state citizens moved into the Portland metro area, I am pleased at the business prospects for us real estate brokers. On the flip side, it does portend of a continuing cycle of growth and expansion for the region, with troubling issues at hand for education, land use, and public infrastructure.
I’m guessing that livability factors, low housing prices (relatively speaking), and a California exodus are leading to Oregon’s growth, despite the marginal job growth in the area.
Nevada, New Mexico, Utah, and Arizona are beneficiaries of California’s inaffordability, too. In fact, this is the 19th consecutive year for Nevada as the nation’s fastest growing state.
Fastest Growing States (July 2004 – July 2005)
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2005 Growth
|
||
| 1. | Nevada |
3.5%
|
| 2. | Arizona |
3.5%
|
| 3. | Idaho |
2.4%
|
| 4. | Florida |
2.3%
|
| 5. | Utah |
2.0%
|
| 6. | Georgia |
1.7%
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| 7. | Texas |
1.7%
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| 8. | North Carolina |
1.7%
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| 9. | Delaware |
1.6%
|
| 10. | Oregon |
1.4%
|
The nation grew 0.9 percent overall, a gain of 2.8 million people. Over half the nation’s population live in the South and West. The top 10 states in population account for 54% of the country’s residents.
Source: U.S. Census Bureau.
The Power and Peril of Interest-Only Loans
I got this article from one of my most respected Portland-area lenders, Trudy Bushard with Eagle Home Mortgage.
It outlines an increasingly popular mortgage program–the interest-only loan, and I thought it did a nice job of cutting through the hype to explain the advantages and disadvantages of these loans. Thanks Trudy!
Interest-Only Loans
A new trend in home-buying is emerging…the interest-only (i/o) loan. Although interest-only loans have been available for quite some time, they’re becoming more popular. Currently about half of all adjustable-rate mortgages are interest-only, according to E-Loan. But why in the world would you want to get an interest-only loan? Isn’t the point of home-ownership building equity and security? That’s one of the points, but an interest-only loan can be a viable alternative if you meet several criteria. For instance, you need a credit score of at least 680 if you’re a salaried borrower, and if you’re self-employed you need a 700 or higher. But we’re getting ahead of ourselves.
To put i/o loans in historical perspective, interest-only loans were popular in the 1920s when home buyers wanted to free up cash to invest in the stock market. When the 1929 crash came, scores of foreclosures bankrupted the i/o homebuyers. Just something to keep in mind as we explore this option.
First, the good news: i/o loans increase house affordability by 20 percent. If you qualify for a $250,000 loan, you now can get $300,000; $300,000 becomes $360,000; and $400,000 becomes $480,000. In other words, you can qualify for a more expensive home than you would with a traditional mortgage. And the payments are dramatically different. On a five-year interest-only loan at 3.875%, your payment is $1,615. On a five-year hybrid at 3.750%, your payment jumps to $2,316. And on a 30-year fixed at 5.750%, your payment $2,918. Quite a difference there.
How interest-only loans work:
Interest only loans do not prohibit you from paying down the principal balance. Most are available only with adjustable rate mortgages. Most are five, seven or ten year interest-only periods, where the rate is fixed. After the initial period, the rate can rise up to six percentage points. For instance, a 5/1 ARM rate is fixed for five years and the i/o may only be for five years, and the next 25 would be traditional principal plus interest—greatly increasing your payment. After the initial interest-only period, the loan becomes a fully amortized 30-year mortgage loan with no pre-payment penalty.
Now for the (potentially) bad news. The payment differences break down as follows over the life of a five-year interest-only ARM:
Years one through five at 3.875%, your payment is $1,615. Years six through eight at 6.875%, your payment is $2,864. Years eight through ten at 9.875%, your payment is $4,114. Years 10 through 30 at 9.875%, your payment is $4,783. This last jump is due to the fact that during the last 20 years of the loan, the principal is spread out over 20 years as opposed to the traditional 30.
You may want an interest only loan if:
- You’re disciplined with money
- You’re something of a risk taker
- You’re not taking on more than you can handle comfortably
- You expect your income to rise sharply in the next five years
- You have an irregular income (like commissioned sales) so that the lower payment is manageable during lean periods and when the money is coming in can pay down the principal
- You’re content to let rising markets build your equity for you
- Home prices continue to rise
You don’t if:
- You have a lot of consumer debt that you can’t get a handle on
- You plan on being in your house longer than the interest-only period
- You’re undisciplined with your finances
- You’re borrowing a small amount (the savings might not offset the loan’s greater risk)
- You plan on spending the extra cash on “discretionary” items (your overall net worth will suffer)
- You plan to sell or refinance before the interest-only period ends
- You want to lock in today’s low interest rates
For information on interest-only loans or any other mortgage program, contact:
Trudy Bushard
Eagle Home Mortgage
www.eaglehomemortgage.com/trudybushard
(503) 654-4243 ext 219
What’s Hot and What’s Not
As an agent, I am always interested in the general trends that I can share with clients when it comes to remodeling or making updates in anticipation of selling their home.
Author Mark Nash has compiled his “What’s In and Out for Homebuyers 2006” report covering real estate factors that are either booming or dwindling. Here are a few of his findings:
What’s In
- Seller’s concessions (or givebacks) — With a softer market, buyers may have more leverage to ask sellers to pay some of their closing costs;
- Bamboo floors (the new maple?) and higher quality kitchen cabinets;
- More technological features — multiple hookups for DSL/broadband connections, room on walls for flat-screen TVs, built-in stereo;
- Separate tub and shower stalls in the master;
- Smaller homes and single-level homes — lower maintenance, better accessibility for America’s aging population;
- Second homes.
What’s Out
- References to ‘The Real Estate Bubble’. Nash says, “It’s a correction with a soft decline in prices.”;
- Heavy-handed designer colors — Not every buyer appreciates bold, trendy paint colors;
- Single-rod closets — buyers want organizers to optimize storage;
- Dark rooms with small windows. You can’t go wrong with natural light;
- Others: cheap fixtures, awnings, mirrored backsplashes, wallpaper, dropped ceilings.
Probably most surprising to me is his assertion that stainless steel appliances may be on the outs in the next few years—their shiny surfaces are just too much work to maintain.
Not a shock: moving away from laminate flooring (i.e. Pergo, etc). It just doesn’t look real and it makes a tell-tale sound when you walk across them in heels.
Read the full transcript here.
Average Sale Prices in Portland Communities – November 2005
Here’s an update on average sale prices for properties sold in November 2005 throughout Portland’s metropolitan areas. The metro area average was $280,000 for a single-family home.
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$465,400 – Lake Oswego / West Linn
$432,700 – West Portland
$398,100 – NW Washington County
$357,100 – Tigard / Tualatin / Wilsonville / Sherwood
$322,700 – Milwaukie / Clackamas
$319,700 – Oregon City / Canby
$275,500 – Northeast Portland
$263,300 – Hillsboro / Forest Grove
$260,800 – Beaverton / Aloha
$249,700 – Yamhill County
$245,500 – Southeast Portland
$238,100 – Gresham / Troutdale
$228,500 – North Portland
$209,100 – Columbia County
Free Offer: Keep track of home prices and new properties for sale in these communities with a quick visit to www.findportlandhouses.com. Each morning, you get an email containing up-to-date property listings, including new listings and price changes. My HomeQuest service provides addresses, pictures, and plenty of listing data and descriptions.
Source: RMLS, November 2005 report.
12-Month Portland Appreciation – November 2005 vs. November 2004
Continued good news for homeowners in the Portland metro area. As reported by the Portland multiple listing service (RMLS), the average sale price in the Portland area rose 14.6% over the previous 12-month average.
One interesting note: Lake Oswego/West Linn home sale price appreciation dropped a full two percentage points from last month, perhaps signaling a softening in that particular market.
Here are the 12-month appreciation averages for Portland metro communities:
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22.9% – Tigard / Tualatin / Wilsonville
17.7% – North Portland
17.6% – Oregon City / Canby
17.2% – Hillsboro / Forest Grove
16.0% – Milwaukie / Clackamas
15.2% – Northeast Portland
14.8% – Southeast Portland
14.4% – Columbia County
14.1% – West Portland
13.6% – Beaverton / Aloha
13.4% – NW Washington County
13.0% – Gresham / Troutdale
12.9% – Lake Oswego / West Linn
11.3% – Yamhill County
Note: Appreciation percentages are based on a comparison of average price from the last 12 months (12/01/04 – 11/30/05) with 12 months before (12/01/03 – 11/30/04).
Source: RMLS, November 2005.
REALTOR Association Predicts a Strong, Balanced Market in 2006
The National Association of Realtors® released their forecast for 2006, and market conditions appear to be very good for housing next year. The NAR predicts 2006 will end as the second best year in history for home sales, ranking just behind 2005.
In general, their research shows slower growth in home sales, sales prices, new construction, but they describe the economic effect to be more like ‘brake tapping’ coming down from a mountain peak as opposed to ‘bubble bursting’. The transition should result in a more normal and balanced market.
Their predictions:
- After 5 years of annual sales activity records, 2006 will finish as the second best historically.
- Interest rates on 30-year fixed mortgages will slowly climb to a high of 6.6% in the second half of 2006.
- Existing home sales and new home construction will slow, but just behind the record pace of 2005.
- National median home prices will see appreciation at more modest 6.1% in 2006 than the record pace of 12.7% in 2005.
- Higher construction costs will raise the new home median cost from 5.5% in 2005 to 7.3% in 2006.
Here’s the full text of the release, which contains other economic data to support their forecast.
Local Service Leads the Way Nationally in Identifying Accessible Housing
I had a recent opportunity to hear a presentation by Cathie Ross, an energetic visionary who has made huge investment in an issue that will eventually affect all of us in some way or another—namely, how to address the needs of impaired or disabled individuals who wish to own their homes and live as independently as possible.
Cathie is a president of a local mortgage company (The Mortgage Group) who identified an un-met need in the local real estate market back in 2000. Homes with accessibility features have been nearly impossible to detect in the multiple listing service, which meant real estate agents were forced to preview each property in advance to determine suitability for their disabled clients. With the baby boomer generation aging, Cathie saw an growing need for improving the quality of information and resources for this segment of the population.
With that in mind, Cathie created Bridges to Mobility™,
“a free consulting service for clients looking to either purchase a home or make adaptations to their existing residences that emphasize mobility and accessibility. Established in 2000, we have compiled a Resource Directory of progressive Real Estate Agents, Contractors, and Services Providers who have the knowledge and skills to promote and deliver specialized products and services.” (from the Bridges to Mobility website)
With her sheer energy and persuasive power, Cathie rounded up support from the Fair Housing Council of Oregon, secured a federal HUD grant, and eventually convinced the local multiple listing board to modify the listings database to better reflect the accessibility features of each property. She is now in the awareness and training phase of the project, delivering presentations to real estate companies and encouraging them to include accessibility information in their listing information.
In partnership with local web development company HomeSearch One, Inc., Cathie has also created an accessible housing portal or website, www.homebridge.org. Local real estate companies (like Advanced Real Estate Services) are signing up to support this project by having their accessible home listings also shown on the HomeBridge site. These listings are available to the public and are searchable by community, price, and other criteria.
Accessibility features that agents can identify when listing a property for sale include one level construction, bathroom size, cabinet heights, wide hallways and doors, availability of caregiver quarters, elevators, ramps, or stair assistance devices, and more.
If you or someone you know is impaired or disabled and is in the market for independent living situation, check out www.homebridge.org for available homes. It is a great resource and the number of qualified properties will only increase as the local real estate market becomes more aware of this new service.
Cathie’s efforts, in tandem with Fair Housing Council, have helped identify Oregon as the national leader in creating fair housing opportunities for all individuals with disabilities. For more information on Bridges to Mobility™ and their services, contact:
Cathie Ross, President
Bridges to Mobility, Inc. (and The Mortgage Group)
(503) 780-9270
www.bridgestomobility.com
Property Search: www.homebridge.org
Returns on Your Remodeling Dollars
Wondering where to put those remodeling dollars and get the best return on your investment? In conjunction with Remodeling magazine, the National Association of Realtors has again released the results of their 58-market national survey 2005 Cost vs. Value Report, looking at the resale value of various remodeling projects.
This annual survey uses estimates from real estate brokers, contractors, and appraisers to determine the value of what various home projects will pay back at resale.
In alignment with national trends, Portland’s best returns were found in bathroom and kitchen remodels. Window replacements and basement/attic remodels were a little higher than national numbers, while the balance of other remodels were below national averages.
Portland’s results, ranked by percent return on investment:
| Project |
Job Cost
|
Cost Recouped
|
| Bathroom remodel |
$11,302
|
113.3%
|
| Minor kitchen remodel |
$15,185
|
111.1%
|
| Window replacement |
$9,963
|
98.4%
|
| Basement remodel |
$54,630
|
97.9%
|
| Attic bedroom |
$42,081
|
96.7%
|
| Siding replacement |
$7,988
|
84.3%
|
| Deck addition |
$11,831
|
79.7%
|
| Family room addition |
$57,734
|
76.3%
|
| Roofing replacement |
$11,340
|
73.3%
|
| Home office remodel |
$14,107
|
63.5%
|
There are a lot of caveats* and assumptions surrounding a survey of this nature, but it perhaps helps provide some insight on general trends toward resale values.
For a summary copy of the 2005 Cost vs. Value report, contact me.
* The survey confidence levels include a 95% (+/- 5%) for the West region and total 99% (+/- 4%) confidence for national results. Each remodel project included some basic specifications and assumed parameters. Construction costs included labor, materials, and contractor overhead and profit. Surveys were returned from over 1,600 appraisers and real estate brokers.
Home Affordability Rankings Released – Portland # 18 in West
In numbers for the 3rd quarter 2005 released by the National Association of Home Builders and Wells Fargo, Portland ranks as the 18th most affordable city in the western region, and 90th (out of 161) across the U.S. In the survey, 50% of homes sold in the Portland area were affordable by residents earning the area’s median income of $65,900.
Salem, Corvallis and Eugene ranked as the 3rd, 9th, and 16th most affordable cities in the West. Pueblo took top honors in the West, and Colorado cities took 6 of the top 11 positions on the West’s affordability list, while Seattle registered at 26th.
According to the study,
Challenged by steadily rising home prices, overall housing affordability across the United States fell for the third consecutive quarter to its lowest level since the HOI* was first reported in 1992, dipping 2.7 points to 43.2 on the HOI. This means that just over 43 percent of all new and existing homes sold in the country during the third quarter were affordable to median-income families. The decline was mostly attributable to a 5 percent gain in the average price of homes sold in the third quarter versus the second quarter.
The nation’s most affordable communities include Indianapolis, Detroit, Youngstown PA, and Buffalo-Niagra NY. As expected, California dominated the ‘least affordable’ category with 4 of the 5 most-expensive communities, including Los Angeles, Santa Ana/Irvine/Anaheim, San Diego, and Stockton. Los Angeles’ $495,000 median sales prices made just 2.4% of homes sold affordable to residents making the median income of $54,500.
Please visit the National Association of Homebuilders for tables, historic data and details.
*The NAHB/Wells Fargo HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter.
