The Housing Bubble

We continue to review the media; in the north-west.

The good:

The Oregonian, May 2005: “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.”

“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.’”

May 2005: “My wife and I have a particular interest. Since last winter, we’ve had plans to sell our house, and we’ve been gussying it up for a summer sale.”

“We love that our house has appreciated so much in value since we bought it in 1999. We’re less excited that everyone else’s homes have gone up so quickly with it. The rise is dizzying, as is the calculation of whether we’ll be able to sell our home and afford another. Could we be the ones left standing with no home when the market crashes? Or worse, what happens if we take on an inflated mortgage, only to see a market correction in the next year?”

“If this is a mortgage bubble, when will it burst and by how much? What will happen to the value of my house?”

“I would hate to see us make our move just when the bubble bursts and lose all we’ve worked so hard for. But whether we are the ones to get caught, or someone just like us a year from now, the signs look unmistakable: The housing market will stall out. When it does, and the game of musical homes stops, someone will be left with an overpriced home. I sure hope it’s not us.”

The Columbia Tribune, April 2005: “Gloria Curtis said Duncan recently hired her to do telemarketing. She received no training on processing loans before she was assigned a calling list (and) was promised $2 for every Social Security number she obtained from a client over the phone. But Curtis said she lost her job because she hadn’t gotten any numbers in her first two days.”

The Tri-City Herald, May 2005: “As occupancy rates drop in the Tri-Cities, renters are getting move-in incentives and a choice of amenities. Vacancy rates, which averaged about 3 percent in 2002, increased to 9 percent in Richland, 11 percent in Kennewick and 8 percent in Pasco.”

“Pasco’s vacancy rates will probably catch up soon. Permits have been issued for three new apartment buildings at Chapel Hill that will add 668 units, bringing the city’s total number 1,959. ‘There was a lack of complexes in Pasco, but now that’s taken care of,’ Sylvia Erickson said.”

“The average price for a two-bedroom in Richland is $667, compared with $708, the average price in spring 2003. The average rent for a one-bedroom Kennewick apartment is about $486. In Richland, it’s $563, and in Pasco it’s $524.”

“Those selling include San Francisco-based developer Robert Young, who has placed his eight properties on the market. ‘I’m bullish on the Tri-Cities. I’ve always been bullish on the Tri-Cities.’ So why is he selling his eight apartment buildings? Young said he wants to devote his energy to a commercial development he is building.”

“It could be one of the best times to sell an apartment building in the Tri-Cities, said David Eagle. (He) said many investors are turning away from primary markets like Seattle, Portland and Los Angeles, where real estate prices are extremely high and the opportunity for growth limited. He said they’re looking more seriously at ’secondary’ markets.”

The Seattle Times, May 2005: “Paul Galasso quit his Costco management job to join his wife, Evelyn, as a full-time real-estate investor. He and his wife have spent more than $20,000 on investor ‘boot camps’ and seminars to learn how to make deals. Galasso said he knows people just like him in Georgia, Texas, California and beyond now investing in residential property.”

“Galasso and his wife fired their financial planner and shifted 75 percent of their retirement resources from regular equities and mutual funds held in a traditional IRA into a ’self-directed’ IRA that they can use to fund real-estate deals. ‘In real estate I can do a lot to increase the price and value of my holdings, which isn’t true of having stock in some large company,’ Galasso said. ‘By the end of this year, we’ll be doing two to three homes a month.’”

“And he doesn’t regret leaving his management job. “This is so much better than being in a cubicle.’”

“Michelle Dickerhoof, quit her corporate-affairs job at Starbucks last fall to collaborate full time with her contractor husband to find fixers to invest in. She’s just secured a home-equity line of credit on her primary home to pay for the new properties. She expects the two properties she’s eyeing could be resold for around $400,000 after they’re fixed up.”

“Jeff Wolfson, a residential land-development specialist at Skyline Properties in Kent, is researching investment opportunities for himself and clients. Wolfson, who has been in the industry for nearly 20 years, says many investors are overextending themselves on the assumption that the market will remain favorable. He believes low interest rates contribute to this, he said. ‘I’ve been in the industry long enough to see how it operates in cycles. I believe the market right now is in a bubble, people are putting 10 percent or 5 percent or zero down, or they’re taking adjustable rate mortgages, but then one day their renters can’t afford the rent, and the owners aren’t prepared for that.’”

The Seattle PI. May 2005: “Like thousands before them, Tom, 44, and his wife, Clare Cronkleton, 43, had grasped at home ownership as their ticket to the solid middle ranks of the middle class. The couple made the leap even on their relatively modest incomes, each in the $40,000 range, and with no money down. It took a second piggyback mortgage at a steep 15 percent interest rate to pull off the sale. (Then) their 8-year-old son, came down with a mysterious, flulike illness. In the summer of 2004, Tom lost his job.”

“They had already refinanced their mortgage at a lower interest rate to cut their payments and drawn out what little equity they had accrued. Tom says, ‘As long as things were going good, it was OK.’”

“They listed their house last winter (and) sold in a hurry for $300,000. By the time all the closing costs and commissions were figured, however, they still owed the bank money. The bank finally relented and agreed to a ’short sale’.”

“People have been buying on the very edge of their ability to afford a home,” says Glenn Crellin, at Washington State University. ‘People are (getting in at) a below-average rate, and they run the risk. We may see some households no longer able to afford the houses they’re in.’”

The bad:

New York Times, May 2005: “Paul and Ann Hill, a pair of retired Atlantans, stopped in Ashland, Ore., in 2001. Their only plans involved dinner and a play at the long-running Oregon Shakespeare Festival. “We came into this town one day and bought a house the next.”

“In the first three months of 2005, 91 homes were sold in Ashland. The median home price of those sales, $403,700, represented an increase of 32 percent over the first quarter of 2004.”

“‘People come there to see a play, and they fall in love with the town,’ said Roy Wright, an appraiser. ‘And they walk in one of those real-estate offices downtown and buy a house.’”

“Like many Ashland newcomers, Davis hails from the San Francisco Bay Area. ‘It’s not if you came from California, but when you came from California,’ he said.”

“The influx of outsiders seeking second homes has had an explosive effect on housing prices. An example is Taos, where the value of residential real estate sold in 2004 was nearly twice the value of that sold three years earlier.”

The Seattle Times, May 2005: “Fuel for speculation of a housing bubble, but not proof of one, increased yesterday on a report that strong buyer demand has pushed Central Puget Sound prices up 10 percent or more over last spring’s already high numbers.”

“But those numbers were modest compared with other metropolitan areas. San Diego home prices shot up 37 percent last year. Las Vegas’ soared 52 percent, and Miami reported a 26 percent. Those markets could see price corrections, some experts surmise. ”

“‘Nine or 10 percent appreciation is certainly more sustainable than 25 percent, so in your market, I don’t think there’s a bubble,’ said Steve Smiley, a principal at Hanley Wood Market Intelligence, a housing-market research firm headquartered in California. ‘Seattle has been a decent market, but not a great market, and you still have room for prices to move up.”

“Coldwell Banker Bain broker Dick Fulton concurs. The 1990s ‘mini bubble’ was the last time the Seattle area saw anything close to a real downturn, Fulton said. That was precipitated by a 41 percent increase in housing values from the fourth quarter of 1989 through the first quarter of 1990. That’s an 82 percent annual increase.”

“‘That kind of extreme increase in prices necessitated a correction,’ Fulton said.”