Living in Portland

There are a couple of big issues with buying a HUD home.  The biggest is that you are buying the home ‘AS-IS’.  So if you submit an offer that is accepted, you do not have the right to negotiate repairs AND you will loose your earnest money deposit (usually $1000.) if you decide to terminate the deal.

The only way to protect yourself would be to have a home inspection PRIOR to making an offer.  This is what HUD recommends.  In order to do that you will first have to have the water and electricity and maybe even gas turned on at your expense, so an inspector can do his job.  That’s right, you pay the turn on fee!  HUD has the utilities turned off on all of their  homes, often times before they have their internal inspection.  You will also have to pay for the inspection (about $400.) before you submit an offer on the property.  Once you submit an offer there is no guarantee that you will be the winning bidder.  If you are not, you just spent about $600. for nothing.

Portland has four distinct seasons but none of them are extreme. Summer temperatures average around 80 degrees but do go over a 100 for one or two days a year. Overnight temperatures average around 60 degrees. Summer really starts in July and ends in September. This is a 90 day period that typically has very little (and sometimes none) rain fall. October is usually a very nice month with mild temperatures and sunny days.

Winter starts in November and lasts until March. Temperatures are usually in the low 40s. It will get below freezing several times and often into the 20s for a day or two. It rains a lot during these four months (good time for a quick vacation South). Let’s talk snow. Yes it does happen but not every Winter. In the last 14 years we have had one really good snow storm (over New Year’s 2004). More common would be a light covering of 1-2 inches that melts off by mid morning. Schools always close at the hint of snow, giving everyone else a good excuse to sleep in as well. We do get icy roads 4-5 times a Winter which are actually more dangerous than snow. February usually has one warm spell where it gets over 60 degrees just to remind us that Spring will come. We always have daffodils in bloom before Easter. Official rain fall is 37 inches per year which means wet days at home but snow in the mountains (and only 1 hour away).

Spring is a beautiful time of year because we have more flowers blooming in May than any other time of year. Temperatures are between 50 and 60 degrees with the rain continuing but more like showers instead of downpours. We also get a few weeks of unseasonably warm weather in the Spring. When people ask me if it rains all the time? This is what I say: No it doesn’t rain all the time but it’s more accurate to say the sun doesn’t shine all the time. We have a lot of cloudy days that contain no rain (and no sun). We often have days that start out raining and end up with blue sky’s and sunshine. Rain in Portland is usually not a torrential downpour, but rather a steady flow of water that is enough to get you wet on the way to the car.

For the 12 months rolling average ending in September, 2008 vs. the previous 12 months, the average price in the Portland Metropolitan area is down 5.6% according to RMLS.  The average sales price declined from $331,300 to $315,300 and the median price fell from $280,000 to $267,000 for the same 12 month period.  At the end of September there were 17,006 active listings listed in the MLS representing a 10.4 month supply of homes.

Supply and demand are not in balance in the Portland Metro market.  We still have a huge inventory of homes for sale, but as the statistics show our prices are holding pretty well.  I do expect sales to be even slower in the upcoming Winter months.  I believe that we will see Sellers that don’t ‘have to’ sell,  taking their home off the market or renting it out.    

Assuming the property is in a good location and in good condition, the answer is probably ‘yes’.  Are you curious about what kind of a deal you can get on a bank owned property in Portland?  The word on the street is that they are currently accepting between 82% - 85% of the BPO value (also known as the value the listing agent gave the bank). 

In other parts of the country where foreclosures are higher (like Arizona) the banks are accepting much lower offers.  This is a bank by bank policy and depends on the number of unsold properties they have on the books.  We are keeping a close eye out for signs that the banks are willing to drop their asking price even more.

The answer is, you do if you want to buy a house.  The old days of 100% financing are just about over.  Buyers are now going to have to invest their own money into buying a house.  The Seller can still pay the closing costs which add up to about 3% of the purchase price. 

FHA loans (lowest down required) now need 3.5% of the sales price as a down payment.  This can be gifted from a relative but not just anyone.  Most conventional loans want to see 10% down, and you have to prove that it is your money by providing bank statements from several months back.  If you are asking for a loan amount over $418K, you will now need 25% down.  And don’t forget about the credit scores!  The minimum number keeps rising.

The good news in all of this is that there are some great bargains out there and interest rates are still low.  If you have a down payment and good credit history now is the VERY BEST time to buy.

Investors are now entering the market to scoop up the bargins and invest in the instant equity and long term appreciation. 

1) it is NO MORE difficult to get a mortgage today than it was 8-10 years ago.  Interest rates are still under 6%.  The main difference is that you can no longer have a credit score under 580, in most cases, you need a downpayment to purchase now, and you must PROVE your income with pay stubs and/or tax returns.  Stated income loans have just about come to an end.  There still is 100% financing - but mostly for those people who are veterans or want to live in a more rural area.

2) regardless of how one feels about the bill that is struggling to get passed through Congress or not, some sort of bill will have to get passed because the credit markets have dried up.  It is not so much now an issue of whether new people will be able to get mortgages as it is whether money will be available for car loans and lines of credits for companies for the purpose of meeting their payroll obligations etc.  This is much bigger than the real estate market or the fortunes of some big banks.  It impacts our entire economy and the world economy.  (Hey, don’t shoot the messenger!)  Think of it as your teenaged son got hold of your credit card and started spending on anything and everything that he wanted because he had no “rules”.  You find out and need to fix the problem and then put some tight restrictions on him so that it never happens again.  Large Wall Street firms found a way to make lots of money on risky mortgages and our government (president, and congress, various departments) did nothing to try to prevent the risk.  There is blame to go all around (Wall St. firms who devised a way to sell the risky mortgages, the companies who funded the mortgages, mortgage brokers who committed fraud or pushed buyers into loan programs they had little chance of affording, appraisers who “fudged” values, borrowers who lied on their applications, realtors who pushed buyers into properties, investors who made “speculative” investments, in addition to all of the federal government types.)  

3) now more than ever, you need to pay down your debt, live within or below your paycheck/budget, and save money.  Cut up your credit cards, pay off the balance each month, or at least get on a plan to do so.   

4) now more than ever, you need to have monies which you have invested to be in many different asset classes (cash, bonds, stocks, real estate etc.) and very well diversified.  In that way, no matter what happens with our economy, you won’t have all “your eggs in one basket.”  Money is safe in banks as long as the account is FDIC insured and you are within the limits - even if the bank fails. 

5) we thought that only the stock market could go down.  Now, we know that real estate can go down as well.  Fortunately for those of us in the Portland area, we have not been impacted nearly as much as other areas and Forbes Magazine actually lists Portland as being the 4th best city in the country in terms of expected appreciation of real estate in 2009.  Therefore, for those people who don’t have a property to sell first, it is actually an incredible time to buy.  If one has a home to sell first, they won’t get what they might have gotten a year ago but then they will get a better deal on a new home - so it should “wash out.”  I’ve got lots of ammunition for your buyers about how it is a GREAT TIME to buy. 

Oregon has the lowest foreclosure rate in the Nation according to Dr. Lawrence Yun, economist for the National Association of Realtors.  That’s great news for homeowners because foreclosure directly affect home values in the area.

Other bright spots include:

Portland is the most affordable city on the West Coast.

Portland’s job market is strong.

Portland’s housing values should increase 30% within the next five years.

Portland’s population is expected to increase 8% within the next five years.

All of this should increase your confidence in the Real Estate market, and your decision to own in the Portland Metro Area.

June 2008 Update:  In May 2008 we saw an average sales price decrease of -4% compared to the last twelve months.  This was the second month we have seen a decrease in value in the Portland Area.  However, the average sales price in May 2008 is UP 3.1% from the average sales price in April 2008.  If this trend continues, it may signal that Portland has hit bottom and is on the way back to appreciation.  It is quite possible that we will end the year with a positive appreciation number and be one of the only Cities in the Country to have weathered the down turn without losing value.

Interest rates for a 30 year fixed rate mortgage are between 6.25 and 6.5% which is the highest we have seen all year.  It doesn’t look line we are going to see anything below 6% ever again.

Unlike the rest of the country, the number of foreclosed homes in Oregon is less than one half of one percent.  That’s 0.5% which is among the lowest in the Nation.  Foreclosed properties are listed on the MLS by banks and represented by Realtors just like any other property.  The condition varies widely depending on the attitude of the previous owner.  I have seen homes in good condition to those that were purposely trashed by their previous owners.  These properties can be a great investment at the right price but a good inspection is more important than ever.

First time home buyers will small down payments should also be aware that lenders have a minimum requirement for condition in order to obtain a loan.  If the property is too much of a fixer, you won’t be able to finance it.