Monday, December 10, 2007

Opportunities in a Buyer's Market

Just two years ago sellers were dealing with quick sale times, multiple offers and fast escalating prices. The market was so hot that some buyers were gladly discarding the use of standard contingencies such as financing and professional inspections, just so they could get to the front line of other purchasers. The past two years have brought a change from those fast times. From the start of Spring 2006 we watched the market gradually shift with the drumbeat of clich├ęs about a “bursting bubble” and “hard landings vs. soft landings.” Ultimately consumers began to believe what they were hearing and a slower marketplace became a self-fulfilling prophecy as buyers stepped away. Clearly, today it has become a buyer’s market.

For most homebuyers, livability is the major factor in their purchase: location, schools, safety, commutes, etc. These motivations don’t change due to the economics of the marketplace. However, what seems to have occurred is that buyers are hesitant to take the plunge, believing that for some reason “this isn’t the right time.”

Buyers, here are a couple concepts to remember:

The condition of the national market does not completely represent the local market. Portland is a unique place, primarily due to its attractive quality of life. Relying on news reports about the national housing market in making decisions locally is like looking at the national weather in making plans for a days’ outing.

Profit on resale is primarily determined by what you pay for the home, not what you sell it at. Two years ago, owners were selling their homes at the top of the market, and those who made the real money were the ones who paid the least when they bought. Keep in mind, a seller usually become buyer – which means that selling at the top of the market only results in buying at the top of the market.

Finally, with more homes to choose from, prices softening, interest rates still at their lowest, and more time to make a rational purchasing decision, what more could a buyer ask for?

* Portland Metropolitan Association of Realtors and Phillip C. Querin, Partner, Davis Wright Tremaine.

Friday, December 7, 2007

Portland Could Weather National Housing Storm

Amid recent news reports that Portland’s housing market is among only five in the nation still posting solid growth in 2007, experts today offered their thoughts for the future at the Home Builders Association of Metropolitan Portland’s 2008 Housing Forecast.

The annual breakfast forum, held at the Oregon Convention Center, featured three well-respected housing market specialists – economists John Mitchell and Jerry Johnson, and market analyst David Ludwig. It sold out early and drew a crowd of nearly 700 attendees. “With all the changes in the local and national market, everyone is interested to know what’s going to happen next,” said David Nielsen, Home Builders Association CEO. “Professionals in every sector of the home building industry realize that 2008 will be a year that companies are going to need to change their business strategy if they want to compete.”

Noted columnist and business analyst John Mitchell has been making economic presentations on the nation and the region for more than 35 years. He said Oregon’s housing market would start to rebound strongly in 2009. In 2008, he predicted several market corrections, including declines in construction leading to a smaller industry and tighter credit standards making it harder for marginal borrowers to purchase a home. “I’m still betting we’re going to make it through this without a recession,” he said. “But it’s going to be a different world. It’s going to take time to work through all the pressures on the market. We went through a period that was abnormal. We’re now going back to something more normal.”

Real estate market and regional economic development consultant Jerry Johnson focused on Portland’s growing housing inventory and lagging consumer confidence as challenges to the 2008 housing market. As a principal with Johnson Gardner, he is involved in research, design, economic and financial modeling, and market analysis for the real estate community. He predicts sales could be off as much as 15 to 20 percent in the local market, but noted it will depend largely on consumer confidence in the coming year. He predicted new housing starts could go down as much as 20 percent overall, but added he expects the market can regain solid footing in 2008 if the local economy continues to grow.

David Ludwig, president of Vista Market Intelligence, has been tracking the attitudes and opinions of Portland-area homeowners for years. Vista’s work focuses specifically on homeowners and prospective home buyers in the Portland market. He previewed Portland’s estimated sales and volume, based upon Vista’s Fall 2007 Tracking Study, and discussed consumer attitudes and expectations for the homebuilding and remodeling markets. His polling over the past several years indicates consumer confidence is a key issue impacting the present market. Ludwig also noted that Generation X and Generation Y (residents age 18-42) will account for 60 percent of the home buying market over the next five years. What are they looking for? Ludwig advised builders to focus on quality, not quantity. Nearly every age group surveyed reported they are looking for less square footage in their next home, but higher quality finishes.

“There is a definite shift going on in the market now,” he said. “My best advice to builders is to focus on their customers’ lifestyles. That will be critical to your success.” The HBA’s Nielsen said several builders are reporting healthy sales this year, but others are working hard to change their strategy as the market slows down. By most measures, the 2007 housing market in Portland has been similar to what it was in 2003. “For the past few years, people in housing markets all over the country came to see property as an investment, like stocks,” Nielsen said. “Housing ‘day-traders,’ buying homes to quickly flip them, are rapidly leaving this market. Housing is returning to what it used to be – buying stake in your community, a place to call your own and raise your family. “The housing boom was a great time to sell a home, but it wasn’t much fun for prospective home buyers,” Nielsen added. “In 2008, buyers will have great selections and will likely be able to get more for their money than in the past several years. People with good credit will have ample access to loans, and buying a home is going to be fun again.” -- 2008 Housing Forecast Seminar, Portland Convention