move2westlinn

14 Responses to “West Linn Real Estate Market Activity — November 23-29, 2009”

1. # Micheleon 30 Nov 2009 at 1:03 pm

   Okay folks, I have been watching this site since May. Put a house up for sale mid-August. We have one of those lovely 1993, 3400 sq ft. 5 bed, 3.1 bath with great views in a great neighborhood. Listed house at $574,900. Of course, it is hard to move anything over $499,900. When will the above $500k start moving again, in your collective wisdom! The foreclosures are killing us.

2. # Stuarton 30 Nov 2009 at 4:18 pm

   Michele,

   Sorry to say, I do not believe it will improve for a long time. Buyers are very fickle and at your price, rare. ARM loans still have another wave of resets coming in 2010, and although people with ARM’s are now finding their rates are in some cases going down (1-year CMT is sub 0.5 yield), those who did interest-only or neg-am option ARMs may well be finding their payments going up significantly when the notes re-amortize. This probably means a further bunch of foreclosures and short sales. That, combined with the reality of incomes in and around West Linn plus the “new” (old) mortgage underwriting behavior mean that prices are no longer being inflated by ridiculously lax lending practices. No matter what anybody says, house prices and land costs are a function of mortgage lending and speculative feelings. A $575K home probably comes with a $7K tax bill, so even if somebody puts up 20% ($115K) they need to borrow $460K. Potential buyers are probably families looking to move up, and not first time buyers or those looking to “downsize”. Technically, this is a good time to be moving up the property ladder, but many will be having a hard time selling their existing homes, and in looking for a bargain will be drawn to foreclosures and short sales as you have seen. You will need to wait for these to flush out of the market before some level of normality returns. But don’t expect boom times again. That jumbo $460K note at about 6% and adding $7K taxes and $1K insurance, will result in a monthly payment of $3,425. Using the “new” (old) standard of 28%/36% mortgage/debt load, even somebody with modest other debt (car notes, student loans, credit cards – you know all the stuff that people racked up over the last 5+ years) would need a $3,425/0.28 = $12,232 gross monthly income. That’s about $150K a year.

   Newsflash: There are very few households who make an honest, consistent, documented, $150K+ a year without fail. Sure people used to “squeeze” and rely on bonuses, but that kind of income is significant today and “voodoo” math no longer applies to home financing. The median family income in West Linn is $83,252 according to the City website, but what that doesn’t show is the distribution of household incomes. http://www.city-data.com/city/West-Linn-Oregon.html shows (about 1/4 down the page) some interesting data, but it needs to be interpreted because of the nature of the graph and the fact that it’s from 2007, potentially the last “good” year of income for high-income types with regard to the stock market and unearned income. There are just under 10,000 housing units in West Linn, but when you look at the 2007 income range of $150K to $200K, there are only about 900 households in that income range. So in terms of affordability, your property price would be attractive, and viable, to what is ultimately a very narrow band of buyers as a proportion of the city. These $150K to $200K households are the upper-end white-collar professionals in tech, or finance – along with small business owners – who are all getting hammered right now. No bonuses, negligible pay raises, stock options are worthless etc, and you’re too far from Hilslboro to attract the Intel dual-income imported engineering family types. At higher income levels, Lake Oswego starts to become more attractive for its amenities and proximity to Portland. Those households making $200K or more a year will be looking at more expensive properties. So when it comes to affordability, $575K is now a high price relative to local income and comparable sales.

   If you can hold the property for the next few years, I wouldn’t even bother trying to sell. Enjoy your home (I assume you’re the River Heights listing). It looks lovely. Way nicer and larger than mine, but my wife and I are very frugal with housing so we have more disposable for investing and fun. Price it around $540K, but don’t be offended when offered around $500K. In terms of normal distribution, that’s where your property is at for a sale in the current market.

   In my opinion we will be looking at an economic recovery (or at least stabilization) somewhere past the Summer of 2010. But that’s not a housing recovery! With all the dollars our new President and congresscritters plans on printing and spending, we’ll be looking at quickly rising interest rates that will serve to depress housing prices based on the “new” (old) 28/36 ratios I mentioned earlier. I don’t think you’re going to see the peak prices for a very long time. Housing is very inelastic and (as people are finding out) not a “liquid” asset when times get tough. If you want $585K you could wait 3 to 4 years, or hope you get lucky and find the last remaining sucker from California .

3. # Micheleon 30 Nov 2009 at 4:52 pm

   Thanks much Stuart. I appreciate your reply.

4. # Davidon 01 Dec 2009 at 1:04 am

   Bland Circle Mansion has gone into pending! I thought it would stay on the market for more than a year since it’s priced at nearly 4 million and it’s 12K square feet.

   I would be very curious to see the final price.

   Also, the sweetbriar foreclosure was sold in a couple of weeks. I guess cutting the price from 1 million to 600K worked like a charm.

   Note to Michele: The sweetbriar property is a foreclosure. Recently built and 4000 sq feet on 2 acres. If that’s selling for 600K, what do you think are the chances that your home will fetch for 575K? Not trying to be too negative, but the people who can afford 500+K homes have a lot to choose from. A foreclosure like that is worth the wait.

   David

5. # djon 01 Dec 2009 at 7:01 pm

   Hi Michele, welcome to these forums and for posting your question about current market conditions and how it affects the potential sale of your home. Unfortunately I have to agree with both Stuart and David’s excellent analysis of the current market and I can’t really add much to their observations, other than to suggest looking at the situation from the buyer’s perspective. Here is the profile of a buyer in the $500K+ range:

   (1) They have the resources to be qualified for loans from banks, and have the required 20% downpayments to purchase a $500K+ home, as well as confidence in their life situation to take on a large monthly mortgage payment and property taxes.

   (2) There is a lot of inventory in the $500K+ range that is not moving. In addition, Lake Oswego also becomes an option for these buyers

   (3) In the $500K+ range, the $6500 tax credit is just free money, and not a motivator to make a purchase before April 30.

   (4) Buyers in this range are in short supply, and they know it. They have negotiating leverage, can be picky about homes. If they perceive a home to be overpriced for today’s market, they just won’t bother to make an offer, because there is such an excess glut of homes, and they’ll just move on to the next one.

   However, I have heard that if a home is priced right, that it is still possible to get into bidding wars with other buyers. It’s happened this past summer to a few of my acquaintances and is actually happening right now on a few properties in WL, even in the dead winter season. In a nutshell, today’s buyer is not looking to spend $575K for a home that is “valued” at $575K. They are looking to spend $499K for a home that is perceived to be valued at $575K. Just look at the weekly numbers posted on this site and you will see that the few homes in the $500K+ price range are selling for 20-40% below their original asking prices. I’m sure you have a very beautiful home Michele, but the reality is that buyer’s today are looking for a deal, and are not interested in paying full market price for a home, especially in the $500K+ range. You’re asking $170/sqft which, in my opinion, is too high in a market where homes are selling for around $150/sqft. As Stuart suggests, if you’re situation permits, it’s probably better for you to stay in your home and wait for home prices to rebound, or cut your price if you still have equity in your home at a lower price point.

6. # djon 02 Dec 2009 at 10:12 am

   One more thing – I mentioned in my above post that the $6500 tax credit is not going to motivate a $500K+ buyer to act, but I forgot to mention that interest rates will. General consensus is saying that interest rates are going to rise in the latter part of 2010, and unless housing stabilizes, the rise in interest rates will put downward pressure on home prices, especially at the $500K+ level. As interest rates go up, the pool of buyers in the $500K+ range shrinks, so sellers are competing for even fewer buyers. Buyers are looking at their total monthly payments – at low interest rates they can afford more house; at high interest rates, they can afford less house. If sellers of $500K+ homes need to sell, then the homes should be priced to entice buyers who want to take advantage of the current low interest rates. Otherwise sellers are probably best to wait until the market recovers a few years from now and then try their luck at that time. If the goal is to get a buyer to pay Zillow’s “Zestimate” pricing – good luck.

7. # Stuarton 02 Dec 2009 at 4:26 pm

   Well said dj. Here’s the math on a $500K home with a $6K tax bill and $800 insurance: Borrowing $400K at 5%, 30-year-fixed, the PITI payment is $2,714. However, if interest rates were 6%, the payment would be $2,965 – so our borrower will have to borrow less.

   If interest rates go to 8% (and they have before), then the payment is $3502. Almost $700 a month more. Definitely not affordable. As rates rise, the saved down-payment could be taken to be the same the same ($100K is now more than 20% down), but the size of the mortgage will have to shrink. In this case we can compute what the maximum house value for our prospective buyers will be for each interest rate in order to keep a $2714 payment

   5% = $500K
   6% = $458K
   7% = $423K
   8% = $393K

   (Using our 28% rule, our buyer needs a $116K+ gross income to “afford” the above prices at the given interest rates.)

   Rising interest rates will either prolong the current pain, or (if the economy tanks again as borrowing becomes suddenly more expensive for everyone) will cause another drop in prices. http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp has a nice graph showing historic rates. 7% to 8% 30-year FRM is quite possible within the next 5 years, especially if inflation (due to all the money Fedzilla is printing) starts biting http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg. Let’s hope the Obama administration isn’t just Jimmy Carter 2.0, or worse.

8. # Stuarton 03 Dec 2009 at 9:31 am

   Well said dj. A rise in 30-year FRM’s from 5% to 8% will mathematically lead to a drop in housing price affordability of about 20% if lending standards are held to.

   If we take a $500K home with $6K taxes and $800 insurance, putting $100K down leads to a PITI of $2714 with a $400K mortgage.
   Keep the same payment and downpayment, but increase interest rates to 8%, and the same payment only borrows $293K, meaning that even with the same $100K downpayment, our borrowers can only “afford” $393K. Whoops, there goes $107K off the value of the house.
   Only if mortgage interest rates rise slowly, and incomes (due to inflation?) rise to compensate, will we not see additional pricing slides. However, that hope is just a numbers game, as the value of goods and services that a house price actually buys, tumbles. Hopefully our President and administration don’t turn us in to Zimbabwe: http://www.cnn.com/2009/WORLD/africa/01/16/zimbawe.currency/

9. # Ron Areson 03 Dec 2009 at 4:08 pm

   Michele,

   I will add a slightly more bullish voice here (compared to DJ, Stuart, and David , but buyers for properties priced above $500,000 are indeed out there. In fact, 25% of transactions in West Linn sold so far in 2009 were $500K+.

   You may need to review the existing opportunities that exist on the market and see where your property value lies in comparison.

10. # Stuarton 04 Dec 2009 at 1:04 am

    Interesting statement Ron. Do you have a break down of volume by sales price, say, split into $50K or $100K bands? It would be interesting to see just how many sold from $500K to $600K, $600K to 700K, etc.

    My gut feeling tells me that the $500K to $800K has been very inactive, especially in this second half of the year, and it’s only the uber-wealthy snapping up foreclosed $800K+ properties or the odd $1.5M dream home outside the city limits that are holding the number of sales above $500K up, except for a few opportunistic foreclosures and short sales in the “aspirational” $500K to $800K band. But hard data would validate that one way or the other.

11. # Ron Areson 04 Dec 2009 at 7:49 am

    Year to date, the market has sold 300 single-family homes. Here’s a breakdown:

    $100K – $200K: 14 homes or 5%
    $200K – $300K: 65 homes or 22%
    $300K – $400K: 68 homes or 23%
    $400K – $500K: 70 homes or 23%
    $500K – $600K: 38 homes or 13%
    $600K – $700K: 23 homes or 8%
    $700K +: 22 homes or 7%

    So, price points above $500,000 account for 28% of all West Linn single-family home sales. Also, seven $1 million+ homes have sold this year.

12. # Stuarton 04 Dec 2009 at 8:27 am

    Thanks Ron! That’s better than I had expected in the $500K – $600K range.

13. # djon 04 Dec 2009 at 4:47 pm

    Ron, thank you so much for being very forthcoming with this information. It info like this that makes your site so valuable to your readers, and we greatly appreciate it your and Jody’s efforts and transparency.

    I too, was surprised to see such activity in the $500K+ range. 72% of sales are <$500K, but still, the $500K+ market isn't as bad as I thought. Your data proves that there are indeed buyers out there, but I would argue that those buyers are still looking for a good deal relative to fair market value. I think in the <$500K range, buyers have to pay fair market value because there are much more of them (72%), so I think this area of the market has stabilized for now. But the $500K+ market is still in flux.

    Coming back to Michele's comment about her home competing with foreclosures and short sales – Ron, do you have any data you can share on how many of the homes in each band that sold were short-sale/REO properties ?

14. # Davidon 05 Dec 2009 at 3:41 pm

    Ron, I’m bullish on housing at the low end. And bearish at the high end. I think the starter home market that’s priced around 350K will do well. It may not appreciate as much but it’ll hold its own.

    A house is a place to live, not a get rich quick scheme. So I think we have bottomed at the under 350K homes.

    The high end that’s priced over 400K and beyond I think will suffer. I’m bearish in that market.

    David

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