The chart above, courtesy of the Bratton Report, shows the awesome decline in Bend home prices over the past few years. We've now seen home prices here in town fall over 40%!
Today the Wall Street Journal ran a piece arguing that, "the relative cost of owning versus renting is swinging back in favor of homeownership in some U.S. markets, buoyed by several quarters of sharp declines in home prices." Here are the details:
Over the past 18 years, after-tax mortgage payments have averaged 26% more than rent payments, according to Green Street Advisors, a real-estate consultancy based in Newport Beach, Calif. In 2006, at the height of the housing bubble, mortgage payments reached as high as 66% more than rent payments. But by the end of 2008, average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300, assuming a rate of 5.5% on a 30-year fixed mortgage. That means mortgage payments averaged just 24% more than rent payments, the narrowest gap since 2001.
Applying the same math to Bend, the median after-tax mortgage payment now amounts to $903 ($233,000 median home price = $186,400 mortgage with an after-tax rate of 4.125% = 5.5% adjusted for a 25% tax bracket) versus median rent of $859. This amounts to a mere 5% disparity which is significantly more attractive than the national average.
After the crash we've seen in local home prices this should come as little surprise. However, it doesn't mean that prices won't continue to fall.
In fact, according to the measure used by National City (famous for calling Bend the most overpriced market in the country), despite the dramatic decline we've already witnessed home prices have another 15% to fall before they become fairly valued:
I guess this is what Mayor, Oran Teater meant when he told the Bulletin over three years ago that, "it used to be that when the state caught a cold, Bend caught pneumonia." What he didn't anticipate is that it didn't just "used to be" like that; it still is. The more things change the more they stay the same.
Ultimately, it makes more sense to buy versus rent today than it did a couple of years ago. There are certainly attractive opportunities out there in the local market right now. However, I still don't think it makes sense to anticipate a bottom any time soon.
Sources:
Renters Lose Edge on Homeowners
Nick Timiraos
The Wall Street Journal
February 25, 2009
Housing Valuation Analysis
National City/PNC Economics
8 comments:
Your analysis on the mortgage costs do not take into account taxes, insurance, HOA (if applicable), or maintenance, and assume that the renter is not taking the standard deduction.
We are still overpriced, and everywhere else in the country that was as overpriced as us has blown by the "affordable" rating by National City on the way down.
Next year at this time we will see $150k medians or lower.
I simply used the same formula presented in the Wall Street Journal article to compare Bend to the national average. Using this metric Bend is cheaper than average.
I presented data. Where is yours that suggests prices should be $150k by this time next year? I'd love to see it! Or is that simply your opinion?
The Bend real estate market started it's climb in prices 12-18 months behind most of the bubble areas in the country. We reached our peak prices about 12-18 months behind most bubble areas. It looks like we hit peak inventory about 12-18 months behind - but we may have more inventory this summer. We hit 10% of sales being foreclosures 12-15 months behind most of the bubble areas.. I can then make a pretty good case that what has happened in those areas in the last 12 months will probably happen here in the next 12. Most areas in California that are 12 months ahead of us (Sacramento, the bay area, stockton, san diego) have all seen losses of 30-45% year over year losses. If we only dropped 30% then we would see medians of $147k. I think it's a safe bet that we will drop that far. We may see $120k. One number I will be following greatly is when and what percentage we see when we peak out on the percentage of sales as foreclosure. If we see numbers peaking out at 45% then I am guessing we will see closer to the 30% YOY drops (like Sacramento). If we see closer to 65% (like Stockton) then I expect it to be closer to the 40-45% drops YOY. The thing is, those areas still aren't turning around. My guess of below $150k is for next year at this time and not the bottom.
Using the Case Shiller data here and comparing it to our local MLS data from the Bratton Report, Bend topped out around June of 2006, right at the same time as a composite of San Diego, San Francisco and Los Angeles. That composite has lost 38.9% since then compared to 39.2% for Bend. So I don't see how your theory holds water.
As far as the percent of sales as forclosures, I haven't seen the final numbers for Feb, but last I saw the number was around 37%, and around 33% as short sales. This does not bode well for the future house values. It has only been in the last 6 months that more houses have gone into default county wide than have sold here. An NOD served 6 months ago would have had the foreclosure scheduled for 2-3 months ago, but the thing is that most of the forclosures are being postponed. I haven't seen the exact numbers, but if you go down to the courthouse steps to listen to the auctions (I have) you will see that well more than half of the scheduled auctions get postponed. One morning I was there all 10 scheduled were postponed. That is important because it means that foreclosures aren't following the NOD by 3 months in many cases. Some of those that were served NODs 6 months ago have yet to foreclose. The inventory of homes that have yet to foreclose is HUGE and is getting bigger every day.
Once the houses do foreclose they aren't always coming on the market immediately. In many cases the banks can't sell the house as they would then have to take the loss on paper and the world would know they were insolvent. A number I saw last week said that nationwide well more than half of the bank owned properties were not in the MLS.
This year will see massive massive numbers of foreclosure sales in Bend. I would not be surprised to see some months with more than 60% of the sales as foreclosures, and another huge percentage as short sales.
We are getting back to 2004 pricing. There are neighborhoods that were built out primarily after 2004. That means that there are entire neighborhoods in town that do not have one house in them that is worth what the owner paid for them. Many of those people buying post 2005 had 100% financing. Zillow already says that 75% of people that bought in 2006 and 2007 in Bend are underwater, and Zillow's Zestimates are high for Bend. We have neighborhoods that may have more than 90% of the owners that are underwater. As the foreclosures become the comps - which they should since they are the majority of sales - values will go down more. Take Northwest Crossing. One foreclosure sale last month was for $143 sq/ft. The house was one of the better built ones. Not the most high end, but better than many. If we take that $143 as a comp then most of the other houses currently for sale in NWX have underwater owners. In six months we may be in a situation that the only way out of one of these neighborhoods is to short sale, foreclose, or bring a lot of money to the table. That is just going to exacerbate the problem. And no, I don't think any of the feds foreclosure "fixes" can do much to help. The wheels are already in motion and are rolling to fast.
Unfortunately the National City data is gone since they were purchased by PNC. That was a great resource, and it went away last month. The reason I am not using Case Shiller is because they don't track Bend. Right now the only thing I can find is unfortunately Zillow.
The next best that I know of is Zillow - I'm sure there are better places than Zillow as they are usually lagging in their data by a few months, but since we are talking about events more than 3 months ago, go here: http://www.zillow.com/reports/RealEstateMarketReports.htm
Take a look at the Bend graph.
http://www.zillow.com/reports/RealEstateMarketChartsAndMaps.htm?msa=Bend%20OR&graphic=Graph-Real-Estate-Market-Home-Value-Appreciation-Actual-and-Typical
We broke out of the 8% annual gain about the beginning of Q2 2004, and peaked around Q2 2006 (in reality it was Aug 2006, as May 2007 was a bit of an abberation in medians due to very low volume). Compare that to somewhere like Napa, Naples, Reno, Sacramento, Santa Cruz, etc... They were seeing gains of over 8% well before us and peaked well before us as well.
Now look at the graphs of percentage of sales for loss and foreclosure percent. Bend hit 10% sales being losses in q4 2007 and 10% foreclosure in Q1 2008. San Diego was a year ahead of us, Naples was a year ahead of us, Sacramento was a year ahead of us, etc....
As far as percentage lost, we were the most overpriced for years. A 30% loss when some place is only 20% overvalued is huge. For Bend a 30% drop didn't even get us to "affordable."
http://www.desertdispatch.com/news/barstow_5550___article.html/houses_affordable.html
BARSTOW • In the past year, home prices have fallen dramatically in Barstow as in California as a whole.
Data recently released by the California Association of Realtors shows that home sales are climbing as the median price of a single family home fell off by 40.5 percent from January 2008 to 2009. In the High Desert as it whole, prices dropped by 45.5 percent. In Barstow, the drop-off in the past year has been slightly lower — about 35 percent — but still significant.
This is just one example. I have read countless articles just like this.
A great resource for what is happening in the industry is: http://thehousingbubbleblog.com/index.html News clips from around the country without snarks or rants and updated often twice a day. Spend a week or so reading daily and remember that we are a year or so behind.
I'll keep looking to see if the National City data is still available anywhere, which was teh best I have seen. In the meantime, remember 2006 and 2007 in Bend? The collapse was happening elsewhere but everyone kept saying "Bend is different." It isn't. It's just late.
One more data point is months inventory. A year and a half ago many zip codes in Sacramento had inventory levels similar to ours. By November of last year the inventory was down to 4 months, and prices are still going down. As more foreclosures come on the market we will see our sales increase. At some point we will see our inventory drop to around 4 months. If I had to make a best guess, I would say 12 months after Sacramento - or this November.
http://averagebuyer.blogspot.com/2008/12/nov-dec-2008-months-inventory-for.html
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