In early June, I wrote a post comparing “The 1980s Real Estate Market vs. Today’s”. As of today, not only do I feel a need to amend that post but it’s also time to update it because the world has changed dramatically since early June.  The real estate market has changed dramatically since early June as well.  In that very short time frame, June to September, the financial markets and the real estate markets have been affected beyond comprehension.

First of all, let me say that this time period is unlike any recession or economic downturn that I have been a part of.  Having said that, however, each recession has been different and this time is no exception.  I stated in my post, “The “R” Word and the Economy” written in early May, that I felt we were in a recession back then already.

Let me also say that when Greenspan reduced rates to ridiculously low levels, I didn’t see a huge stampede of people buying houses.  Not that the market wasn’t good then, but it certainly wasn’t what I expected it to be with rates so low.  I remember selling real estate at that time thinking we were practically giving money away and people still weren’t buying in large masses.  However, the big stampede occurred when the mortgage rules changed, i.e. sub-prime loans and Alt A mortgages.  That’s when the real estate market took off at full speed. When deregulation occurred and the sub-prime market/Alt A mortgages came into play, that’s when the “bubble” started in my opinion.

The Charlie Rose show recently had Martin Feldstein, Harvard University and Mort Zuckerman, U.S. News and World Report along with Andrew Sorkin discussing the housing market at great length.

Mr. Feldstein stated that there are 10 million houses with negative equity i.e. owners owing more than their home is worth.  He believes that housing prices have to drop another 10-15% to reach the pre-bubble era.  Mort Zuckerman feels prices have to drop another 20% in order to get the real estate markets going once again.  Both gentlemen feel, that the key to the entire problem is to keep housing prices from continuing to drop and losing values.  Mr. Zuckerman stated that 40% of all loans in the last 4 years have been either sub-prime or Alt A loans.  Housing starts he said have also dropped by 40% nationwide. The concensus of all parties was that overall prices could drop by a total of 60% - that’s pretty dramatic and disasterous.

Now, let me say, these are the stats nationally.  Oregon, based on the S&P/Case-Shiller report this week (see my upcoming post October 4: ”Average & Median Prices & S&P Case-Shiller”), reported that Oregon had the 5th smallest depreciation in prices.  My opinion is, however, that we’ve only seen that small of a depreciation in prices because Oregonians still have their heads in the bubble era.  If you read my up-coming post “Average & Median Prices & the S&P/Case-Shiller report”,  you will read that I feel Oregonians, and as I have indicated this in many of my other posts, came to the party later than the rest of the U.S.  Further I feel that Oregonians still aren’t based in the “reality” of the situation (as is evidenced by our large inventory).

• Prices still need to drop to reduce our inventory.
• Read my post “Subprime Mortgages Conditions in Oregon-Part 2″ and you will see, according to the Federal Reserve, we have more foreclosures coming.  In addition, there’s also a large number of people who are 90 days or more behind on their mortgages and that number is on the up-tick.  Those will either go underwater, short sales, will walk away or go into foreclosure thus increasing the number of foreclosures.
• When owners get more “realistic” they will realize that their home prices are based on the “bubble era” of pricing and not based in the reality of today.  Only last week did I see a listing come on the market after it expired with Agent A, to be relisted with Agent B for $20,000 higher than the previous price when it didn’t sell!  Read my “What are these sellers thinking?” post written in the beginning of May also.
• Oregon will see a much larger depreciation in home prices than S&P/Case-Shiller is reporting in the months ahead.

One of the things that all three gentlemen said on the Charlie Rose show is that the general public is not fully aware of how grave the situation really is nationally and globally.  They are seeing people still spending hundreds of dollars at the Bloomingdale’s, big-box stores, etc.  To be honest, I’m seeing the same thing in Oregon.  I go to restaurants, shops etc. in our area and they are crowded, people are charging and still spending money.  OK I understand this isn’t affecting everyone, but eventually it will if some type of bail-out isn’t passed.  It is starting to trickle down to Main Street but most people aren’t even aware of it as yet, and don’t understand the seriousness of our financial mess and how it will affect them personally.

Having said all of the above, I still stand by my original post “The 1980s Real Estate Market vs. Today’s”. Today’s real estate market locally, here in the Portland metro area, is not as bad as it was in the 1980s.  Houses are still selling, employment is still good, rates are certainly still historically low, etc.  I haven’t personally seen or heard about appraisals being a problem as yet, but that could happen.  There is money available for mortgages.

My opinion hasn’t changed, but it could if we don’t get some type of bail-out package approved soon.  If credit for small and large businesses continues to stay frozen, that will trickle down to the Average Joe and unemployment could increase.  Rates have already gone up and I feel they will continue to go up unless the Fed drops the rate. Mortgages and credit will have to become more obtainable.  Confidence has eroded and needs to be restored because people are reacting out of fear.

Certainly I am no economist.  However, I’ve been selling real estate since 1975 and I have seen a few things.  I don’t know where we’re headed as things are changing day-by-day and I don’t have that crystal ball. Today however, is still a good day and today our Portland real estate market is still a good real estate market when you compare it nationally.  There are buyers wanting to buy and there are sellers wanting to sell as can be seen by our large inventory.  Let’s hope some relief is on its way soon.  And, I most certainly have hope for a better tomorrow.

P.S. All of the above is my opinion alone and not that of Re/Max equity group, inc.!

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