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Monday, May 9, 2011

Housing pit still has no bottom

According to this survey, more than one out of three Portland metro area mortgages on single-family homes is currently under water. The region's 35.9% average compares to a national average of 28.4%.

Comments (43)

Yes, but that surely won't stop Portlanders from passing 26-121 an 26-122.

On average, nationwide, every $1,000 of property taxes reduces a homes value by $20,000 (which makes sense if interest rates at 5%). So, if the average homeowner will see an increase if $800...the average Portland home will lose ANOTHER $16,000 in value.

That 35.9% "underwater" statistic is sure to go up. Significantly.

That statistic is true on our street.

In another thread, some homeowners mention their intention to sell their homes if the PPS measures pass.

The question is: to who?

Also, if a homeowner gives their home back to the mortgage holder or is foreclosed on, will the property taxes be paid by the banks or simply accrued?

If accrued, how will PPS service the bond?

It's Chinatown, Jack. The developers' billion dollar bond lines their own pockets. At the same time, middle class Portlanders find the huge tax increase means they can't afford their cute little Craftsman homes anymore. In comes Uncle Edlen with a generous offer to take that underwater home off your hands. Within months, the Craftsman becomes a condo and Portland gets another Subway restaurant.

The bottom is still way, way down there. And there will not be a meaningful "recovery". Welcome to the future, folks. The rich are getting richer, but you're not going to be rich--you're headed the other way.

Maybe if we all close our eyes and wish really, really hard, and give large corporations everything they want, we'll all be able to eat and house ourselves. Right?


"On average, nationwide, every $1,000 of property taxes reduces a homes value by $20,000 (which makes sense if interest rates at 5%). So, if the average homeowner will see an increase if $800...the average Portland home will lose ANOTHER $16,000 in value."

Can you give me a source on this? It's a study I would really like to read.

Wonder if it is related to us slipping 10 spots in 10 years in per capita income (unless you are a developer wose intials are HW or G-E)

Please god, make some of the local pols get a clue before we really do become Portlandia.

"Can you give me a source on this?"

Better to do a math example:

$200K loan at 5% = $1073.64/month payments.

If a person has to include an extra $83.33/month ($1000/yr) for prop taxes in his PITI qualification, that reduces his loan payment to $990.31/month to qualify.

$990.31/month at 5% (30 yrs) = $184,476

$200,000 - $184,476 = $15,523 less house he can afford. However, since it affects everyone, assumedly house prices will have to compress to this level for all buyers.

So much for the "this won't hurt" approach to increasing property taxes.

"that surely won't stop Portlanders from passing 26-121 an 26-122."

I don't think so because they passed the Randy fleet bonds and 66 & 67 which were supposed to fix schools.

The problem in Portland, I think, is there more non-property owners (i.e. won't directly pay the prop tax increase) vs. property tax payers.

Once you can start voting to pay yourself benefits andseemingly no pay for them, you become just like Congress.

We just turned down a very good job out of state because we can't afford the hit on the house we'd take. We bought at the height of the market (yay!) and my wife was laid off from here company 2 years after buying. So we're kind of stuck here. I got a laugh about the comment that people would sell if the measure passes. The response "to who" is perfect. That's what I want to know, to whom exactly would you be selling to?

If the school tax and the levy pass, plus the Cities' new policy of placing liens on properties for code violations every time someone dumps trash on the owner's land, no one will be able to afford to own property in Portland. No wonder property values are not recovering.

Good to see someone did their math we got the amount from $20k a year down to $15k a year. But there are so many things that go into housing prices that I doubt a simple tax hike all by itself will dictate a rise or fall in housing values. By the way you heard it here first. 26-121 will fail but 26-122 will pass.

Combine this with driving jobs out of the city and voila! developers get the loans or tax breaks to suck up these properties and here come the bulldozers!

The dream of the planners will come true. Trouble is, who'll want to live here?

And on top of that we have more 5 year Balloon Mortgage holders hitting the wall and crashing. Is the second shoe about to fall?

"I doubt a simple tax hike all by itself will dictate a rise or fall in housing values"

To an extent you are right. It is not that simple, but the cost of owning a property gets capitalized into the price. If you had two identical properties and one had a property tax $1,000 less than the other, you would pay more for the one with the lower property tax. It is just an economic fact of life. You see this with places with historic exemptions and the like. Carrying costs get capitalized into prices. But I agree it is not a simple formula. Especially if the property tax is being used to make the neighborhood more desirable.

I just got 2 calls from the same cherubic voice urging me to vote yes on our local (not PPS) school bond measure. I was not polite the second time.

Measures 66 & 67 to save the children? Pshh, that was last year's salvation. This year, it is the PPS bond. Next year, it will be some other surcharge that they will think up as they go. I am soooooo glad I moved out of the city limits (and sold the house, to boot).

I want a 'like' button for Steve!

In regards to Steve's point about increased property taxes, due to the possible PPS Bond and Levy reducing housing prices, the following helps prove the case.

I posted recently how many Pearl condo buildings are losing their historical and/or TOD property tax exemptions. Instead of paying just $160 dollars a year, my friends will be paying $5000. Their three years of attempted sales has reduced their price from $350K to $250. Now when the few potential buyers ask how much property taxes will be paid in the future, the realtors have to be honest and inform buyers of the uptick to $5000. This has sent buyers scurrying. So now Pearl realtors and financial advisers are recommending that the price should be reduced to $200K. That is how the market is correcting itself to reality.

Several realtors I work with also have noticed a much higher number of potential buyers requesting to be outside of Multnomah Co. and PPS, and not just because of school quality, but the tax difference for same quality of house and neighborhood. Now with the PPS Bond and Levy Measures, the uncertainty and the reality of much higher property taxes are reducing housing prices. Welcome to the real world.

When I read stories like these, I'm glad we moved out of state and sold our east side home back in August 2010. We took about a $10K hit - which looks like a "deal" compared to what we might have lost if we sold now..

Is Portland's poor housing market really the result of particularly bad policy? I see many cities with quite different politics than Portland faring even worse - and some better. It's a mixed bag. Pro-business Phoenix is deep, deep in the dumper. Liberal Boston is relatively solid. Relatively; even it's suffered a bit. You know who really stands out? Pittsburgh. Off just 5 percent from the peak and only 6.8 percent under water. They're doing something right there.

Pete : Is Portland's poor housing market really the result of particularly bad policy?

Pete : I see many cities with quite different politics than Portland faring even worse - and some better. It's a mixed bag. Pro-business Phoenix is deep, deep in the dumper. Liberal Boston is relatively solid. Relatively; even it's suffered a bit.
JK: First basic economics:
1) price is set by the balance between supply and demand.
if there is low demand and high supply, the price falls
if there is high demand and low supply, the price increases
if there is high demand and high supply the price can be stable
if there is high demand and higher supply the price falls

Next lets look at the successful speculator:
You DO NOT invent in something that is falling in price.
You DO invest in things that are rising in price.

That means you invest in things where the supply cannot keep up with the demand. (and your investment contributes to the price rise.)

In the housing market that means places with limited supply can increase in price which attracts speculators which further drives up the price of housing. That is an upward price spiral. Conversely, places with fast permitting and a lot of available land would not see much, if any, price increase. Little or no price increase DOES NOT attract speculators and start an upward spiral.

So the key element to the price bubble appears to be restrictions on new construction, whether they are natural (mountains, sea shore, etc. like San Francisco city) or government poilcy as found on the East & West coasts plus a few other places. And Las Vegas due to the Federal government owning the surrounding land.

And as usual planners don’t have a clue - they just say there is a lot of demand, completely ignoring their supply restrictions.

Can anyone point out a place where there is fast permitting and lots of buildable land that had large bubble?


I just love hearing things like this, what with my still owning a house in SE Portland, and living 2,200 miles away. Every time I think about trying to sell it, I see that the value of the place is eroding as fast as I pay the mortgage, so my equity balance never changes.

Thanks, Portland!

Steve and Lee are correct: most people are good at basic math, and bad at economics. If a home buyer has $x,xxx/month to spend on housing, every dollar that is spent on property tax is one less dollar to be spent on principal and interest.

Unless you are a cash buyer, most people pay significantly more attention to "how much is my monthly payment" than what is the total cost of living here for one year or xx years.

Once the Congress permits mortgage underwriters to recover their true cost of insuring against the risk of default, then mortgage rates will rise by another 1.5%, or more. That will further deflate home prices. As will the sale of the huge numbers of REO that is currently on FNM/FRE's balance sheet.

And the property taxes ALWAYS get paid by the lender, unless they are willing to permit the county to seize their collateral.

It isn't just Portland, although the non-economy here isn't helping.

Is any problem in Portland or Oregon really the result of any policies at all?

Why no.

In fact problems are actually successes.


JK is right. It has never made sense to me to constrain housing supply with a UGB and then leave prices to the highest bidder. Somebody gets screwed.

We have the privilege of witnessing first hand not only regionially engineered traffic congestion, but regionally engineered economic ruin.

Somebody is going to come out ahead on this in the end and it's not going to be the average Portland resident/homeowner.

Other cities have just as many underwater homeowners as we do, and some have many more.

The trouble is in reversing the trend. Seattle, with its real economy will dig itself out much faster than we will.

Portland needs to get over its emphasis on a definition of "livability" that doesn't include the word "jobs."

I am in the process of purchasing a lovely condo in Florida because it's time to get out of here. The sale price is less than 1/5 of what comparable units are selling for in Portland and for what the same property sold for in Florida in 2007. The property taxes in Florida are less than 1/2 of those here. There is no state income tax. Yes, there is a sales tax. Yes, the Florida economy is a complete mess. But so is Oregon's. My question is not why the housing market is dropping so much here and how low it will go, but rather why is it staying so high? Please don't respond: it's the quality of life because it's not.

JK: Las Vegas? Miami?

I realize that just saying a buyer can qualify for less doesn't exactly correlate to prices dropping by the same amount. However, Portland's housing is still pretty expensive for the average (i.e non-gov or Intel job) income. So most people are caught up in meeting the PITI amount.

Meanwhile, we keep staffing up with $150K/yr planner types like th woman that left PDC to do nothing at PSU besides generate reports and show up at meeting/charettes.

My issue is these jobs contribute ZERO to the economy and take a min of $150K out of it.

If you want to argue about govt jobs contributing to the economy, tell me the govt function that actually increase efficiency or output.

Yes, I realize we need schools and police, but look at the whole staff of PDC and what URDs fund and you'd be aghast.

JK, what you write makes some sense to me. It fits with what Krugman (of all people) has called Flatland vs. Zone Zone market dynamics: that bubbles don't happen in places where new housing can quickly be built on land that stays cheap because there are minimal zoning restrictions, while in places where supply is constrained by zoning -- the Zone Zone -- prices will rise. And yet: More than a quarter-million housing units were built in Las Vegas in the early and middle part of the past decade. That's nearly as many new units as exist in all of Suffolk County, Mass.! And many of those units now stand empty. It leads me to wonder: Was the problem in Las Vegas really that not enough homes were being built fast enough?

JK - I think Phoenix qualifies as lots of land, and perhaps fast/few permits. My parents used to winter there, and that is one of the ugliest examples of urban sprawl I think one can find.

Problem in part is, that the boomers don't want small winter homes like my parents and their generation - the "Park Model" trailers that run about 400 square feet. The boomers were buying/building homes - not even condos - and now they can't afford to travel to Phoenix for the winter. I would suspect the snow bird population in Phoenix, which used to add at least 100,000 people per winter, has taken a hit.

Going along with what JK said. UGB artificially inflates our property values in Oregon by restricting available land. According to a real estate expert I was listening to a couple years back, our land use laws will keep our values up for 18-24mos during a down turn. So in a short downturn homeowners wont see much of a hit but in a long downturn....Well we are seeing what happens right now.

What many of us are saying here is proving to be true in a real market scale as Zillow.com recently reported. Portland is the 6th highest metro area with housing value decline at -12.1% since the beginning of the year. The notorious Miama-Ft. Lauderdale metro is just one step worse than us at -12.8%. We may catch up to Detroit since we went into this Great Recession much later than all other metro areas.

Sam's Economics are paying dividends. He's certainly controlling urban sprawl.

There is too much supply of housing on the market as is. All in all, the UGB adds cost to housing but it's minimal. In fact, the region has had a UGB since the 70s and the bubble period did not begin until the 90s, so one has to prove there is actually a shortage of housing. A line is just a line.

Many of the bubble cities like Phoenix do not have overly restrictive land uses, although development is "naturally" constricted due to available water.

Florida has a law called concurrency, where new development cannot occur until proper infrastructure is in place beforehand. But sometimes I wonder how well that growth management act is adhered to. I think that's probably one of the best growth management acts available if it's applied strictly.

If you all want to live in this then be my guest. Funny how the ring of homes encircling the schools are walled in and cut off from kids walking to school, in addition to the non-accessible route created by the dendritic cul-de-sac road system.

No wonder we're the most obese nation in the world.

The links I posted is a wonderful example of why I argue for urban planning most of the time (but not the pie-in-the-sky streetcar planners that dominate our region).

The US economy and its major reliance based on sprawl is alarming to me. There's reasons why it came crashing down as it did. It is unsustainable in more ways than one.

Doing some comparative market analyses in the Stafford area for some raw acreages and I'm seeing land prices at just over 50% from where they were in the summer of 2007.

As of today there are 39 active acreage parcels on the market in that area with 7 sold parcels for the last twelve months.

There are zero parcels pending.

Those that argue the UGB inflates home values by artificially restricting supply are missing the point.

In Portland, as we all know, the UGB has brought us density (think SoWa and the Pearl). The supply of homes will come either way; when interest rates are low and money is easily available developers will speculate, whether they have to build up or out.

Sout Florida has no UGB but (like the Bay Area) has natural barriers to sprawl.

Portland got drunk on the same brew that the entire country did -- cheap, easy money, and the state of our housing market has little or nothing to do with the UGB: our housing market is starting to mirror Detriot because we have low wages, no job growth, crappy schools, high taxes, overpaid bureaucracy, and NO economic development strategy.

To bring this discussion full circle, if Portlanders pass 26-121 and 26-122 they may be doing so with the best of intentions (those union fliers are pretty powerful) but my fear is that it truly will be a death-blow to the already limping housing market. With 36% already under water, a 15% tax hike (which is what we should be calling it) will delay our economic recovery indefinately. Foreclosures will rise leading to more funding problems, and basic services will continue their decline.

Allan L: JK: Las Vegas? Miami?
JK: Las Vegas has restricted land supply because most surrounding land is owned by the Feds and they reduced (stopped?) sales.


In general, I think the UGB distorts our housing market, but I think it is a stretch to blame the current situation on local policies.

We just went through the same speculative housing bubble that most of the country did.

Snards, that's true. My point is that local policies will prevent recovery from (and maybe exacerbate) problems resulting from the speculative housing bubble.

Snards : We just went through the same speculative housing bubble that most of the country did.
The speculative housing bubble was primarily in places with land use restrictions.

Even liberal/progressive NYT columnist, Paul Krugman wrote about this. See http://www.portlandfacts.com/krugmanbubble.html


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