And here is a sobering picture, it is the average annual appreciation of a Portland home over the last seven or so years. As many near-in neighborhoods are holding on pretty well, it means there is some pretty severe bloodletting elsewhere.
I always wonder, however, what to think of the bloodletting in the new developments. Sure there are people who invested in their own home who see the value go down, but if they are there for the long-haul, this is not necessarily a problem as long as they could afford the original mortgage. Then there are the speculators who bought for investment purposes and it went south, but with limited liability they are not too badly off (one of the reasons for the real tanking of the housing market is the ease at which such investors can walk away). There were also the liars who used the no doc loan opportunity as a chance to fraudulently obtain a home. Finally, there are the people who couldn't really afford what they bought but were counting on quick appreciation to allow them to extract equity from the home. These are the folks who are really adversely affected by the downturn and represent people who made a reasonable calculation but extraordinary times dealt them a bad hand. These are the folks I feel for.
There is a bright spot: the Fed is actively working to push long-term rates down and it is working - mortgage rates are insanely low. I think the worm is about to turn. It is crazy to sit on the sidelines too much longer and good deals are plentiful. So, though I have been wrong before, I think we may see some leveling off this spring (remember, these data stop in October).
By the way, as a side note, one of the reasons the Fed is doing this is because banks are still not loaning money like they should be because they can borrow from the Fed at these incredibly low rates (.25%) and buy treasuries that pay about 2%. Not a great return, but incredibly safe and since all other lending seems too risky, that's what they are deciding to do. So the Fed reckons they can buy treasuries and drive the rates down so much that banks will start to switch to the riskier loans. This is quantitative easing. See a great Marketplace whiteboard video for a nice explanation of this.
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A Specific Application of Employment, Interest and Money
Plea for an Adventure in a New World Economic Order
Adam Smith, Karl Marx, John Maynard Keynes and Alan Greenspan: a Unified Perspective
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Business Cycles, Stagflation, Greenspan Conundrum and Keynes' Liquidity Trap...
It shows that Adam Smith, John Maynard Keynes, Karl Marx and Alan Greenspan don't contradict each other but that they each bring a meaningful contribution to a same framework for understanding macro economy.
It proposes a credit free, free market economy as a solution that would correct all of those dysfunctions.
In This Age of Turbulence People Want an Exit Strategy out of Credit, an Adventure in a New World Economic Order.
Read It.
"I think the worm is about to turn. It is crazy to sit on the sidelines too much longer and good deals are plentiful."
This thinking is very optimistic and probably wrong. Portland prices are still above historical norms, in terms of pricing and affordability. In other words, we haven't fully corrected from the bubble, which should happen around the end of 2009 at current rates of decline. Good deals are not all that plentiful yet, and consumers know it. We also have to allow for the possibility we will overshoot the correction--bubbles often work both ways.
Even if consumer credit markets ease somewhat in 2009 (big IF--we don't know it will happen) with unemployment rising throughout the year, consumers will be very skittish to take on new commitments. This general paralysis will last throughout 2009 at the very least. Labor markets typically lag the economy by 4-6 quarters, so we won't see labor markets bottom out until late 2010 at the soonest, but 2011 is more probable.
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