Wednesday, January 28, 2009

How Does Portland's Housing Market Compare?

A quick re-arranging of a chart produced by the Wall Street Journal shows how the Portland metro area compares to others in the Case-Shiller numbers. I sorted by the year-to-year change in home values. I think that overall we can still say it is moderate.

In the comments to yesterdays post on the Case-Shiller numbers, Gregory takes issue with something I said:

"I would like to see the movement in home values going positive by June, but this is optimistic."

How do you account for home pricing in PDX remaining overpriced? This is true based on affordability or the secular trend in Case-Shiller, before the pricing bubble began in 2004. I think we won't see prices achieve the secular trend until end of 2009 after further declines of 10-12%.

I understand why you want prices to stabilize, in order to end the bleeding of the banks balance sheets. However, restoring conditions for the next housing bubble is not a good idea. I would really like prices flatten, and stay flat for the next 10-15 years. Real estate is not an investment.

This is an interesting comment and I agree that there is good reason to expect home prices to fall another 10%, but I believe that will happen pretty quickly - perhaps not by June, but the acceleration of home value erosion is marked. I also agree that we should not spark another housing bubble, but I am not worried about that at all at this time. I think banks are, if anything, over cautious in the residential housing market and I can't see them returning to the kind of massive sub-prime lending as the market for securities derived from residential mortgages has simply disappeared. In the future, new regulations and more caution on the part of banks and the Fed should forestall any hosing bubble.

But real estate IS an investment. I take Gregory's comment to mean the speculators that were in real estate for a quick buck and in that I agree, they were a main driver of the bubble one the house price inflation heated up. But real estate is an important store of wealth for most homeowners and one that is essential for healthy families, healthy communities and a healthy economy. So a return to the steady, but modest, appreciation of home values is important and desirable. Ten to fifteen years of no appreciation would be very damaging to local economies.

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