Activity in local real estate market could lay foundation for recovery

by: VERN UYETAKE - Local real estate agents say homes in Lake Oswego's Old Town neighborhood, like this one on Furnace Street, have been spending fewer days on market in the last 60 to 90 days.Since 2008, the real estate market has been anything but healthy.

However, local real estate agents are saying recent activity in Lake Oswego and West Linn — and in the greater Portland metro area — could mean the situation isn’t as bleak as it seems.

Recent appreciation

Whereas the last few years have brought what has been seen as a buyer’s market, agents at Realty Trust Group in Lake Oswego said a shift is beginning to bring about more balance and — in some micro-markets — an advantage for the seller.

According to the Regional Multiple Listing Service, in the month of May, 112 sales closed in Lake Oswego and West Linn — a figure that is up some 30 percent over last year. The area’s pending sales for May were also up 44 percent over the number from 2011.

And, just as more homes are selling, they are selling for more.

Lake Oswego’s and West Linn’s year-to-date median sale price as of May was $346,900; the area’s median sale price for the month of May was $485,000.

Listings are also spending fewer days on market. Sheila Johnson, principal broker with Realty Trust, said that recently, a home in Lake Oswego’s First Addition neighborhood had three offers in a day and a half.

She said First Addition and downtown Lake Oswego have seen a particular bump in activity, as has the area near Westridge and Hallinan elementary schools on the south side of the lake.

Dale Chaney, a broker with J.L. Scott’s Cascade Summit office in West Linn, said he’s seen increased activity near Suncrest Drive in West Linn’s Hidden Springs neighborhood, and broker Ben Johnson of Realty Trust said he’s seen a pick-up in the historic Willamette area along Willamette Falls Drive.

“We’re seeing more urgency in buyers wanting to take advantage of the ‘perceived bottom’ of the market,” said Travis Olson, senior loan originator with Olson Mortgage Group. “No one will know the bottom until we are six months past it, but it feels like we are getting very close.”

And this sense of urgency has affected sales at a variety of price points.

While Nancy Todd, with Windermere Real Estate’s Lake Oswego office, said she’s seen the most activity in the last 60 days on properties listed below $400,000, Chaney said he’s seen a jump in sales in the $400,000 to $430,000 range, in which buyers are still able to acquire Federal Housing Administration loans.

“It’s a bit of a trickle-down effect,” Ben Johnson said. “Homes sold at the mid-level free up their previous owners for step-up homes. ... It’s a domino effect.”

Sheila Johnson said, as of the end of June, 20 homes had sold for more than $1 million in a 90-day period in Lake Oswego alone.

Justin Harnish, principal broker and partner at Harnish Properties, said in the high-end property market, more homes have sold in 2012 than in the previous 18 months, and at higher prices.

He said 2012 has seen seven or eight high-end sales above the $3 million mark and that he is actively showing properties in that price range.

Harnish said he is cautiously optimistic about the market’s recent activity, as both a show of consumer confidence and a possible signal of the beginnings of stability and recovery.

Olson said, “We have all the pieces. And the clients are different. They’ve learned something.”

Harnish also said buyers today have a different worldview than they did before the market crash in 2008 — one in which brains will always trump emotion.

“Buyers are still saavy and cautious to overpay,” Olson said.

And these buyers range from first-time homeowners to families moving for local schools, to buyers looking to downsize from larger homes. Most are looking for long-term gain from their investments, Ben Johnson said, and are looking to stay in the area for the foreseeable future.

As lending regulations have recently opened up, more people are qualifying for loans, Sheila Johnson said, and brokers and banks have more experience navigating the financing process. As a result, she’s seen fewer sales fall through.

She said the low number of vacant rental properties in the Portland area has also been a factor in the market’s increased activity.

With area rents on the rise, a mortgage payment might be a more affordable alternative to monthly rent for some, as FHA loans allow some first-time buyers to qualify for down payments as low as 3.5 percent of the purchasing price.

High demand

One of the largest factors affecting the market’s activity is the lack of inventory for interested buyers.

“We have buyers who can’t find properties,” Olson said. “That hasn’t happened in ages.”

Todd said she attributes this lack of inventory to a weak economy and homeowners waiting for prices to rise before they sell.

According to the RMLS, inventory by month is calculated by dividing the active listings at the end of the month in question by the number of closed sales for that month, including proposed and under-construction homes. An inventory of six months represents a balanced market.

In Lake Oswego and West Linn, Todd said the RMLS reported inventory for properties priced less than $300,000 at 2.6 months in May, and inventory increased incrementally with price. The inventory at the $1 to $1.2 million range is nine months.

For buyers in the market for housing that fits specific criteria, this can mean a long search.

Ben Johnson has clients who have been looking for a home in the Lake Oswego-West Linn area for as long as eight months, and, aside from the inevitable stale properties, once new or re-priced listings appear, they are scooped up fast. Many homes don’t even make it to market.

Positive signs for home building

The market for existing homes isn’t the only one that has seen a pick-up in activity.

Randy Sebastian, president of Renaissance Homes, said his company’s year-to-date sales are up more than 200 percent from 2011, as are its starts.

At Renaissance’s Rosemont Point development in West Linn, Sebastian said the company is building eight pre-filled homes for clients, and at its Renaissance Woods development in Lake Oswego, it is building six. At both sites, when a home is built for speculation, it sells before it is complete.

“The market is steaming back very hard,” he said.

Sebastian said Renaissance Homes began to see a change during the fourth quarter of last year.

Because some contractors and suppliers have begun charging more, he said Renaissance has had to raise its prices by a small amount.

“They are costing us more than they cost us last year; we’re charging more this year than we did last year and we are selling them faster than we did last year,” he said.

Sebastian attributes part of this appreciation to the lack of high-quality new houses on the market.

“In the crash, there were a lot of inexperienced builders,” Sebastian said. “Those guys are now no longer around, and quality builders are really just starting to build again.

“There was such a glut of inferior homes for years that there was no reason for guys to go out and really build, and they were competing against stuff that was so much devalued that it was tough.”

Sebastian said there were fewer home construction projects started in the Portland metro area in 2010 than in 1960, when the area’s population was a quarter of the size.

Now that much of the inventory constructed prior to and during the crash has been sold, there is a pent-up demand for new homes, Sebastian said.

“Now, if you’ve got a good location and then you build a really well-built home that fits the site and is priced correctly, it’s going to sell before it starts and certainly sell before it’s finished,” he said.

He said his clients seem more positive about the future and are taking advantage of all-time-low mortgage and interest rates to purchase homes they will settle in for a long time.

“This isn’t a market where people can be quasi-investors and flip homes; that’s not what this is,” he said.

Sebastian is seeing a diverse range of buyers, from families with children to couples downsizing, to newcomers to the Portland area.

Of the 10 homes his company has been selling a month on average, about four have been sold to out-of-state clients coming mainly from the Midwest and East Coast, especially Boston, for job transfers or the quality of life.

“The last five years for anyone in the real estate or home-building industry has been nothing but brutal. It’s exciting to have some sun shining on us,” he said. “It’s not going to be crazy like the early and mid-2000s, and I don’t think anyone really wants that.”

Buying and selling

In both the new construction and real estate markets, real estate agents and home builders say education is key.

“People should educate themselves for what’s possible for new homes,” Sebastian said, especially concentrating on energy efficiency and the effect it can have on utility costs.

For buyers looking at existing properties, Olson said his first recommendation would be to partner with a real estate agent who understands the market and has ties to the community, as some of the best properties will never hit the market.

“(After the crash), the Realtors who are still around have made it and know what they are doing,” he said.

Ben Johnson said it is important for agents to be able to manage their clients’ expectations, “as the day of the deal is gone.”

With properties spending less and less time on the market, Olson said it is essential for buyers to have their finances in order so they are prepared to act quickly once they find a property that meets their criteria.

Chaney said buyers should also be prepared for the possibility of competing with multiple offers.

“But, if you have patience, that right home will come up,” he said.

Although tables may be turning in the seller’s favor, agents warned that appropriate pricing is still key.

“You have to still prepare your house. The price has to make sense,” Ben Johnson said.

Chaney said the prices shouldn’t leave too much room for negotiation.

“The buyers are very knowledgeable,” he said. “They know if (a home) is under-priced or priced right.”

This preparation also includes staging the home for sale.

Contract Publishing

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