Shortage of housing a problem, expert warns

The Portland area's three-month supply puts pressure on buyers, says the chief of RE/MAX
Tuesday, January 18, 2005
DYLAN RIVERA
Low inventory has defined the Portland-area housing market for the past year.

In May, the 8,054 active residential listings would have sustained the market for a record low 2.8 months, based on prevalent sales rates, according to RMLS, the primary regional real estate listing service. Inventory stayed at supplies of 2.4 to 2.9 months through December.

The shortage pushed the area's median sales price to $204,500, up 9.35 percent over the recently revised $187,000 median recorded for 2003.

Daryl L. "Jes" Jesperson, chief executive officer of RE/MAX International Inc., said last week in Portland that such a valuation rise on the back of low inventory should cause concern for anyone interested in the region's housing market.

Jesperson was in Portland on an annual visit to discuss strategy with local agents of RE/MAX Equity Group, the highest-volume brokerage in the Portland area.

Here are excerpts of an interview he gave with The Oregonian:

How is Portland's real estate market regarded nationally? How do we compare with other areas in terms of appreciation and new home starts?

I think you're doing pretty well. What I would really watch closely, because it's going to affect your appreciation rates, is the inventory on hand. You have very, very tight inventory. You're under three months' worth.

A well-balanced marketplace is going to have six, eight months' worth of inventory. You get down to three months' worth of inventory, you put buyers in a difficult situation where you either choose this house that's really close to your needs, or in two weeks we're going to come back and it's not going to be available.

Your appreciation was higher last year as your inventory went down. Appreciation's great if you're owning. It's tough if you're on the outside.

So that makes the market exceedingly hard for buyers?

It takes away their ability to make decisions in a rational manner. They act irrationally because they feel time pressure. They're afraid that the next buyer's going to walk through and make an offer, that house isn't going to be there and there isn't another one like it.

What I've seen in other markets for the first time in the last couple of years is people taking their homes off the market in the November-December period. They don't want to be interrupted through the holidays, and then they put it back on the market after the first of the year.

One advantage of putting it back on the market after the first of the year is you get a fresh picture in the multiple listing service. So you may not have the snow in the front yard or whatever.

So your inventory may grow some over the next couple of weeks, but I'd watch that real close. If it stays under three months, you're going to have a lot of frustrated people in the marketplace because there is no selection out there.

There's talk nationally of a housing bubble. Do you think there's some sort of irrational bubble?

There's no basis to it.

Real estate is a local market. You can have escalation in one, and depressed prices in another market. For example, prices are going nuts in Manhattan, but some of the lowest housing prices in America are in Buffalo, N.Y., 400 miles away. It shows you that it's local markets.

As far as a bubble, what happens in real estate is you have rapid escalation, and then all of a sudden, some of the buyers start saying, "Look this is nuts. I'm not going to participate in that."

They can't afford to, and the lenders won't lend on it, and the appraisers won't appraise on it. And so it plateaus, and the market gets a chance to catch up.

With the rise of the Internet, consumers have much more information available. Why should they use an agent at all?

First of all, they are still using agents. The reason they're still using agents is it's the largest financial transaction that you enter into in your lifetime. And you cannot possibly learn enough on the Internet.

You might learn about the property, you might become more educated as you come to the process, but I'll tell you it's pretty scary sitting down at a closing table realizing that you're betting your $40,000 in equity or whatever it is that you're going to get this thing right on what might be a once-in-a-lifetime thing.

It's like doing your own heart surgery.

A national trend that's playing out here is that condos have been very hot sellers. What's driving that?

Over time, the cost of land has caused housing to change. That's why our starter homes are coming in as town homes and condos. The cost of the house is so much now, you can't afford to buy a section of land to go with the house.

When you get into a city, there comes a point where people don't want to drive 45 minutes to get to work. It's happening all throughout America.

It's attractive to all levels of people on the housing ladder. There are people, particularly high-tech people, who travel a lot. They can't manage a yard or take care of a swimming pool. A condo makes all the sense in the world for them.

As our culture changes, our housing has to change.

At what point will the condo market fall off a cliff like it did in the 1980s? Is that ahead for us?

I don't believe so, because if you go back to the problems in the '80s, it was all banking-related. Bankers have unbelievably long memories. As long as this generation of bankers is around, I don't think that's going to happen.

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