Home prices go through the roof

Tuesday, May 17, 2005
DYLAN RIVERA
The Oregonian

Speculative buying has whipped up extra froth in home-price appreciation and helped put the Portland area on track last month for the highest calendar-year median price increase in more than a decade , according to state economic and real estate experts.

The Portland-area median home price jumped 15.3 percent in April -- to $224,900 -- compared with the same month in 2004, according to the Regional Multiple Listing Service. The median price in the first four months of the year ran 14 percent above the figure for the same period last year. That's after a 10.2 percent increase in the annual median price in 2004.

The causes for the increase remain the same conditions that have driven up prices in recent years -- low mortgage rates and high in-migration, the experts say. But, they say, something new is playing out, too.

Eager to take advantage of surprisingly persistent low mortgage rates and price run-ups, more homeowners in Oregon may be joining a rising national trend of consumers buying second houses to rent out or live in themselves for resale later, state economist Tom Potiowsky said Monday.

Increasingly, buyers from out of state also are snatching up Oregon homes as investments, real estate agents say.

Both types of buyers are looking at real estate as less risky than other options for long-term investments, said Sherry Francis, a top producer with The Hasson Co. brokerage, based in Portland.

"I've had more of my clients now become first-time investors," Francis said.

Prices rose across the metro area, according to an RMLS report released late last week. The close-in Northeast and Southeast Portland neighborhoods, which have led the market for the past decade, showed some of the strongest appreciation. But westside neighborhoods also did well.

The figures cover Clackamas, Columbia, Multnomah and Washington counties. Separate figures are kept for Clark County, where the median price jumped 16.2 percent in April -- to $215,000 -- compared with April 2004.

The price trends have defied economists' expectations. Their logic: Low interest rates have driven demand by making housing more affordable, even through the recent recession. But as the Federal Reserve raises interest rates to pre-empt inflation amid economic recovery, they reasoned, mortgage rates should rise, slowing demand for housing.

Interest rates hit a record low of 5.21 percent for a 30-year fixed-rate mortgage in June 2003, according to mortgage giant Freddie Mac.

Frank Nothaft, chief economist for Freddie Mac, said in an interview in Portland in December 2003 that mortgage interest rates would rise to 6.25 percent by late 2004.

Aside from peeking above that mark in May and June 2004, rates have stayed well below it.

Freddie Mac's weekly survey on Thursday reported the 30-year fixed average was at 5.77 percent -- still, historically, a bargain.

Homeowners are turning to real estate as an investment in part because of relatively lackluster stock market performance, Oregon economist Potiowsky said.

"Where else can I get a 15 percent return?" Potiowsky said. "Not in the stock market. And long-term bonds? They've been down with the mortgage rates."

Mortgage rates tend to fluctuate with the interest rates of long-term bonds, Potiowsky said. While the Federal Reserve governs short-term rates that banks charge one another, long-term interest rates generally remain low as long as stock markets perform poorly, he said.

The idea of owning a rental home seems to make sense to homeowners who are used to owning a house, Francis said.

"If they can break even with someone making their payment, then they know the appreciation is going to be there, and it doesn't cost them anything beyond that initial investment," Francis said.

California investors

Oregonians have scorned new residents from California for years, but now they have investors -- not just new residents -- from the Golden State competing with them for housing.

Peggy Hoag, a top-producing agent for Prudential Northwest Properties, said she has represented three California investors buying houses in Portland in the past two weeks.

She doesn't specifically court investors, Hoag said. But the investors saw her listings on the Internet and came calling.

They wanted houses that are close to downtown or universities, she said. They made offers before they even saw the houses in person. And they were willing to take losses on a weak rental market for a few years, she said.

"There's a big rumor mill in California telling people Oregon is on its way to doing what California has done and get on for the ride," Hoag said.

The rising prices, while boosting the wealth of homeowners, also have bred resentment among some concerned about their changing property taxes and neighborhood character, said Hoag, who added she has received e-mails from angry homeowners.

"They said, 'You're ruining our market and overpricing your properties,' " Hoag said.

Nevertheless, even at what may look like high prices, she said, her listings trigger multiple offers.

"You can understand (the resentment) a little bit," Hoag said. "But if they own real estate, it's good for them, too."

Appreciation consequences

For people interested in staying in their homes long term, rising prices don't mean much in the short term, said Chris Berg, a certified financial planner and CPA.

Higher values translate into more equity that homeowners can use to borrow money, but that should be done sparingly, Berg said. Homeowners should consider using home-equity loans only to cover emergency expenses, pay down credit card debt or buy a car if the interest qualifies is tax-deductible, he said.

But homeowners should avoid using home equity as a credit card to pay off debt accrued from living beyond their means, he said.

When it comes time to move, married couples whose residences of at least two years have risen in value can realize up to $500,000 in gains without paying income or capital gains taxes, Berg said. The figure for singles is $250,000.

It's common for empty nesters or retirees to use such gains to downsize into a smaller house or condo, paying cash or borrowing little.

"Unless they're planning on moving out of Portland, there's not much you should do about paying attention to the price of your house," said Berg, of Gustafson, Berg & Co. in Southwest Portland.

Harlan Mayer, an agent with Windermere Cronin & Caplan Realty Group Inc., said rising values nevertheless alter how residents view neighborhoods. They can, for instance, prompt home buyers to tolerate longer commutes to find affordable homes. As a result, Southeast Portland's Woodstock neighborhood, once considered far from downtown, now is seen as close-in, he said.

"Killingsworth (Street) used to be considered far north," Mayer said. "Now, it's not north at all. That's appreciation."

Penthouse offer at new high for market

73 condominium units coming to Northwest Portland will top out at $1,000 a square foot

Tuesday, May 03, 2005
DYLAN RIVERA
The Oregonian

So you think the Pearl District or the South Waterfront, the upcoming waterside neighborhood with its 21st-century slender towers, has set the high end for condo sales in the Portland area?

There's a new contender. Developer Marty Kehoe on Monday bought a 1.62-acre sliver of Northwest Portland that will offer nine penthouse units asking from $565 to $1,000 a square foot -- as much as $3.5 million for a 3,500-square-foot unit with the most amenities. That could surpass the penthouse prices of about $600 to $700 a square foot in the city's two newer urban neighborhoods.

"It gives you the best of the old and the best of the new," said MJ Steen, principal broker listing the condos with Windermere Cronin & Caplan Realty Group Inc. "You'll be coming out of Northwest Heights and overlook the Pearl District and the city."

Though the project, called The Cambridge condominiums, has not yet been publicly marketed, word of mouth has produced 90 nonbinding reservations for the building's 73 units, Steen said. The team said it is trying to limit sales to future residents rather than investors.

The building won't be ready for residents to move in until early 2007, Steen said.

Real estate observers said the project could meet its lofty goals if the developer can meet the increasingly exacting standards of Portland's top condo buyers. Spacious living areas, custom cabinetry and Mount Hood views are some of the basic elements. Two potential buyers so far have asked for built-in espresso makers, saunas and combination steam-room showers that are pushing prices to a new level.

Kehoe on Monday paid $3.3 million for the land he bought from the Drake family of Portland. The site is part of the former site of St. Vincent's Hospital, which moved to the Sunset Corridor several decades ago.

"The consumers are smart, and they're discerning, and I think there are consumers in Portland, Oregon, who would pay $1,000 a square foot for the right penthouse," said Kathy MacNaughton, a broker with Realty Trust Group Inc. "But it has to be the best in Portland, and there's a lot of competition."

MacNaughton is listing other condos but is not involved in The Cambridge project.

The 73 units in The Cambridge project will rise only about five stories, with about three stories peeking over Northwest Westover Street, between Glisan and Irving streets.

"You're going to appeal to a traditional buyer that wants that neighborhood," said Kirk Taylor, a multifamily investment broker with CB Richard Ellis, which represented the buyer and seller in the land deal. "They're not disturbed by pricing."