According to CNN, more homes are being purchased with cash these days. Obviously, if you’re purchasing a house with cash, you’re either well-off or, at the very least, not feeling the crunch of the Great Recession.
I took a look at the recent sales in the Eugene Springfield area as reported by RMLS to see if the trend held true to us. In the preceding month’s time period, about 20% were, indeed, cash sales.
That’s pretty high.
The homes did tend to be lower priced though. The most expensive listing sold during that month was my own listing—weighing in at nearly ¾ million dollars. It was not sold for cash, though; but rather a conventional loan was used.
High-end homes are still selling in Eugene.
Cap rates for LEED certified commercial buildings are ½ percentage point better than for standard, non-green buildings. Green building is a nice concept, but the marketplace’s acceptance will really help it take hold.
In Eugene and Springfield, there are very few LEED certified buildings so it’s hard to know how they’ll fare in the marketplace. One problem with both commercial and residential green buildings is that appraisers don’t yet value them appropriately. Of course, that will change—but for now it can cause problems if lenders are involved.
More buildings are going green these days.
Experts are saying the prices for houses are close to the bottom—meaning price increases are just around the corner. And, houses are becoming increasingly affordable. Nationally, house prices are less than two-years’ salary. In Lane County, though they’re still higher than that.
However home ownership is part of the American Dream and the net worth of home owners is some 40-times greater than renters.
Is home ownership in your dreams?
In a recent Wall Street Journal article it was reported that the rate of economic expansion (GDP increase) is expected to be its largest since 2003. And while national unemployment is still high, it is expected to dip below 9% by the year’s end. Currently the unemployment in Lane County is still above 10%.
So what does this mean for housing prices? Housing prices are affected by a number of factors, but fundamentally, it comes down to supply and demand. High unemployment decreases demand; you need a job in order to pay your mortgage. I expect a soft market in Eugene Springfield until our stubbornly high unemployment rate drops.
More jobs will help Eugene's real estate market.
Have we reached the bottom of house prices? Market peaks and troughs can only be seen in retrospect, but the pundits are saying we’re at the bottom. For the last 3 months, median housing prices nationally, in the Western region and in Lane County have risen. If the trend continues, we were at the bottom this spring.
The drop in median prices for the last year was much more muted in Lane county than either the nation or western region. Compare 6.6% (Lane County) vs. 15.4% (US) vs. 20.8% (Western region). The western region’s big drop was because places like California, Nevada and Arizona are part of the statistics, and they were hammered in price.
Are we likely to see huge rates of appreciation? Not anytime soon. There is still too much unemployment in the area and sales of distressed properties (namely short sales and foreclosures) will continue. I expect the market to stay flat at least until the end of the year.
Median House Prices up for Last 3 Months
So, how long is it? Hard to tell in the dark.
Economics is a rather dark art and will only tell us when the recession is over after it’s over. But only a long time after. My prediction: end of 2009. The reason: the government stimulus should take about 9 months to show up in the economy. And, with some 1 trillion dollars plus being pumped into the economy, that will do something. That’s the equivalent of the government lending each citizen in the U.S. over $3,000.
It is thought that the U.S. consumers account for some 10% of the world’s economic growth, and nearly 3/4 of the U.S. G.D.P. Currently, consumers have zipped their wallets and purses. As soon as the news stops scaring the hell out of us and confidence returns, spending will tick up, and things should improve.
How does this affect housing prices? It should remain a good time to buy through the end of 2009.
Low Consumer Spending Will Change
The 10 year US Government Treasury Note dropped to historic lows of just over 2% last week. A year ago, the rate was over 4%, double the current rate, and has been as high as 6.77% this decade.
Unless you’re a risk-averse investor buying such bonds, you probably don’t know or care about the 10 year Treasury rate. However, mortgage rates parallel the 10 year Treasury.
Normally, the spread between the 10 year Treasury and the fixed conventional 30 year mortgage is 1.6%, according to Professors Hubbard and Mayer, in the December 17, 2008 Wall Street Journal. The mortgage market isn’t operating properly (Fannie and Freddie were nationalized in September, which is as far from normal as you can get). And, spreads between Treasuries and mortgages are closer to 3%.
The professors argue that if the spread diminishes and mortgage rates fall to 4.5% then housing prices should be stable or even increase in 2009. Let’s hope for 4.5%.
Fed Target Rate