Nick Krautter

My facination with numbers and localized inventories began last January when the metro area started off 2008 with 12.8 months of inventory. It was a huge headline, it was the most inventory recorded in almost the last 20 years. Then February and March brought that number down and it averaged 10 months until October when it started climbing again. What happened in October? The stock market crashed and took many investors out of the mix. The winter is when a lot of investors are making moves and that just didn't happen in 2008.

November and December shot up to 15 and 14 months respectively and the number of transactions slowed considerably. Two more things worth noting are the fact that loans all of a sudden needed 45 days to close and Portland shut down for two weeks with ice and snow.

One new factor I am following and will be sharing every month is the transaction volume. Most simply put how many homes are actually selling. Transaction volume is important because price follows volume. In January of 2009 303 properties sold in Multnomah County - that's down from 480 in January of 2008. Today the inventory for the metro area was released and it's at 19.2 months. Here's the scary part - last year February and March saw big increases in sales volume - This year February is on track to be the slowest month EVER with a pace that would put the total sales at 200 properties. That will drive prices down and inventory will shoot up even more with many people waiting until spring to list their homes.

The flip side is we are moving more and more to a true affordability and that will bring more buyers to the table.

The current sitmulus package being considered now includes a new benefit for home buyers. Currently there is a tax credit loan of up to $7,500 but you have to be a first time buyer and there is an income cap for the benefit as well. The new package would up the tax credit to $15,000 and removes the income cap and the first time buyer requirement. Check out this great article from the Seattle Times.

I read a great article in CNN this morning that shows the national home market is starting a rebound. Nationally homes sales are up with buyers taking advantage of low prices, low interest rates and in some cases tax credits. Read the Article here.

Portland numbers look something like this:
Last January we had 1,908 new listings and 479 closed sales in Multnomah County
This January we'll have 1,373 new listings and 250 closed sales in Multnomah County

These numbers indicate that prices will feel presure to go down until the number of closed sales starts to increase. But like we're seeing nationally, there comes a point where homes become more affordable and an entirely new level of buyers are able to make purchases and lower the inventory.

So much happened in 2008 it's hard to keep track. So here is my re-cap of 2008.

1. Interest rates drop but so do loan options: Interest rates at the begining of 2008 were above 6% and now we're generally at or under 5% - that's great news and it saves you money. At the height of the market there were literally thousands of loan programs and now there are fewer options. Most loans are 30 year fixed but you can still get FHA loans which have a down payment requirement of 3.5%. There are also new tax credit programs for first time buyers which increased activity in that sector and will continue to do so in 2009.

2. Inventory started at 12 months in January 2008 and stayed at 10 months most of the year and then shot up in November and December to 15 and 14 respectively.

3. Micro Markets re-emerge: I have been tracking inventories all year and most close-in areas have remained very low which is still to the advantage of the seller.

4. Financial markets have huge downward adjustment: Many people lost money in the stock market and their retirement plans. This further slowed the housing market as people had more trouble borrowing money and consumer spending dropped.

5. Foreclosures increase: We saw some short sales and VERY few REOs at the beginning of the year but now just in Multnomah County there are almost 800 homes that have been foreclosed and are owned by banks. These properties are generally in bad shape - some of them not financable and they sell at a discount. This creates lower market average and median prices.

All told 2008 was a rough year due to all the volatility - My hope for 2009 is that things will get more even keeled and people's expectations will be in line with the market. This is going to be a year of wonderful opportunity.

Next week I will have info on current loan programs whether buying your first home or moving into your dream home.

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I talk a lot about inventory when I share info about the market. Inventory gives you a great snapshot of the market at any given point in time to know whether it favors sellers or buyers.

Right now what everyone wants to know is not where are we, but where are we going....

There are two ways to get an idea of Where We Are Going.

#1: If you look at the last 6 months of sales and a given area has 10 homes selling every month on average but you have 20 pending you know the inventory will be getting smaller. On the flip side if you have 5 pending you know the inventory will be going up.

#2: Pricing always follows Transaction Volume. To get an idea of where pricing is going to have to look at the trend in sold volume. If less and less homes are selling when you look at the last 12 months of information then you can bet the prices will continue to fall. The interesting thing is that there is a delay from when transaction volume changes and pricing changes so if you watch it close enough you should be able to read when a change is coming.

Where We Are:
1- Inventory in the metro area is up and transaction volume is down. Close-in inventory is low due to demand staying strong.
2- Transaction volume is trending down due to seasonal shifts we see each year but even with that in mind it is still down. I expect prices in outerlying areas to take a big hit in 2009 with the closer in areas weathering the storm much better.