Thursday, February 14, 2008

Portland real estate: plunging values, or realistic pricing at last?

As a resident of SE Portland, one of my pet hobbies is tracking the crazy real estate transactions that have gripped the 'hood in recent years. Houses that sold for $250,000 in June would sell for $325,000 the following February, only to sell for $389,000 in June. It was (or should have been) obvious to everyone that such dramatic increases were not sustainable, and that the resulting crash-and-boom would be a grimly painful reminder that every boom must have its bust. Until quite recently, however, I have not been confronted with dramatic evidence of the new reality in residential real estate. There have been quite a few stories claiming that Portland seems to be weathering the national storm quite well, and, until recently, anecdotal evidence (which for me consists of the things I see as I take my dog on walks through the neighborhood) seemed to bear this out.

However, I was recently struck by the dramatic decrease in value of one particular house on my route. The house, a large classic Portland home, probably 100 years old, is located in a nice part of SE Portland, close to many shops and restaurants, and surrounded by equally nice houses. Crime, while existent, mainly takes the form of petty theft, and streets and schools in the area are fairly good. The house has a current asking price of $499,000.

To the average person driving past while looking for real estate bargains, this may seem fairly routine. Nothing dramatic on the surface. However, what the dedicated dog-walking enthusiast in the neighborhood knows is that, until only recently, the house was on the market for $659,000.

Turning to PortlandMaps, and the detail it provides about the recent history for this house, we see something interesting.

Back in 1990, it sold for $87,000, not a small amount of money, as the neighborhood in those days was something of a drug-infested eyesore. It really kicked into high gear in 2002, however, selling for $339,000. In June of 2006 it sold again, this time for $570,000, a tidy increase of $230,000. Something, however, happened between June of 2006 and December of 2007. The house, after sitting for months on the market with an asking price of $659,000, sold towards the end of the year for $494,500, a decline of nearly $100,000 in 18 months, and $160,000 under the asking price. It now sits empty at the current asking price of $499,000.

What was it? What happened? Did something happen to the house itself? A fire, perhaps, or a plague of locusts? Flooding? No. The house, actually, underwent a substantial amount of rehab in that period. In fact, it is much nicer, and has more "street appeal" now than it did when it sold for $570,000. It has been painted, given new wood floors, a new kitchen, and basement work. It is actually a very decent house, albeit one with a small yard.

What explains the decline? Is there something unique to the personal history of the owners of this place (note that the current holder of the deed is a bank, not a person)--a divorce, unfortunate medical event, or something similar? Did personal tragedy strike, requiring a quick sale at basement prices? Or does the new owner of this property recognize that the market that once supported a price of $570,000 for this house can today do no better than $499,000.

Is this house a statistical outlier, or the proverbial canary in the coal mine?