Unless you live in a cave, you have heard that the real estate market has declined. This magazine says this, that newspaper says that, my real estate agent says this...Who is right?
Since I work in Oregon, this blog is strictly about the real estate market in Oregon. There are many ways to calculate the health of a real estate market such as listings sold, inventory, days on the market, average home price, and the one I am using for this blog, the HPI or Home Price Index. Like all statistics this one has its flaws. See disclaimer at the end of the blog.
The Home Price Index is calculated by looking at appreciation from resale properties. So if someone bought a home in 1992 for $100,000 and then resold it in 2002 for $175,000, this index looks at that appreciation of $75,000. What is great about this index is it tells us what 
homes are really appreciating at.
For Oregon, our annual HPI appreciation looks like this.
What this chart tells you is whether or not people lost ACTUAL money on a resale of a home. I like to call this REAL LOSS.
In the early 80's, Oregon was hit with the double whammy of the timber industry taking a nosedive and the S&L crisis that occurred. You can see the volatility in the real estate market as a result. Many people lost REAL MONEY on their homes, meaning they had to carry a check into closing to pay off the mortgage. When that occurs it is called REAL LOSS. As you can see starting in the late 1980's, Oregon has had positive appreciation. Oregon is currently at over 3% appreciation for the first 3 quarters of this year.
What's the problem? The problem is that huge honking peak in 2006. People made so much REAL MONEY on the resale of their home that their vision of real estate became distorted. The problem with sellers in 2007, is not that they are necessarily losing money on the resale of their homes, it's that they aren't making AS MUCH REAL MONEY as they THINK they should. I like to call this perceived loss. This is a very powerful psychological barrier to having appropriately priced homes in the current market. Even though people aren't losing money on the sale of their home, they feel like they are, due to heightened expectations.
One of the more difficult jobs agents have now, is helping sellers understand that they are still making REAL MONEY on the sale of their home, and to give up on the FAKE MONEY they thought they were going to make on the resale of their home.
Now, the disclaimer...the HPI only looks at conforming, conventional loans via Feddie Mac, and Fannie Mae. What that means is that all of the funky ARMS and interest only loans will not show up on the HPI. Those homes are not eligible. It is my guess, that most of the recent, REAL LOSS properties will actually come from these non-conventional loans. So, it may make appreciation look better than it really is.
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