September 2003 Newsletter
by Susan Marthens
Contributors Gail Mann and Teresa Kirsch

In This Issue

1. Portland Home Market - July 2003 Residential Highlights

2. Cost of Residential Homes in the Portland Metro Area for May 2003

3. Long-Term Mortgage Rates

4. Portland Weather

5. Update on Oregon Taxes and School Funding

6. Legal Issues in Buying Your First Oregon Home

7. Weight Control Program:  Live in a Compact City

Portland Home Market

Compared to activity during July of 2002, July 2003 brought 4.1% more new listings, 24.5% more pending sales, and 18.1% more closed sales.  The pending and closed sales are evident in the area’s low inventory measure. The area’s 10,455 active residential listings at the end of July would last 3.8 months at July’s rate of sales. So, should the listing of property suddenly cease, the market will be fairly tight in November.

Year-to-Date Trends

Market measures are up compared to January-July 2002. New listings rose by 4.9%, closed sales are up 7.6%, and pending sales rose by 11.6%.

Affordability

In June, the month ending 2003’s second quarter, a high median family income ($65,800 per HUD) and low interest rate (5.23 for a 30-year fixed mortgage per Freddie Mac), brought a rising affordability index. The index indicates that, per an National Association of Realtors (NAR) formula, that median family would have 66% more income than necessary to afford the area’s median-priced home ($187,000) with a 20% down payment.

Corrections for April, May, June, and July - New Listings

New-listing statistics reported in the April, May, June, and July issues of the MTP newsletter were incorrect.  As a result of errors introduced during by the Regional Market Listing Service (RMLS) "Canceled" status in April 2003, canceled listings accumulated in the measure of new listings—generating an increasingly inflated statistic.  RMLS has fixed the error, and future reports of new listings will provide an accurate measure.

Cost of Residential Homes in the Portland Metro Area

For Period July 2003

Area

Average
Sales
Price

Percent
Appreciated
 **See note

North

5.9%

Northeast

6.6%

Mortgage Rates Increasing Slowly

August 29, 2003 

In Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed-rate mortgage (FRM) averaged 6.32 percent, with an average 0.7 point, for the week ending August 29, 2003, up slightly from 6.28 percent last week. Last year at this time, the 30-year FRM averaged 6.22 percent.

The average for the 15-year FRM this week is 5.66 percent, with an average 0.7 point, rising from last week's average of 5.60 percent. A year ago, the 15-year FRM averaged 5.64 percent.

One-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 3.88 percent this week, with an average 0.7 point, up from last week's average of 3.84 percent. At this time last year, the one-year ARM averaged 4.34 percent. This is the highest this figure has been since February 14, 2003, when it averaged 3.89 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

"Although mortgage rates have risen for the second week running, the long-term figures are still only about 50 basis points higher than they were at the start of the year," said Frank Nothaft, Freddie Mac chief economist. "This may have slowed the refinance market a little, but refinancing continues to make up about half of all applications for mortgages, according to the Mortgage Bankers Association.

"Home purchases remain robust as the economy begins to register signs of accelerating growth. Faster growth in the economy will partially offset the effects of rising mortgage rates through increases in household incomes and job growth."

Portland Area Mortgage Rates

To check on local mortgage rates go to Bankrate.

Portland Weather
Tracking the Moisture and Sunshine

Water Year:  October 1 - September 30

Portland's rainfall is measured according to the "water year" which is from October 1 through the end of September.  Since we receive only a few inches in the summer months, the rain months are from October through May.  Almost half of Portland's annual rainfall falls in November, December, and January.  Our average water year precipitation is about 40 inches.

Water Year:  Measurements From Portland Airport Weather Station

August Weather

Summers are generally long, hot, and dry in Western Oregon and Washington.  This summer seemed especially hot to us.  But Oregon climatologist George Taylor said that "We had a summer like this two years ago, and at least a dozen similar summers in the past 50 years."

On the temperature side, Portland has recorded 14 days of 90 degrees or hotter - four more than in an average year.  On average, the National Weather Service measures 3.24 inches of rain from June 1 through August at Portland International Airport. We have received just over a half an inch of rain this summer.

Waiting for the October Gray Clouds

September can also be hot.  Last year we had six days of over 90 degrees last summer.  Labor Day weekend is warm and dry. We wait for October as we transition to the gray mantle of clouds, cooler weather, and the beginning of the "rainy" season. All the books we had reviewed and purchased during the summer months, now piled high by the bed stand, will soon be read.

Update on Oregon Taxes and School Funding

The Oregon legislature passed a $800 million tax increase bill (House Bill 2152) in August and it was signed by Governor Kulongoski late in the month. This money is primarily for school funding. As many of our readers may recall, in late May Multnomah County (i.e., City of Portland) voters passed a bill to increase their taxes by 1.25 percent in order to fund the eight different school districts in the county.  About 75% of the revenues from the measure provided fund for schools and the other 25% provided funds for health care, mental health, senior services, and public safety. The measure was called 26-48 and passed by a margin of 58.48 percent.

House Bill 2152 imposes a three-year income tax surcharge, increase corporate income taxes, and reduces the discount for early payment of property taxes.

Big Surprise

The $800 million tax increase passage was a complete surprise to most of us. In came down to cutting services drastically or increasing taxes. A handful of moderate Republicans disregarded their leaders and voted for the tax increase. The governor signed House Bill 2152 after conferring with Multnomah County leaders.  The county leaders agreed to negate the Multnomah County 1.25 percent tax increase passed in May should House Bill 2152 go into effect.

Opponents File Referendum to Give Voters a Chance to Kill the Tax Increase

No sooner had the governor signed the tax bill opponents filed a referendum aimed at giving voters the chance to kill the $800 million tax increase. They have to gather 50,420 valid signatures by November 26 to qualify the tax question for a February 3, 2004 special election.

What is a Referendum

Oregon has three different processes for voters to decide on laws/acts:  initiatives, referrals, and referendums.  Initiatives are citizen-sponsored amendments to either the state constitution or to statutory law.  Referrals are proposed laws that the legislature has sent to the voters to either approve or reject.  Referendums give citizens the power to refer and vote on acts passed by the previous Legislative Assembly, as long as the act does not take effect earlier than 90 days after the end of the assembly.  Initiatives are sponsored by any citizen or organization in the state, as are referendums.

Gathering Signatures Under the New Rules

The signature drive will be the first significant petition since voters approved a law last year banning payment by the signature.  With the new rules, signatures gathers must be paid by the hour.

The abuses of "payment by the signature" was so severe that many voters refrained from even talking with signature gatherers. Signature gatherers frequent the outside entrances of retail establishments and pedestrians walkways. Audits of the signatures collected by the "Signature Bounty Hunters" revealed many fraudulent signatures.

The State Plan or the County Plan

The Legislature's plan would give Multnomah County's eight school districts roughly $30 million more annually than they had anticipated last spring. If the state money comes through, the county has pledged to rebate the difference to taxpayers immediately after April 15, 2004. The county also committed to reducing or canceling the tax as state revenues increase.

This shows how desperately Oregon needs a stable tax system.  It needs lower personal income taxes, more diversified revenue sources, and a big savings (rainy day fund) account. All so the state won't have to do this again and again.

Will Oregon Voters Kill the Tax Increase?

Most likely, if we go by past history.  On January 28, 2003 in a statewide referendum, voters rejected Measure 28 by 55%-45%. Had it passed, the initiative would have raised taxes by $725 million over three years. The 45% who voted for it was actually a surprise - higher than expected.

Urban dwellers in Oregon's largest cities will vote against the referendum while rural and suburban voters will vote for it.  Confused?  Interesting how we do things in Oregon. If you vote against the referendum, you favor the tax increase.  And if you vote for the referendum, you oppose the tax increase.

Much will depend upon how voters in the state's most populated county, Multnomah, feels about the state's surcharge as opposed to the already passed County Measure 26-48. Multnomah County voters will pay slightly less under the state plan.

What a way to fund Oregon schools! If the surcharge goes to the February ballot (and it's 99.9% certain that it will), it could fail and then thousands of Multnomah County voters will be trying to sort over their tax bills, not trusting the county to give rebates, not understanding why they face two separate taxes, and voting "no" in frustration.

The Legal Issues in Buying an Oregon Home

In the June 2003 MTP issue, we wrote about home financing and suggested (strongly) that one should obtain financing before you begin house hunting. That simple and easy step is called getting "pre-approved" (i.e., how much you can borrow and a commitment from a lender). In June the topic was "finding a home to buy."  Most of that article was about "finding the neighborhood" where you want to buy a home. 

We were going to talk about remodeling homes in this issue but decided that we had missed an important step in the home buying process: the legal stuff.  So our charge is to make some sense of the process that a home buyer in Oregon goes through once they have found a home and are ready to sign his/her name(s) on some legal documents.

Many of you are already homeowners and know the ropes - the intended audience is for the "first time" home buyer.  But this month's topic may be of interest to everyone.

Step One:  The Earnest Money Contract

This document, currently six pages in Oregon, is also called the "Purchase and Sale Agreement" or just "Sale Agreement."  Whatever the term used, this is the contract in which the buyer and his/her agent outline the details of the property transfer to include price offered, amount of earnest money (generally at least 2 per cent of the offering price tendered at time of offer or within a short time after an accepted agreement), amount of down payment, financing (type of loan, if appropriate, and amount), and requested closing and possession dates.

Other important features are the contingency for inspection and any other conditions/contingencies pertinent to the purchase (receipt and acceptance of preliminary title report or inspection of soil around an underground oil tank, for example). In addition, there can be separate addenda covering lead-based paint notification (if house was built before 1978), requirement for specific smoke detectors, and seller's disclosure (of property's condition), to name the most common.

The buyer and realtor work up the above agreement, buyer(s) sign, agent personally presents the offer to the seller (if possible), using this time as an opportunity to "sell" the buyer to the seller--strength of offer, qualifications, other personal details (family, occupation, etc.) that buyer authorizes agent to convey. 

The seller then has the opportunity to accept, refuse, or counter the offer.  If countered, then the buyer has the same option--accept the counter, refuse, or counter again.

Once a contract is agreed upon, various time periods during which the buyer can back out begin: the disclosure (no reasons have to be given) and the inspection period (see below).

Inspections

The sale agreement usually includes the contingency of a professional inspection (at buyer's expense) of the entire property. Under Oregon law, the seller has a legal duty to disclose all known information.  As a general rule, a seller is legally required to deliver a property disclosure or disclaimer form. The buyer then has five or seven business days, depending on the form used, to revoke his offer based on the information provided.  A seller can be held liable for any intentional misinformation or omissions on these forms. The disclaimer form will no longer be available beginning January 2004.

General Inspection The home inspector looks beyond the cosmetics to ascertain the condition of the home's general systems (heating, electrical, kitchen appliances, etc) and whether any large repairs are needed.  The standard home inspection report will cover heating and cooling systems; interior plumbing and electrical systems; roof, attic, and visible insulation; walls, ceilings, floors, windows, and doors; foundation, basement, and visible structure.

The inspector will also look for cracks in cement walls, water stains that indicate leakage, and any indication of wood rot.  The inspector will also point out the positive aspects and suggest maintenance to keep the home in good shape.  The inspector provides the report to the buyer, and buyer decides which items he might request the seller to repair before closing or provide some compensation for. 

Specialized Inspections  If you are purchasing an older home, buyers and their realtors should also consider whether to call for a specialized inspection.  Often the general inspection will find items that call for more expertise (and equipment).  For example, if an older home has a sewer line (the one going from the house to the main) that has been in existence for over 30 years, it is important to determine the condition of the line. Using video cameras, inspectors can determine if the line has deteriorated.   Other specialized inspections to consider:

• Siding (new synthetic "stucco" and LP siding)
• Underground Oil Tank
• Geo Tech (cracks in foundation, etc.)
• Pest and Dry Rot

Nothing is worst than having to face a large expenditure for a repair that you discover after living in the home a few weeks and/or months.  Best to eliminate as many as the "unknowns" as possible.  Pay for these specialized inspections so you can be reasonably certain of what you may face.

Repairs Addendum  The buyer could also decided at this time to reject the inspection report and cancel the transaction.  This addendum can be accepted, denied, or countered by the seller.  Once mutually agreed upon, the repairs addendum becomes a part of the sale agreement. The number of days in the inspection period is established in the original sale agreement - usually ten (10) days during which inspection is done and than buyer and seller negotiate on any repairs. 

Closing

In Oregon, "closing" is when all necessary documents have been signed by the seller and buyer, the financing contingencies (loan and/or deposit of cash) are met, i.e. funded, and the title is recorded in the county's records by the title company.

At that point the home becomes the property of the buyer, the seller has received any monies due him/her, and the buyer usually gains possession of the home.  Possession date and time is agreed upon between buyer and seller as part of the original purchase and sale agreement, though it might be modified by a subsequent addendum (with mutual approval). 

The basic elements of a closing are pretty much the same in all transactions; the variations - including possible delays - enter in when funding by a lender is delayed for different reasons, some just bureaucratic, especially if the closing is close to the end of the month.

Weight Control Plan:  Live in a Compact City

As you can tell by reading our monthly newsletters and cruising the Moving to Portland Web site, we advocate living in older, established, urban neighborhoods.  Now we have some solid proof that city/urban living encourages slightly lower weights and lower blood pressure.

A study, called "Measuring the Health Effects of Sprawl," commissioned by Smart Growth America, a national advocacy group, and financed by the Robert Wood Johnson Foundation, a health promotion group, found that U.S. adults who live in compact cities are more likely to walk or bike to work, school, stores and other everyday destinations than they are to drive. The study reported that a 150-pound person who walks an extra 15 to 30 minutes a week will lose one or two pounds during a year. Overall, the Portland area tends to be compact and so, according to this study, encourages slightly lower weights and blood pressures.

Or to put it another way, according to this study, U.S. adults living in sprawling counties weigh more, are more likely to be obese and are more likely to have related health problems.

Portland Ranked 24th Densest Among 448 Urban Counties

Researchers from Rutgers and Cornell universities used six variables, including housing density and block size, to create a "sprawl index" for 448 urban counties across the United States. The index was set with 100 as the average; more sprawling counties had lower scores.

New York's boroughs had the least sprawl - especially Manhattan, with a score of 352. The most sprawling place was Geauga County, Ohio, near Cleveland, which scored 63.

Multnomah County (where the city of Portland is located), the Northwest's most compact county, ranked 24th densest among the 448 urban counties, just missing the top 5 percent.

The study defined sprawling counties in two ways: It said they are places "where homes are far from any other destination, and often the only route" to get somewhere is a busy road "that is unpleasant or even unsafe for biking or walking."

Interpreting Study

No other studies have corroborated its finding, which is important to establish it scientifically. It did not directly consider how available parks and other green spaces are in areas it studied.  When the authors looked at metropolitan areas, instead of counties, they didn't find significant differences in weight or blood pressure.  They think this means health is more likely to vary on a smaller, neighborhood scale than across vast cities.

"It is premature to say that sprawl causes obesity, high blood pressure or other health conditions," the paper states. "These results show that sprawl is associated with these conditions."

Read More in Health Journals

The study came out in late August 2003, along with special issues on urban planning published by two public health journals: The American Journal of Health Promotion and American Journal of Public Health.