Housing: A Macro View from Axois

     As reported by Axios, the national housing picture is exhibiting clouds on the horizon. Updated on February 19, 2025

Talk about a head fake. After a surge in homebuilding in the final weeks of 2024, new data today shows a sharp pullback in activity.

Why it matters: Few sectors capture the story of the economy in recent years better than housing — Americans' frustration with high prices, elevated borrowing costs, CEO uncertainty, and a supply-demand mismatch (for goods and workers).

• Two new economic factors could be added to that list of long-running housing issues: President Trump's trade war and deportation policies.

"[U]ncertainty over the scale and scope of tariffs has builders further concerned about costs," Robert Dietz, chief economist at the National Association of Homebuilders, said Tuesday alongside an index that showed dampened industry sentiment.

The intrigue: High housing costs — made worse by an upswing in mortgage rates — are keeping some would-be buyers sidelined. Trump's policies could have more inflationary consequences than not.

• Homebuilders rely heavily on immigrant workers, who could be difficult to find with a crackdown on immigration (though at least one top Fed official has pointed to immigration contributing to higher rents).

2024 down; 2025 Ahead - Major changes or more of the same? Too many unkowns

             Now that 2024 is in the rear view mirror, along with the presidential election, are there any emerging clues to the 2025 real estate market direction?
            To hear newly-installed Trump tell it he’s going to take care of one critical variable – interest rates.
            “I’ll demand that interest rates drop immediately,” Trump said. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.” Trump blustered in a virtual appearance before the the World Economic Forum, often jusst shortened to “Davos,” for the cognoscenti of the financial world.
            Well now, that taken care of, everything should be hunky dory in real estate. He’s president and  never lies, dissembles or breaks a promise. Let’s keep an eye on eggs, which Trump touted before the election would be less costly along with prices of other consumer goods. 
            As  Elon Musk, often called Trump’s “First Buddy,”shakes things up in the federal sphere, one of the more curious new presidential edicts, euphemistically known as executive orders, is to force federal remote workers back to the office. This could mesh with another strategy to sell much of federal office space. Fewer employees left after firings and resignations would mean less needed office space, and what is left would be made unattractive to returnees.
            Maybe interest rates will fall along with the price of eggs as the bird flu abates. Maybe the idea of a “sovereign wealth fund” Trump has floated will be a reality, funded by all that surplus oil revenue from ramped up “drill baby drill.”  But how does that work to reduce the the country’s current budget deficit? One possibility mentioned is to issue more debt to “fund the fund” so to speak.
            Hmmm. Reduce the deficit by borrowing to invest and build sovereign wealth? What could go wrong?
           Let's pivot from Trumpisms, albeit realizing that  the chaos created thus far by the new administration will nevertheless hang over the economy in some way at least in these early days and weeks, and likely much longer.  

The Year Past 

            Looking back at 2024 in Bend real estate maybe the most salient observation could be the lack of any well-defined trend. Inventory of single family homes for sale remained tight, prices remained high relative to local median incomes and total sales stayed about the same as the previous 12 months.

            All this, according to the Market Action Index of First American Title Co., translated to “stasis” and a “slight sellers market,” thanks to continued low numbers of homes for sale as reported in early January.
            That assessment could easily be translated to “nothing new to see here,” in that virtually the same language had been used in nearly all of the title company’s weekly reports for 2024.
            The final Q4 2024 Beacon Report by Beacon Appraisal Group shows the the rolling 12- month median price of Bend single family homes on less than an acre was $710,000, a 3.0% drop from the $732,500 for the previous 12 months of 2023.
            The median monthly price hit a hgh of $800,000 in October and the low point in February, at $682,000.
            There were at total of 1,582 sales during the 12 months, a slight uptick of 17 closings compared to 2023, with an inventory of 2.5 months as calculated using the 319 active listings at the end of December and dividing inventory by the average monthly sales in 2024.
            In Redmond, Central Oregon’s second largest market segment, median prices for the 12 months rose by $23,000 to $509,000 from $486,000 at the end of 2023, a slight bump of 4.73%.
            Redmond sales also rose by 16%, or by 114 additional sales in 2024 from the 598 in 2023. Inventory there was also tighter than in Bend, at only a 2.0 months supply.

Affordability Remains an Issue

            Moving into the new year, the quest continues to find  strategies that will that will enable families with the Bend median household income of slightly under $89,000 to obtain affordable housing. At the median income level, with an optimistic 6% interest rate, a healthy 30% down payment, and modest $550 monthly debts a family could afford a home priced at $447,000.

            According to the Beacon Report, only 78 homes out of the total 1,582 homes sold in Bend during 2024 were priced from $400,000 to $500,000 – and only five listed in that range at the end of December.
            There is a disconnect between the availability of “affordable” homes for those with median incomes, and the high end of Bend sales  Last year 393 homes, or 24.8%, sold for more than $1 million, and 73 above $1.8 million.
            As has been reported throughout the country, among factors that likely drive higher sales prices are owners with low interest rates, or even no mortgage, who have been in their homes for a considerable time, and others who bought during the early 2000 decade recession. These may be able to roll generous cash margins into other properties – without the onus of having large mortgages at currently elevated interest rates.
            Also part of the affordable equation for the local workforce is the availability of rental inventory.

The Rental Market

In the past few yeas Bend has experienced a substantial increase in multi-family investment and new construction- to the extent that for Q3 2024 one of the region’s oldest, leading commercial brokerages concluded: “Looking ahead the wave of new apartment development will hit the brakes.”

Also in the third quarter of 2024, Compass Commercial’s Navigator market report noted that the region’s slowing population growth had reduced demand, resulting in “stagnated” rental rate growh with increased length of vacancies leading to more landlord concessions.

“Rent rates will likely remain flat, at best, for the next couple years. For property values to rise again, we will need to see both increasing rents and declining interest rates,” the Q3 report for 2024 noted.

That assessment was validated later in 2024 when a Los Angeles based owner delayed planned construction of a massive 1,600 unit mixed use project on former industrial land near the Old Mill District, citing interest rates as a reason.
            Another factor is the city’s pause and reconsideration of offering tax deductions to developers in that area, after two builders had received them and started construction of apartments.
            Now, seemingly a whiplash about face in barely three months, Compass Commercial’s new multi-family report for the final quarter of 2024 cites an assessment of the national real estate site CoStar which paints a much rosier picture.
             “Among apartment markets with inventories under 10,000 units, Bend landed among the top 10 performing markets, a cohort that spanned the Pacific Northwest, Midwest, and Sun Belt regions,” Compass quotes from CoStar.
            If the more recent analysis and predictions for 2025 come to pass, compared to the report only a few months agin, the Bend multi-family market would indeed be a turnaround star.

 

Tourism and Real Estate

        Finally, a look at the Central Oregon tourism sector, which contributes substantially to the local economy in terms of employment in lodging and other service businesses, by some estimates  as well as real estate in the form of vacation home puchases.
             In a presentation to city officials in early January the senior budget and financial analysit for the Community Economic Develoopment Department noted that development fee revenue since 2022 showed, “development is slowing down…the type of development is changing.”
            Reasons, he noted, could be due to, “everything that happened with Covid and the macroeconomic picture with interest rates? Or is that just….a result of Bend hitting a certain size.”
            And every city that hits that certain size then slows down or the development type changes,” according to Roger Serat.
            Amond the dramatic shifts Serat noted were fees for  short term rental permits, which in 2024 according to his research showed a decline from $301,119 in fiscal year 2022 to only $42,561 in 2024.
            One report said that all of Central Oregon, including resorts such as Sunriver,  Black Butte Ranch and Eagle Crest brought in $1.5 billion in related tourism revenue for 2023.
            However, statistics from Visit Bend, the city’s tourism promotion group, have shown lodging room occupancy dropping by 6.5% in July and August of 2024, likely due to wildfire smoke in the region but possibly also the tailing off of post-pandemic travel.
            What’s the bottom line?
            With the background of a chaotic first few weeks of the Trump administration best not to count on anything in real estate – especially as to lower interest rates suddenly creating a boom in sales.
            If tariffs on Canadian building products continue to be an on and off and on again roller coaster expect new construction and housing affordability to be problematic.
            Moreover, if the stock market – a favorite performance metric of Trump– can’t digest economic uncertainty maybe look for real estate sectors to tread water in the near term.

           

Subtle market changes: Bend still on seller's side but inventory up

             At midway 2024 the Bend real estate market appears to be tracking the previous year, but with hints of changes that could portend more dramatic future shifts.
            In looking at the 12 months ending June 30 against the previous year, the most noticeable, although subtle, change is in the slowly increasing inventory of available homes.
            Bend is still a seller’s market, albeit not to the extreme of the past few years, but inventory has steadily increased over the year.
            At the end of June 2024 Bend’s inventory of 454 single family homes listed for sale on less than had increased to 3.5 months, according to the Beacon Report compiled by Beacon Appraisal of Redmond from statistics available through the MLS of Central Oregon. That represents an increase of 1.5 months from the comparable 12 months ending June 30, 2023 when there were 313 listings.

            Markets are considered more balanced when there is a 4-6 month supply of homes for sale.
            This is the largest months of inventory, calculated by averaging 12 month sales against current listings, in the several years going back to the beginning of the Covid pandemic.
            Although total sales for the 12 months dropped to 1,534 compared with the 1,741 the previous 12 months, it’s notable that the percentage of homes selling at more than $1 million increased to 25% from 22% the previous year.
            The median price of homes through a cumulative12 months ending June 30 was $735,000, up 6.44% from $690,500 the same period 2022-2023. For a single month of sales the median high for the year was $800,000 in July of 2023. The monthly low was $682,000 in February.
            In Redmond, Central Oregon’s second largest home market, the median for 12 months rose to $510,500 from $460,500 in 2023, an 8.5% jump.

            Redmond’s inventory tracked in lockstep with Bend, with 2.0 months supply in 2023 increasing to 3.5 months for the 12 months ending June 30 this year. Redmond total sales dropped from 652 to 625 for the 12 months.
            The Market Action Index report by First American Title for July 8 concluded that, “The market has been cooling over time and prices have recently flattened.”
            But, the MAI report noted, “we’re still in a Seller’s market (where significant demand leaves little inventory available).”

Post pandemic: Bend housing prices level, affordability problem remains

             It’s a challenge digging into Bend real estate market numbers to unearth any breakout trend from most recent months and longer.
            Median sales prices for single family homes on less than an acre continued to rise, although at a pace much less than the “pandemic era” that ran from early 2020 into 2022.
            For the 12 months from May 1, 2023 through April 30, 2024 the median sale price was $738,500, or 6.95% more than the same period of 2022-2023. During the most recent 12 months, closing prices ranged from a monthly low of $682,000 in February of this year to $800,000 in July of 2023.
               Bend’s inventory of available continues to stay on the seller’s side of the market, with only a two month supply for the 12 months ending April 30 as calculated by averaging sales for that period.

            What has emerged – as noted in recent market reports by Beacon Appraisal Group—is the percentage of homes selling at more than $1 million.
            In February of this year nearly 25% of single family sales topped $1 million. That was also noted in the Beacon Report for April, albeit the share had declined to 20%. And for the 12 months ending in April the 404 sales at more than $1 million accounted for more than 25% of the total 1,591 closed. The full Beacon Report.
           The upward price trend in both median prices and sales above $1 million only serve to point out Bend’s growing housing affordability problem for a workforce whose median household family income is about $88,000 according to 2021 US Census statistics.
            When plugged into Zillow’s home affordability calculator, that would enable a household with the median income to purchase a home for about $508,000. In the 12 months ending April 30 there were only 215 sales under $550,000, or 13.5%. And as of April 30 only 16 of the 310 active listings were priced under that amount.

            Another market segment getting attention in Central Oregon is apartments, where an active construction trend is creating many newer units and driving the vacacy rate to 7.87% according to data from leading brokerage Compass Commercial. That is second only to the Boise market with 10.6% vacancy rate.
            Bend/Central Oregon’s average rental rate tops all of the nine cities in the Compass report at $1,740, leading Portland at $1,619 and Boise at $1,537 per month.
            The report also includes numbers for Eugene and Salem as well as the Richland area of south central Washigton along the Columbia River.
            An earlier report by Compass at year-end 2023 noted that thousands of new apartment units would be completed in the following two years. At the end of Q1 this year Compass estimated about 500 apartments were available for rent.
            One key question raised by the construction boom is whether the increasing glut of new units will dampen demand and force rental rates downward. Already multi-family owners are offering such incentives as free months of rent and move-in credits.
            Also noted in the rental sphere is an increasing number of  permitted short term rentals being listed for sale. This might be partially attributed to owners anticipating several larger projects being brought to market that will have no restrictions on the number of short term rentals, or conversion from rental unts to condominiums.
            Two of these new projects, Jackstraw and Everpine, in the area between the Old Mill District and downtown core, have together received more than $18 million in 10-year tax breaks from the city. Facing a backlash, the City Council has paused further tax breaks for new projects to review the program.
            The prospect of the city subsidizing through tax incentives  projects that developers could sell at market rates would likely do little to ease the city’s housing affordability issues.
            One argument has been made that the tax breaks might be tied to requirements that multi-family projects permitted as “residential units” in planning applications be restricted to rental units for a defined number of years before conversion to condos or townhomes. This would require an amendment to the Bend Development Code.

Bend’s Development Code in Conflict with Housing Goals

 Note: This post first appeared as a guest column in The Bend Bulletin, April 14, 2024. Photos of the projects mentioned have been added.

            Bend elected officials and city administrators all say they’re working diligently to create more housing in what is in the top tier of Oregon’s fastest growing cities.
            Now a proposal for new multi-family housing in the middle of a single family neighborhood is bringing to a head some of the arguments that swirl around where new housing should be built. It has also highlighted deficiencies in the Bend Development Code that could allow units thought to be for apartment rentals to be individual condos or nightly rentals - even before a building is occupied.
            At first glance the opposition to the proposed Compass Corner mixed-use project at the north end of NW Awbrey Road might be dismissed as a typical NIMBY attitude of nearby residents. And a resident presenting himself as leader of a stated housing activist group, Bend YIMBY, has spoken in favor of the project.
            The project is proposed as a four-story structure with 40 plus apartment units and a lower floor of “Convenience Commercial.”  Nearby residents of single family homes are opposed to the building scale and design aesthetics covering most of a 1.02 acre site. These objections are not considered factors in city planners’ interpretation of the BDC, which is weighted heavily to encourage more dense housing.
             But a greater concern with the Compass Corner project is that the code allows them to be transitioned from permanent apartment housing to a wide variety of lodging—including short term rentals.

Compass Corner aerial illustration

            This possibility emerged in the city planning department review of the Compass Corner proposal that responded to several of more than 250 opposing comments prior to a public hearing April 4.
             The planning staff final report and recommendations emphasizes that the developer could complete apartment units, then apply to change the use to lodging by filing a “Change of Occupancy” request with the city’s Building Safety Division.
           Is it possible the developer, whose principals already are Bend hotel owners, might take this opportunity? Although a representative has said this is not the intent, it remains a possibility.  What would this do to create permanent apartment housing if that happens? 
            And the implications of Compass Corner extend across the city.
            Consider the more than 300 units now under construction as the Jackstraw project along NW Arizona south of downtown, and another 246 permitted in the Everpine complex nearby to the south of there. What would be the impacts if the same standard applied to Compass Corner is used for those much larger projects?

Jackstraw under construction

            Several Bend Bulletin articles describing Jackstraw and Everpine have referred to them as apartments for the rental market. This is the impression left with much of the public.
            However, city planners note that the different zoning classifications for Compass Corner, compared to Jackstraw and Everpine, nevertheless permit individual ownership of “residential units” in that each provides for mixed residential and commercial uses.
.           This loophole in the BDC runs counter to any effort by the City of Bend to ensure projects expected to be full time residential apartment units will remain as such. It opens the way for a patchwork of nightly lodging interspersed with permanent housing throughout various zones within the city.
            One step could be a code amendment that requires development applications to clearly define the “residential” use after construction. If the use is for apartment housing then the project should be restricted to apartment rentals for a defined number of years.
            A code that is open to ambiguous interpretations and provisions conflicting with city objectives is a rocky path to achieve more housing at the expense of wider public support.
            This is an opportune moment for planners and the City Council to add clarity to a development code that has apparently had conflicting and unintended consequences for Bend housing goals.
            Any housing, any place, at any time with few restraints is not workable for the future.

 

Lee Hicks is a resident of Bend, and a former wire service, weekly and daily newspaper journalist and newspaper owner- publisher.