Recession likely to influence type of new housing

The roller-coaster trajectory of Central Oregon real estate thus far this century is marked by a growth spurt at mid-decade and the ensuing decline  throughout the region. But the epicenter was the City of Bend, which in 2009 accounted for 56% of market activity in sales of lots and single family homes.

As high demand shrank inventory and drove up prices toward a market peak, other areas such as Redmond, Sisters, Prineville and Madras absorbed some of the excess.  And as Bend goes so likely will follow the rest of Central Oregon in the struggle toward recovery.

The  statistics gleaned from the database of the MLS of Central Oregon show  the ascent of Bend single family median home prices  to a peak of $352,500 in 2006— more than double, 116%, the $162,950 reported for 2000. And this included a flat year in the wake of the 9-11 attacks. In the same period the price of a typical single family lot on less than an acre rose from $76,410 in 2000 to $215,000 in 2006, a 181% leap.

Even as median prices of Bend lots and completed homes reached their 2006 peak, unit sales had begun to signal market weakness.  In 2005 there were 2,897 single family home sales in Bend reported by the regional MLS. At the end of 2006 sales had dropped by 27.82% to 2,091. Lot sales in Bend plummeted from 520 in 2005 to 219 in 2009, a precipitous 57.88%.

But the Bend housing market momentum at mid-decade illustrated how prices may lag the larger trend.  From year end 2005 through 2006 Bend’s median single family home price rose another 26.16% and lot prices by 16.22%—running counter to the downward trend in unit sales.

One view at the time was that demand had gobbled up inventory so rapidly that prices continued to rise while supply was scarce. In retrospect it was probably the beginning of a widespread market adjustment reflecting deteriorating conditions elsewhere in the country, especially California which provided substantial impetus for Bend sales at the market peak. The national financial crisis and ensuing recession have continued to slam the Bend housing market.

From  2000 Bend lot prices  made a round trip to the summit and back. By year end 2009 Bend median lot prices had dropped below 2000 prices, at $73,750 or 3.48% below the 2000 median of $76,410.  But median home prices rose 30.49% from year end 2000 through 2009.

One scenario as the market tried to find sustainable balance is that with land/lot prices in greater supply at lower prices, new homes may be built at prices equal to or below existing homes with comparable features and locations. 

Consumers and builders sometimes have short memories as markets improve. But the depth of the recent national recession and the impact on home prices will likely have a substantial influence on  the type of housing built.

So-called “mega-mansions” will continue to attract the thin slice of luxury buyers. But housing economists are predicting less demand for out-sized housing in favor of more practical products that reflect the new reality of a country coming out of a historic  downturn.