Pandemic creates remote worker "Zoom towns," driving up prices and squeezing inventory

    The protracted pandemic, perhaps ironically, continues to support a real estate buying frenzy that is turning smaller cities, towns and rural areas into “Zoom towns," wherein a strong internet connection can enable many expatriate urban dwellers to work remotely.
     That’s the observation of brokers and other real estate professionals, who attribute the phenomenon to streaming services such as the newer Zoom and WebX, and older ones such as Skype. The technology makes it possible to share projects and converse by video with fellow workers and clients.
     The influx of new urban area escapees is reported from more pristine and remote locations such as Washington’s Methow Valley and other western mountain towns including Whitefish, MT and similar locations. Although there are no hard statistics, the anecdotal data seems credible.
     The urban emigration has also pushed prices up and inventory down in Bend, according to brokers working the Central Oregon market.
     Beacon Appraisal, in its October report, noted a summer jump in Bend sales above $700,000, attributing that to the overall rise of median sale prices to $547,000 in September. The number of sales above $700,000 accounted for 24% of the total in June, and 26%, 34% and 31% July, August and September, respectively.
     Viewed over a longer period of a rolling 12 months the Bend single family median price from October of 2019 through September of 2020 was $462,000, up 3.82% from the same 12 months that ended in September of 2019 when the media stood at $445,000.

     Bend inventory -- consistently in the sellers market category for the past several years -- became even more so through the end of September. There were only 124 single family homes on less than one acre listed according to the Beacon Report. When plugged into the formula for the average of 12 monthly sales, that translated to only 0.60 months of homes typically available for sale. Before reaching a more balanced buyer-seller market the inventory would need to be in the 4-6 month range.
     The urban exodus and remote working may continue even as Covid 19 could subside with the advent of several promising vaccines in the pipeline. Further fueling the trend are record low interest rates and well-paid employees of online companies less affected by the virus.
     Washington’s Methow Valley is a spectacularly beautiful landscape that begins on the eastern edge of the North Cascades National Park complex and is defined by the flow of the valley’s namesake river that meets the Columbia nearly 100 miles later. Well-heeled Seattle, Portland and even California escapees have arrived and dramatically driven up home prices.
     There is little inventory in the Methow, brokers say, creating a buying binge that stresses brokers and their clients as multiple bids are tendered for many properties.
     One case in point is a small single bedroom, 0.75 bath cabin on the valley floor six miles from the western-themed town of Winthrop. The 1,012 square foot home on 1.76 acres was listed at $399,000 but sold at $438,000.
     The local newspaper, now in its 116th year, recently reported that the heightened appeal of the Methow Valley is unsettling to some long-time residents and brokers, concerned that the feeling of community could be diluted by newcomers.

Heading into the Methow

     Simply called “The Methow” by many insiders, the area has long been attractive to vacation homeowners and visitors. In summer they come across the North Cascades highway, sometimes called a route through the American Alps,to camp, hike and bike or stay in small inns or 4-Star lodges. In winter they drive from the south takes longer but the rewards are snowy solitude, the nation’s most extensive groomed cross-country ski trails at 200 kilometers, as well as snowshoeing, helicopter skiing, and more than 100 miles of snowmobile trails.
     As interview by the Methow Valley News, 30-year veteran broker Anne Eckmann said many potential buyers had been considering buying property in the valley for “...one, two, 10 years—all with the dream of figuring out how to move here.
  

Above Pearrygin Lake

  “When Covid hit and businesses were required to work offsite, the game was on as to who could make the move fast enough to buy while there were still some houses for sale.”

            In comments reported by the Whitefish, MT based Flathead Beacon, Wendy Brown of the Northwest Montana Association of Realtors said two trends are emerging.

            “People are really sick and tired of living on top of each other in the big city, and number two, everybody’s figured out how to work from home...So that’s probably our biggest driving factor—some of the barriers that kept people from being here before are no longer barriers.”

     In the Northwest, the telecommuting effect will likely last well into 2021 given recent announcements by many companies, including Seattle-based online behemoth Amazon. The company announced in October that many employees will continue to work remotely perhaps nine more months. The decision, and that by other companies, has created a vacuum of customers that the Seattle Downtown Association says has led to the shuttering of 130 retail, restaurant and services businesses.
    Many urban based companies had already been downsizing their office space footprint, a trend that had begun before the virus hit in the early weeks of 2020. In cities such as tech-heavy Seattle, the commercial market has already seen the impact of major tenants letting lease renewal opportunities lapse.
     Amazon announced in mid-September that it would not renew 180,000 square feet of space in downtown Seattle housing 1,000 employees. The company said it would disperse those employees throughout other buildings it leases or owns that can accommodate more than 50,000 of its Puget Sound area workers, most of whom are now working remotely.
     Amazon’s decision comes as Boeing appears to be laying plans to shift much of its work on the new Dreamliner 787 plane to more tax and labor cost friendly Charleston, SC, which could leave virtually empty one of the world’s largest buildings in Everett north of Seattle.
    The company also dropped a bombshell in early October that it might abandon its 215-acre commercial airplane headquarters complex with 855,000 square feet of office space for more than 1,000 employees. As with Amazon, the company would scatter the employees to other facilities and have many work remotely. Even the Boeing Airplane CEO said he could be an executive dividing time between smaller Seattle offices, the parent company’s Chicago headquarters and various satellite manufacturing plants.
     Outside of companies that require huge manufacturing facilities, it’s likely that those with more tech and white collar employees will also be backing off on office space requirements. Some observers believe the commercial space market will be in an extended correction as the trend plays out.
     Seattle based Kidder Mathews, one of the West Coast’s largest commercial brokerages, in its 3rd Quarter 2020 market report concluded that while, “....the fundamentals of the regional office market are expected to be volatile, the region appears to be positioned to ride out the storm, but time will tell.”

What's going on here? A pandemic boom - or bubble

            What’s going on here?

            The nation leads the world in a dismal percentage of coronavirus cases and deaths. The economy is in the tank, far away from the “V” shaped recovery and great success in controlling the pandemic that Donald Trump touts. GDP is negative, unemployment above 10%. Some airlines might as well be grounded. And national retailers teeter in bankruptcy, several essentially on the verge of collapse.

            Yet the stock market seems disconnected from reality. Forget earnings. Keep the foot on the buying pedal. From a 12-month low of 3,386.15 on Feb 19 as the virus infected Wall Street, the S&P 500 index plummeted 33.92% March 23, then rebounded to 3,360.47, or up 50.20%,  on Aug. 10.

            And real estate, if anything, seems to be feeding on the negative energy and fear of Covid 19 to reach new highs in many areas, including Bend and Central Oregon.

            A report by Beacon Appraisal for July, 2020 confirmed regional housing demand with news that the median price of a Bend single family home hit an alltime high of $529,000, explaining the statistics were run several times to confirm the number.

            Driving the trend is what local brokers say is a wave of buyers originating from urban areas. Many of these are weary of unrest arising from protests that have been co-opted by violent groups and dense living conditions making social distancing more difficult.

            One top broker in Sisters noted:

            “I am very busy, and yes, a lot of the business is coming from people wanting to get out of the big cities because of Covid and because of riots and crowds. They are coming from Los Angeles, San francisco, Seattle, Portland, etc., etc.”   

            Deschutes County’s (Bend the county seat) development department reported that the 351 new single family home permit applications in July were 7.7% over the same month of 2019, noting: “We continue to experience stable permitting and continue to hear of ongoing plans for construction throughout the county.”

             From the July statistics the easy conclusion could be that Covid 19 has stimulated, rather than dragged down the market. The question is how long the bump will last but with Bend inventory hovering at only a month plus/minus it’s doubtful it will collapse soon or suddenly.

            With interest rates in the 3.0 to 3.5% range, and even lower with some lenders, financing will continue to sustain a good percentage of sales. And in the Bend area, expatriates from urban areas often arrive with cash--no financing contingency needed--by dint of much higher prices and accumulated equity from their homes in other cities and states.

            One factor in the constricted inventory could be homeowners deciding to stay put and refinance with favorable rates several points under their current mortgages. Why sell now? Wait out the political, economic and Covid 19  turmoil given that the market appears stable enough to sustain momentum.

            Consider that in the Seattle-King County area of Washington the median price of a single family home also hit a historic high of $727,500, topping the previous record of $726,275 more than two years earlier May of 2018. In many cases inside the Seattle city limits, with a median price of $805,000, nearly 100-year-old cottages of less than 1,500 square feet are selling at nearly the median. Compare that to a newer Bend home of 2,500 to 3,000 square feet at the same or lower price.         

            Looking back and including the July price jump into a 12-month rolling median, Bend single family homes have sold for $460,000 from August 2019 through July 2020. That’s still a respectable rise over the same dozen periods of the previous year, August 2018 thorugh July 2019, when the median was $439,000.

            Another view is to put the first seven months of 2020 side by side with 2019. By that metric Bend median sales prices are up 2.22% over 2019, while the number of sales rose significantly to 1,295 – a 26.34% leap as July led the way at 318 sales.

Real estate and Covid 19: A delicate balance

            As the real estate market struggles to fight initial pandemic effects, the future in late June has been clouded by an explosion of Covid 19 cases nearing daily figures approaching previous highs.

            That uncertainty will likely hang over both residential and commercial markets, even as historic low interest rates provide incentives for owning and investing in real estate while the larger economy remains fragile.

            In Oregon the pandemic has accentuated a long-recognized political and cultural divide between much of the I-5 corridor in the west that reaches from the Columbia River south through Portland and to  Eugene, and the many sparsely populated counties east of the Cascades.

            As state-mandated restaurant, bar, church and lodging closures and restrictions went into effect where case totals were rising, many eastern counties with few infections also had to shutdown businesses.

            In mid-June a backlash of elected officials in eastern counties manifested in a non-publicized meeting in Prairie City to air grievances and map a strategy to address restrictions emanating from Salem.

            But soon after the meeting case totals began to rise in the populous Portland metro and other western Oregon areas as well as central and eastern counties of the state. Nationally the daily totals of newly reported infections approached and surpassed those of previous peaks many weeks earlier.

            All the while as infectious disease experts warned of a continuing wave of cases, Trump administration officials on June 26 touted alleged “success” in getting back to normal. On the same day governors in Republican states of Florida and Texas announced new measures intended to head off increasing virus numbers.

            As Central Oregon including Deschutes County has “reopened,” so to speak, for the past weeks from mid-May, through Memorial Day and most of June, virus infections have slowly climbed, albeit at a level far below those of Portland and hotspot states and counties across the country. 
           By some reports, lodging occupancy in the Bend area has jumped from lows barely in double digits when stay-at-home was urged by health officials to more than 90% bookings going into the July 4 weekend--this in the face of city officials discouraging the influx of urban dwellers excaping to an area they consider safer. 
           But crowds in downtown Bend and floaters nearly bouncing off each other on the Deschutes River through town seemed to be signaling a trend in the opposite direction of staying close to home.

New case highs raise concern 

            The emerging new virus statistics could be a warning sign with more and more tourists and vacation homeowners coming into the area, and what in many public locations seems to be a silent (thus far) political conflict based on mask wearing and adequate social distancing.

            Armed with rising infection statistics, Gov. Kate Brown extended the state’s emergency declaration for 60 days, as of July 1, as the Oregon Health Authority initiated indoor mask requirements for the public and businesses.
            On June 30, Deschutes County reported its highest daily number of new Covid 19 cases in the pandemic, followed by the state which also reached a new daily record July 1. 
            The potential danger was highlighted July 3 in a Facebook post marked URGENT in red by St. Charles Health Sytem and noting that noted Covid 19 hospitalizations had almost doubled in 24 hours. The post warned that "if our behavior doesn't change we will overwhelm our health system's capacitiy in coming weeks."           

           Bend state Rep. Cheri Helt (R) has supported mask requirements, prompting comments from those who typically refer to wearers as “snowflakes,” and “sheepies,” often backing up their arguments with claims the virus is nothing more than the flu, or pleading their constitutional rights or difficult to verify health conditions that prevent them from masking.

            On Friday, June 26, the OHA released new statistics and three possible scenarios that all hinged on potential continued increases in the state’s infection rate. The most optimistic possibility, the OHA forecast suggests, would be slightly under 200 new cases daily with the most dire being more than 5,000 a day by the middle of July.

            A more moderate assumption would be just over 900 cases a day, bringing the total potential state infections to slightly more than 38,000 in mid-July, even so nearly five times the 7,818 confirmed cases reported by June 26.

The crowds return to the Deschutes R.

            At a July 1 news conference, Oregon's leading infectious disease expert said the recent jump in cases means the state could be facing, "a worst case scenario," and called the trend, "ominous."
            Officials announced that Deschutes has joined Umatilla and Malheur counties as having the greatest increase in cases. Statewide, Gov. Brown raised the possibility that rollbacks in business operations and plans for schools in the Fall could be possible if the public response in wearing masks and other measures is inadequate. 

 Brokers adapt business routines

             Although considered an essential business, real estate sales will be subject to restrictions on social distancing and masks. Brokers have already been charged with limiting visits at open houses and frequently disinfecting properties. Many have worked mostly virtually by handling necessary document production and signings online, and communicating face to face on Zoom and similar platforms.

            Through the first five months of 2020, including the period from mid-March as Oregon began its Covid 19 shutdown, sales of Bend single family homes on less than an acre totaled 753 at a median closing price of $460,000. That represented a decline of 4.56% from the 789 closings in the same period of 2019, but a 2.22% increase over the five-month median price of $450,000 the previous year.

The battle over masking on FB

            A consistent trend for 2020 and previous years has been the lack of inventory, as calculated by a 12-month moving average of sales. The homes on the market at the end of May 2020 represented a two-month supply, which ranged from a low of only 1.4 months in March to two months over the current year. Inventory also held at only two months for all but May of 2019, when it rose to three months.

Looking for wide open spaces

            Some brokers have concluded that the inventory has remained lower in part as sellers sit on the sidelines to wait out progression of the Covid 19 effects, coupled with continued demand from some buyers who are ready to either relocate permanently out of urban areas, or to have a getaway in a less populated area.

            Realtors in the Flathead area of northwest Montana--with such marquee natural attractions as Glacier National Park, the Bob Marshal Wilderness and abundant lakes and rivers--reports a significant spike in out of state buyers seeking some elbow room, and who are not sensitive to local prices.

            In comments reported by the Whitefish, MT based Flathead Beacon, Wendy brown of the Northwest Montana Association of Realtors said two trends are emerging.

            “People are really sick and tired of living on top of each other in the big city, and number two, everybody’s figured out how to work from home...So that’s probably our biggest driving factor—some of the barriers that kept people from being here before are no longer barriers.”

            Statistics from the NWMAR show 2,115 sales closed in May of this year, up from 1,921 the same month of 2019 and a rise in median single family home prices to $335,000, from $319,000 the previous year in Flathead County, nestled along Glacier National Park’s western boundary. Anecdotally buyers are coming from California, Washington, Oregon and Texas, local brokers report.

            Bozeman, MT based Fay Ranches, a leading ranch and land broker, has observed in its regular newsletter than ranches and land offer ideal opportunities for social distancing in the era of a pandemic.

            “It seems everyone is asking ‘where do I want my family to be when the next crisis hits”? Many people are considering land, which has caused a surge in the market,” according to Grey Fay of Fay Ranches, in an interview with The Land Report editor Eric O’Keefe.

            “From coast to coast it appears more people are recognizing land as the great insulator,” Fay observed in the interview.

            “As one client mentioned, ‘social distancing has been an attractive component of land for centuries. Right now, being in a place where the distance from your neighbor is measured in miles and not feet, sounds pretty good. I also wouldn’t be cooped up in this house all day.” according to Fay. 

Rental markets face potential defaults

            Apart from overall trends in residential and ranch real estate, the effects of Covid 19 appear to be hitting hard the rental markets in major metropolitan areas.

            Nationally, a Pulse survey by the U. S. Census Bureau, concludes that 27% of renters believe they will be unable to make their July rent payments. Miami leads the list of potential rental defaults with 49% potentially unable to make July payments, followed by Houston, Atlanta, New York and Detroit with more than a third in that position.

            In the Northwest Seattle renters in danger of rental arrears are estimated at 18%, or approximately 208,000 renters among 1.1 million in the metro area including King, Snohomish and Pierce Counties. San Francisco’s troubled rent segment of 19% is similar to Seattle.

            Earlier reports from major cities have predicted that many businesses wracked by Covid 19 related economic challenges are negotiating for lease relief by landlords or withholding

            In May Seattle-based Starbucks—with nearly 9,000 stores globally-informed its landlords in a letter from Chief Operating Officer Roz Brewer that, “Effective June 1 and for at least a period of 12 consecutive months, Starbucks will require concessions to support modified operations and adjustments to lease terms and base rent structures.”