Inflection Point? About face?.....Pivot?: Bend real estate market

             At the halfway point of calendar year 2025, and midway of Trump’s first year in office there appears to be no clearcut consensus as to direction of the economy or the various sectors such as real estate that it comprises.
            There is one widely accepted fact, however. TACO Don’s wild tariff swings are leaving a wake of uncertainty. The starts and stops are impeding investments in manufacturing, services and retail businesses, even though the stock market has rebounded from Trump’s tariff “Liberation Day” performance.
          Wall Street, or the investor class, now appears to have written off tariff worries--for now. But there’s still considerable concern on Main Street, which drives the economy with retail and services purchasing power. The upshot-- a nervous wait and see attitude.
        Barring an untenable spike in already high interest rates, will the great American dream of home ownership be more attractive as a refuge – a scramble to tangible asset safety? There’s no clear consensus.
        Pivotal to real estate is the direction of interest rates, against the backdrop of continuing tension between Trump and the Federal Reserve – specifically Chairman Jerome Powell, whose term expires under a year from now.
        In his trademark social media carping, Trump has been insulting and goading Powell to reduce interest rates. But the Fed chairman and the board majority prefer to hold the course given the potential effects of tariffs and other Trump policies to push inflation higher.
        Real estate markets, especially residential, have been struggling in many areas of the country. A Redfin report notes that 15% of national home sales contracts have failed. Central Oregon real estate has previously bucked national trends. But the region thus far has not been able to build itself out of high prices that challenge a large portion of the workforce to enter the housing market.
            One sign of a possible shift has emerged in Bend, by far the largest market segment in the region. From a marginally favorable sellers market for the past few months there are signs of a slight edge toward favoring potential buyers.
            But the caveat is whether any slight change – absent more favorable interest rates and a coherent administration tariff policy-- will benefit either buyers and sellers.
            In Bend, the largest regional submarket, the median price of a single family home on less than an acre was $724,500 for the 12 month period ending June 30. That was 1.90% lower than the $738,500 recorded over the previous 12 months of mid 2023 through mid-2024.
            Through June of this year the monthly median hit a high of $832,000 in April and a low of $700,000 in November and  December of 2024, and February this year.
            Of note, more than 24.66% of the total 1,610 sales for the 12 months closed at more than $1 million, including 84 at more than $1.8 million. Only 94 homes sold at less than $500,000.

            As outlined in the July Beacon Report by Beacon Appraisal Group, there was nearly five months inventory of homes available for sale, as calculated by averaging the previous 12 month sales compared to homes currently listed. That was the same as June and has risen from a low of 2.5 months in November and December of 2024.
            That level of homes listed in relation to past sales puts Bend on the edge, or by some interpretations, of  a shift from a sellers to buyers market. However, consistently high prices along with buyer and seller hesitancy given economic uncertainty could keep the market in more of a static situation than revealing a trending direction.
            In Redmond, the second largest regional market segment, the  rolling 12-month median price of a single family home on less than an acre was $518,500 or 1.57% higher than the $510,500 for the previous comparable period. Redmond inventory was lower than Bend, at three months, with 693 sales during the period and 166 listings at the end of June.
            There were only two sales at more than $1 million, with most clustered in the $400,000 to $600,000 range.
            Together, Bend and Redmond account for about 75% of all single family home sales on less than an acre in the seven submarkets tracked by the Beacon Report with data from the regional multiple listing service.
            Of the five other submarkets, Sisters and Sunriver held positions as the highest median priced areas of Central Oregon, with Sisters recording a median of $739,000 in June and Sunriver $897,000. Note that Sisters and Sunriver include Black Butte Ranch and Sunriver Resort, respectively.
            Median prices for June in the other three submarkets ranged from $360,000 in Jefferson County (Madras); $394,000 in LaPine and $417,000, Crook County (including Prineville).

Some indicators of a changing market

 Hints of an evolving market can be noted in anecdotal and on the street observation.
Open houses, once an oddity of the blistering Covid era market, now dot the Bend weekend landscape. 
            For Sale signs also remain in front of homes after the listings are no longer active on the multiple listing service, providing brokers an opportunity to reset the date for the number of days the home has been on the market. That also leaves the listing broker with an opportunity to interest a potential drive-by  buyer.
            Builders are also stepping up to energize sales. Some are offering interest rate “buydowns” and also credits for “upgrades” that would add thousands of dollars to the listing price.
            “We’re tired of these rates, and we know you are too. So we decided to take it down a notch!,” reads a recent email from a large Bend builder.
            The term “Price Reductions” on listing flyers and email blasts is now obsolete, in favor of more euphemistic terms like “New Price,” “Revised Price” or “Price Adjustment.”

 Multi-family housing:: Struggling From Oversupply

 Another indication of softening of the real estate environment is a glut of vacant apartments in Bend, coupled with more new ones flowing through the construction pipeline.
            A report by a leading Bend commercial brokerage estimated earlier this year that as many as 1,000 Bend and Redmond apartments were vacant, noting that another 1,000 were expected to come to market in the near future.

Facebook ads increase

            The City of Bend has aggressively pushed new multi-family developments, initially offering substantial tax breaks to a couple of projects south of the downtown area. The city then backtracked on breaks for subsequent projects, shifting to a tax increment financing strategy, rather than upfront break, to encourage building in the urban core.
             A major Los Angeles based developer has backed off plans to begin consruction of a 1,600 unit project, citing interest rates, high construction costs and a generally unfavorable multi-family market.
            The aggressive push for more apartments has run up against the reality of rents that have yet to adjust significantly to reflect area incomes. Vacancies in newer more upscale buildings have prompted incentives such as free months rent. And colorful balloons float above tent signs encouraging potential renters to take a tour.
            In single family neighborhoods rental signs that were largely absent only a few years ago now languish in front yards for weeks. One factor could be that single family home rentals were in demand for transient healthcare workers who enjoyed substantial six-figure incomes during the Covid shutdown.
            For investors in multi-family projects, capitalization rates – as calculated by net income in relation to listing prices – have started to rise. The higher the “cap rate,” the more attractive to a buyer, the lower better for the seller. And investors require cap rates closer to prevailing interest rates.
            Local commercial brokers say there may be a tipping point wherein apartment owners decide that more substantial resets of rental rates make more sense than leaving units vacant. Again, interest rates are a factor, especially for newer projects still carrying higher rates of recent years with possible balloon payments coming due and refinancing providing little cash flow relief.
            A turnaround in the multi-family market may have to wait until overall direction of the economy is more clear, allowing for loosening of interest rates and giving renters and their employers more confidence in the future.

Bend facing land use challenges...Residents restless for action

            “Hello Bend city government. Are you listening?”
            That is the admittedly tongue in cheek question that may be on the minds of many Bend residents as the city faces challenging issues of a growing homeless population and escalating housing costs while grasping for elusive solutions.
            This dilemma is recently illustrated with two projects under review by city planners, one a proposed mixed use development in a thus far all residential neighborhood, and the other to revise the code regulating controversial short term rentals, or STRs.
            In public comments on planning applications for both projects, the frustration of residents has boiled over.
            The milieu has revealed a culture in which city staff appears reticent to respond proactively to city code issues, unless having “direction,” from a council experiencing turnover in members and leadership.
            In the past year, the elected mayor and two city councilors have resigned, and the two recent council replacements have said they don’t intend to run for election in November.
            One current councilor is running for mayor against a former council member who is vowing to improve constituent communication by listening to the city’s network of volunteer neighborhood associations.
            A look at the proposed development on a lot zoned commercial convenience at the intersection of Mt. Washington Drive and NW Awbrey Road highlights a split between the council’s push for more multi-family and “middle housing,” and the character of an existing neighborhood.
            Maybe more significant, it shows how investors and developers are working to bend current development rules to fit a narrative of more needed housing density, while raising the alleged NIMBY (not in my backyard) and YIMBY (yes in my backyard) tension.
            In the past two years the project, dubbed Compass Corner, has been proposed, withdrawn, then put on hold twice -- most recently after a failure to comply with development code provisions was revealed.

The opposition to Compass Corner

            The latest delays came after more than 70% of the nearly 300 residents commenting on the project objected to it in some form—some urging that it not be considered at all, and others recommending substantial changes.
            The development team took their message to local media, resulting in one report that for and against comments were more evenly divided, and emphasizing the ostensible NIMBY – YIMBY rift over increasing housing density.
            But several detailed analyses by some of those commenting pointed city planning officials to a major flaw that had been used to justify an additional fourth floor. They argued that the ground floor lacked sufficient commercial area, that was instead taken up by substantial space for building systems such as heating, ventilation and air conditioning and the elevator shaft.
            The city planner then informed the development team of the problem, prompting a request to delay the application for slightly more than a month.
            Some observers have asked why the city had not recognized the problem earlier, perhaps saving many hours of time put in by the staff, the neighborhood association which tracked the proposal and even work of the development team.
            Instead of waiting to see what various plans the developers were proposing, couldn’t the city staff have guided the process with neighbors and the developer was a question asked.

Short Term Rentals due for code changes

            In another planning application process, city staff responded to a discussion by the city council which turned on potential ways the code provisions for short term rentals might be revised to encourage more long term rental housing.
            To that end the city STR program manager and staff conducted a survey of fewer 752 STR permit holders – under 70% of the more than 1,000. Only 44% responded. Out of that number of open ended responses, staff attempted to determine how many would consider renting long term.
            The key question asked:
            “What types of incentives would encourage you to rent to a long-term tenant (30 days or more)?
            A review of the scattered responses showed fewer than a dozen of the 300 answering that question mentioned removal of a requirement that there be a single STR rental within a 12 month period.
            Other responses cited the need for a subsidy to offset loss of higher revenue from STR rentals and changes in landlord-tenant laws regarding evicting problem tenants, among other measures that they would favor.
            Yet, with the scant comments related to removing the once in 12 months requirement, the city staff recommended a code change to accomplish that.
            A staff presentation to the Bend planning commission noted that the change would mesh with the city council’s objective to: “Reduce regulatory barriers for housing development, with an emphasis on incentivizing rent and price restricted affordable housing, middle income housing, and housing that serves vulnerable community members.”
            Another code change presented by the staff, at direction of the council, was to extend the required separation between STRs from 250 to 500 feet. In effect,  if a Type II “whole house” permit for unlimited nightly rentals were terminated, it could not be renewed if another existing Type II permit were within 500 feet.
            The planning commission went a step further and amended by a 3-2 vote September 12  for the proposed code to include any "Vacation Nightly Rental" in buffer calculation. These permits, issued before the current code effective date of April 15, 2015, were grandfathered and would not terminate if a property is sold.
            The STR section of the city development code emerged after complaints of noise, parking impacts and other problems with nightly rentals in several neighborhoods, as well as incursion of STRs into other newer and established areas of single family homes.
            A city staff presentation on the proposed code changes estimated that eligibility for new Type II STRs would be reduced from 54% of city housing areas to 34% with the new 500 foot buffer provision.

STR map if 500 ft buffer

            Written comments directed at the revisions were split between most full time residents in single family homes favoring the extended buffer as a way to reduce STRs. But owners of the  “whole house” night rentals were vigorously opposed.
            Among the objections, some STR owners pleaded that local real estate brokers had told them the value of a home with a permit could increase by $40,000 to $100,000 over comparable properties. The owners said their purchase was for an income producing investment that would be jeopardized if they decided to sell, noting the increased buffer could prevent the property’s continued use as an STR.
    Bend has been on the radar as attractive for nightly rental investors. In 2020 a Bay Area based website concluded that, "All in all, Bend is one of the best markets for Airbnb on the West Coast...a must-invest for out-of-state and Oregon Airbnb hosts."
            Objecting to the proposed code changes, a Los Angeles based STR investor wrote that...”…people like me really would appreciate our STRs staying eligible in the case of a sell—we have banked on it.”            Another out of town investor wrote he had, “….factored in the value an STR permit..” adds to property values.
            “Our realtor indicated that it can be upwards of $40k in desirable neighborhoods. We used this information when making our offer and knowingly paid over-asking because of this value boost for an STR-eligible property."
            Noting the code change would wipe out equity in his investment, the owner added:
            “Speaking for myself, this means we will need to hold onto our property longer than originally planned in order to make up for this lost money.”
            The idea of STR-permitted properties as lucrative investments was supported in code change comments by the political committee of the Central Oregon Association of Realtors.
            Voicing opposition to the extended 500 foot distance between STRs, the Realtors wrote that, “…the ability to periodically rent a home is an important, and increasingly common, criterion for home buyers within the City.”
           The Bend city council  will have a first reading and public hearing on the measures at an October 5 session.
            The following evening after the planning commission action, STRs were prominently on the agenda of the Neighborhood Leadership Alliance. It includes representatives of neighborhood associations throughout the city which are intended to act as sounding boards for government leaders.
            That discussion leaned to the modest effect the code change to reduce the once in 12 months nightly rental requirement would have on increasing long term rentals. Although the code presentation memo by staff cited city council goals to create workforce housing, the lead staff planner conceded that the change was not intended to improve housing affordability but could increase overall inventory.

Original STR Regulations Aimed to protect neighborhood integrity

             A city staff attorney at the Alliance meeting explained that the original STR code created in 2015 was not focused on housing affordability.
            Instead, “…the focus then was on neighborhoods, preserving the good things ….it was about neighborhood integrity, character, balancing all of these things. The regulatory structure was created around that.”
            With the STR buffer extension,the city predicts there will be fewer new Type II limited nightly rental permits as existing ones are terminated at the time of sale if there are others within 500 feet.
            But in the background are other two other issues of the STR code that many residents have urged the city to address.
            One is the so-called “transfer loophole.”
            As written in 2015, the code specifically states that STR permits “do not run with the land,” and therefore cannot be transferred. However, a so-called “transfer loophole” allows a property seller with a STR permit to void it, then apply on behalf of a buyer even before the sale closes.
            This is a frequent tactic that results in property buyers being enticed by real estate brokers with the prospect of acquiring a property with a permit.
            A number of comments regarding the newly proposed code changes urged the city to also look at closing the transfer loophole. This would further eliminate some STRs even if they were in locations at 500 feet or more from another at the time of sale.
            Critics of the existing STR provisions say the city should do more to thwart permit applicants from violating the covenants, conditions and restrictions, CCRs, of neighborhoods. But the city has repeatedly said it cannot interfere with “private contracts,” a position that most legal analysis supports.
            However, some have argued that a current stipulation that STR applicants acknowledge by signature they have read neighborhood CCRs should be strengthened to “affirm” a permit would not be a violation. Many CCRs prohibit rentals of fewer than 30 days in single family neighborhoods.
            Even so, a city attorney has said he would like to put more distance between the city and any relationship to CCRs by merely “suggesting” that an applicant read them.
            That position has been taken in the city planning staff responses to those commenting on both the Compass Corner apartment project off NW Awbrey Road and the proposed STR code changes.
            In effect, the only alternative is for either a Homeowners Association, or HOA, or lacking the latter, an individual property owner to take legal action to enforce the CCRs.

PREVIOUS POSTS ON SHORT TERM RENTALS

Tourism and neighborhood nightly rentals: Bend struggles with the issues

 Get out those CCRs- renewed focus on short term rentals and multi-family units

New density rules open divisions in single family neighborhoods

            UPDATE: As of February 18 Bend city planners say there is no longer an active application for development of the Compass Corner site. More details in the future.

          Proposed projects at different points on Bend’s Awbrey Butte are focusing a debate over affordable housing, the impacts of high density and multi-family units in traditional single family neighborhoods--and related new city development code provisions.
            Comments by residents regarding proposals by separate developers for the West View project on Glassow Drive on the west side of the butte and Compass Corner on the northeast side both emphasize that the scale and traffic impacts would be detrimental to existing neighborhoods.
            However, both proposed projects appear to fit an emerging city strategy to encourage more multi-family and higher density housing in neighborhoods otherwise zoned RS, for standard single family homes.
            Latest versions of the city code follow Oregon’s new statute, House Bill 2001, intended to force higher density in single family neighborhoods, with the objective of easing the crunch of escalating housing costs beyond affordability levels for many families.
            Among new code provisions is the potential to build up to a quadraplex on a lot of at least 4,000 square feet in a typical neighborhood of single family homes. The code would also downsize current requirements for off street parking.
            As the provisions take effect, homeowners in some neighborhoods have begun to review requirements in their covenants, conditions, and restrictions, or CCRs, that stipulate what type of housing can be built. In theory, CCRs restricting construction to only a single family home would supersede the city code, but legal action might be required to enforce the CCRs.
            One of the two Awbrey Butte projects gaining much attention is Compass Corner, proposed as a mixed use development for as many as 63 studio, 1 and 2 bedroom apartments, up to four floors including retail space. Parking would be above and below ground on the 1.02 acre site overlooking Mt. Washington Boulevard and bordered by Awbrey Road

Compass Corner concept plan

NW.
            County records show the site is owned by Hotel Management LLC, with a registered agent at the same address as that for owners of the recently opened My Space hotel off Bond Street above the Old Mill District. The registered agent is Sueng Lee, at the same address, while LLC members and addresses on the Oregon business registry include Michael Chun of Bend; Anthony Kim of Federal Way, WA; and Shilla Yi of Tacoma, WA.
             In a January online presentation, representatives of the development team fielded comments from area residents who complained the several story buildings were out of scale for the neighborhood, would create traffic hazards and result in parking spilling onto narrow streets.
            Some commented online that neighbors should hire an attorney to oppose the project, as was done by owners in the Rivers Edge community who appear to have prevented the golf course there from being developed for housing. (links to Rivers Edge

Homeowners play a good round at Rivers Edge course

Trading golf for homes: Rivers Edge proposal raises future housng issues

             The project vision appears to have expanded considerably since the city posted a “pre-application meeting summary” of the proposal in February of 2021. That document noted a project to include 35,000 square feet of apartments and 5,000 square feet commercial, up to four stories with surface parking.
            Now in the proposal under consideration by the city as of November 2021, Compass Corner would include 63 apartments in two buildings with up to 10,000 square feet of commercial space. The two buildings would total more than 57,000 square feet along with underground and surface parking. 
             A little over two miles on the other side of Awbrey Butte some neighbors are mobilizing with yard signs to oppose the 6.5 acre West Hill Development that would include 42 units of townhomes, duplexes, triplexes, and quadraplexes on 29 lots. It could also result in removal of more than 700 trees.

West Hill on Glassow overview

            In a guest column in the Bend Bulletin, one resident wrote that,” The objection is not over development per se...The concern is over the scale of the project and the lack of fit with the surrounding neighborhoods, physical environment and supporting infrastructure.”
            Taking a stance more favorable to the project, another writer responding in a column that,  “To complain about housing in your neighborhood (and mine) that does basically the same things that the building of your home did is peak entitlement. Being against the development because it doesn’t exactly mirror what is currently there, despite the law allowing such development, only compounds the cost of building and the shortage of housing.”
            Principals of the West View project are members of Oregon Builders Developers LLC Glenn Kotara and Mark Huffman, both who have Bend mailing addresses.
            By mid-January of 2021, neither Compass Corner nor West View had come before the city planning commission for review, which would be a step before going to the Bend city council.
            With Compass Corner a conditional use permit allowing an exception to maximum size on the site would be required. And it’s possible the issues swirling around both projects could result in both being considered by a hearing officer after public sessions.
            Although not yet in the development planning stage, another site in the same Awbrey Butte area of Compass Corner could also become part of the density discussion.
            At the northeast corner of NW Sonora and Awbrey Road are two lots, one of  0.20 acre and another of 0.14 acre which were listed in January, and became pending sales in 24 days,  as potential sites for duplexes on each property. The site is at the southern intersection of the neighborhood served by streets linking to Compass Corner and abuts an often busy roundabout at a sloped point on Awbrey Road.

Looking back and ahead: Will home prices slow?

             Welcome to 2022. And maybe fasten your seatbelt.
            Inflation and CPI up, but GDP also up, interest rates on the rise – maybe with several Fed Reserve moves, midterm elections on the horizon and Covid still hanging around.
            What could go wrong with this bubbling stew of issues?
            And how does this all affect the macro and micro view of real estate, including down to ground level here in Bend and Central Oregon?
            First, let’s take a look at how 2021 rolled to an end, with a focus on Bend as the largest submarket segment in the region.
            As compiled for the Beacon Report by Beacon Appraisal, 2021 sales of single family homes on less than an acre in the greater Bend submarket totaled 2,480, down 3.61% from the comparable 12 months of 2020. Beacon’s numbers are based on data from the MLS of Central Oregon.
            Median prices for homes on less than an acre sold at a median price of $675,000 in December. On a rolling 12 months the median price was $642,500, or 30% more than the $496,000 in the comparable period of 2020.
            The largest number of sales, 45% or 1,107 homes, were in the $450,000 to $650,000 range, while only 51 homes sold at less than $400,000 and 176 under $450,000.
            A continuing trend has been the upward movement of sales at $1 million or more, with 405 in that range during 2021.
            Another repeated metric in the Bend market is tight inventory of only 74 homes for sale at year-end, which translates to only a 0.40 month supply based on the average of the past 12 monthly sales.
            In Redmond, the region’s second largest submarket, 2021 sales totaled 1,071, a slight increase over the 1,056 sales in 2020. The 30 homes on the market as of year-end mirrored Bend’s inventory of only 0.40 monts.

Redmond prices up 27%

            Redmond’s median price for December 2021 was $375,000 with the median for the rolling 12 months at $446,500, 27% higher than $351,000 for the same period of 2020.
More than 56% of sales, or 605 homes, were in the $300,000 to $400,000 range, evidence that Redmond continues to be a more affordable choice in the top two regional submarkets.
            Across the other five small submarkets single family homes sold on under an acre totaled 1,121 in 2021, with most sales, in Crook County (incoluding Prineville) at 340 sales and the next highest number, 230, in  in the Jefferson County (Madras) and Crooked River Ranch combined.
            Inventory in those areas ranged from lows of only 0.25 months supply in Sisters and Sunriver at year-end to three months in LaPine.

            The Beacon Report only tabulates quarterly median sales for the smaller submarkets. The most expensive submarkets were Sunriver and Sisters.  Monthly sales over the four quarters ranged upward each quarter from $794,000 to $865,000 in Sunriver and, in Sisters, from $479,000 to $645,000.  Of the other areas, LaPine prices were highest at $391,000 for the 4^th Quarter.
            As for where to in 2022, it’s doubtful that there will be a major influx of homes coming to market to move inventory from the current sellers market to a level of 4 to 6 months that signal a more balanced “normal” market.
            The uncertainty over interest rates, with the Federal Reserve signaling perhaps several rate increases, could dampen demand. And if Covid reaches a peak, begins to decline substantially and there are no severe new variants the rush to resettle out of major urban areas could taper.
            Moreover, though, as the customary mantra goes, Bend and Central Oregon will continue to be attractive for lifestyle values, retirement amenities and as a haven for remote working.
            Whether prices can continue to rise at rates of 25% to 30% annually could be the most important question for 2022. It’s doubtful.

Whoopee !!! : A small but welcome inventory rise

             It’s not exactly a seismic market shift. In fact, looking at a chart it might take a magnifying glass to detect any movement.
            Yet, in a Bend and Central Oregon real estate environment, where most change has been steadily rising housing prices, even the slight shift to more homes available for sale was notable.
            Until the numbers for July were tabulated, actively listed homes in Bend had been stuck at inventory levels of 0.2 to 0.3 fractions of a month. Then, according the Beacon Report, by Beacon Appraisal, inventory ticked up to an entire month, the first time at that level since July of 2020 as the pandemic unrest infected and spread across the housing industry.
            From the end of July 2020 the inventory dropped steadily to a low of only 0.3 months in December and January, 0.4 months in February, then has stumbled up the availability chart to July of this year.

Source: Beacon Appraisal from MLS of Central Oregon database

             The monthly median price for 246 Bend home sales in July was $650,000, up from the 247 sales at a median of $640,000 the previous months.
            One metric that bears watching is the continuing growth of listings at more than $1 million. As of month-end July there were 58 listings agove the arbitrary “luxury” benchmark, comprising more than 26% of the total 221 listings. Another 17 homes were listed agove $900,000.
            But a few random checks of high-end listings in Bend’s more expensive west side of the Deschutes River shows, albeit anecodotally, that sellers and listing agents may be responding to a cooling of the superheated buying binge that Bend and elswhere have experienced.
            As one example, the price of a West Hills home initially listed at $1.3 million on July 12 was dropped $130,000 to $1.170 million less than a month later on August 10.
            Another home in the Heights of Bend neighborhood on the east side of Awbrey Butte was initially listed at $929,000 June 11 and went to a pending sale June 27. However, the sale did not go through and the property came back on the market July 7 at $929,000, $20,000 below the original price.
            Among a number of factors facing the Bend market, and others nationally, is concern over a resurgence of the pandemic, which could have a contrary effect on real estate unlike the generally recognized stimulus the virus provided in the past 18 or more months. What was a buying frenzy may now have been braked by prices having reached perhaps unsustainable levels that outstrip buyer financial capability or interest.
            More veteran market observers recall a smaller boom that occurred after 9-11, 2001, terrorist attacks spurred buying outside more populated areas. That effect was boosted in large part by easy lending standards that eventually contributed to loan defaults and what has been termed, “The Great Recession,” of the early decade of the new century.
            This time around real estate has been intertwined with a continued economic recovery that has run with few interruptions for over a decade, accompanied by low unemployment, robust corporate earnings and a long bull run of the stock market.

           

Where to now: Interest rates, inflation and the housing market?

             As the housing market explodes with demand and tight inventory, the natural question arises of whether this is another housing bubble like the one that popped in the “Great Recession.”
            Some of the supply and demand factors are similar although inventory during the earlier pre-recession pricing boom generally remained higher than today in most areas of the country, including Bend and the rest of Central Oregon.
            Another key difference is that lax lending standards have largely disappeared with many buyers in today’s market coming in with all cash or solid loan prequalifications.
            Interest rates may be playing a larger role in today’s housing trends than in the previous boom and bust cycle.
            In the runup to the 2008 housing market peak and collapse, 30-year fixed rate mortgage interest rates averaged 6.34% in 2007 and 6.03% in 2008 according to charts of the federal FreddieMac database. Over the decade ending in 2020 rates fluctuated in a range from mid to higher 3% to 4%.
            As of May 13 this year the Bankrate benchmark survey of the nation’s largest mortgage lenders showed the 30-year fixed mortgage rate at 3.050% with an APR of 3.270%
            On May  12 the Dow Jones Industrial Average fell more than 600 points and the S&P 500 Index dropped a proportionate percentage, before rebounding to recover about two-thirds of the losses by the next day’s market close.
            Much of the drop was attributed to a rise of 0.8% in the April Consumer Price Index, the most in a single reporting period for more than a decade and 4.2% above April 2020. That raised concerns of rising inflation with government stimulus spending and a recovering economy. There’s apprehension this could in turn force the Federal Reserve to back away from its prolonged pattern of “quantitative easing,” or lower interest rates.
            However, barring a major shift in the Fed policy it doesn’t appear likely that gradual increases to tweak inflation fears would significantly blunt the continuing demand for housing. One analysis is that the largest segment of the CPI price increases was used cars and trucks, spurred by computer chip scarcity holding back new car sales.
            Another factor, the thinking goes, is that the dramatic upswing in new housing prices is-- besides pandemic demand--also due to pandemic related timber harvest and mill operation reductions pushing lumber prices to new levels.
            A local and regional snapshot is available from statistics provided by Beacon Appraisal, and derived from the MLS of Central Oregon database.

            At the March 31 end of the first quarter of 2021, only 61 single family homes on less than an acre were listed in all of Bend and outlying areas of Tumalo to the north and Alfalfa on the eastern edge. That translates to less than 0.30 months inventory.
            Another way of parsing the inventory is to translate the low inventory of listings to the pace of sales as determined by the time a home is on the market. Consider that most homes in the Bend area have gone from listing to pending sales in barely four days for the past four months.
            At the end of the Q1 2021, the median price for a single family home on less than an acre in Bend that sold in March was $590,000, more than 28% higher than the same month of 2021.
            For the period from March of 2018 through May of 2020 monthly median prices had held in a range from a low of $415,000 in May of 2018 to a high of $475,000 in August of 2019.
            Then came what might be logically called the “pandemic inflection point,” as the May 2020 median price of $445,000 jumped to $529,000 the next month, hit $560,000 in October, dipped to $524,000 in December and rose to $580,000 in January this year.
            When calculated over a 12-month period ending in March, the median price was $535,000, an increase of 16% over the $460,000 median for the 12-months ending in March of 2020. A comparison of median prices for the first quarters of 2020 and 2021 shows a 26% increase from $460,000 to $580,000.

            For April this year the Bend median hit $590,000 according to statistics in the Beacon Appraisal report. In emailed comments, Beacon’s Donnie Montagner noted that 40 of the 236 Bend sales in April closed at $1 million or higher, or 17% of the total. That compared with April 2020 with only 10 sales over $1 million out of 146 closings, or 7%.
            “After reviewing the data several times, I noticed the median was heavily influenced by the number of sales in the 1Mill+range, which had increased significantly," Montagner wrote.
            Nevertheless, he explained, “While sales in the (million plus) range have an impact on the median, the overall SFR (single family residential) price trend in Bend is significantly trending upwards when compared to the past several years.”
            The housing demand has veteran brokers competing for scant inventory. After capturing a listing the frenzy usually begins with multiple offers, often above the listed price. That in turn has given rise to “offer review days,” often only several days after a home is posted on the MLS. In many cases those offers are in hand even before the listing is known to the general public.
            More  often than not the offers are all cash, with no financing contingency. And even with the financing contingency the offer will likely have to substantially top others to even be in the running.
            Another trend has been a decrease in contingencies for inspections – with some buyers willing to take the risk that a problem may require additional investment, rather than be left in the cold in a hot market.
            Driving the housing market for at least the near-term could the delicate balance of consumer response to current low interest rates against potential higher rates resulting from rising inflation—along with uncertainty over the choppy economy as it emerges from a tough stretch.