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.

           

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