A mostly static market: But million dollar sales on rise

             With more than half of 2023 behind us the Bend real estate market trends appear to be tracking much the same as with the past few years --- from the pandemic boom and the ensuing spillover in 2023 and 2022.
            But listing prices are often being adjusted downward– rarely the case in the recently overheated market. Open houses have also proliferated, when before many single family homes would hit the MLS of Central Oregon as pending sales within days of a listing
agreement.
            Other key markers in the August report by Beacon Appraisal based on MLS statistics:

 

·         Inventory as calculated by averaging sales of the previous 12 months continues in a tight range of about two months.

·         Median single family home prices on a specific monthly basis continued to hit new highs in June, $785,000,  and July, $800,000, after falling to $660,000 in February from a high of $773,000 in February of 2022.

·         Even with a new monthly high price, on a rolling 12-month basis the median closing price at the end of July was $690,500, down $12,000 or 1.71%, from the previous 2021-2022 period.

            As widely reported across the country, prices in traditionally more heated markets have continued to hold well above pre-pandemic levels, with some moderate downward adjustments as noted in Bend.
            The overarching factor, the consensus appears, is continued high interest rates reaching 7% for a 30-year mortgage. Existing owners are reluctant to sell when they may have loans of 4% or less, thereby squeezing inventory while new homebuilding has not kept up with demand.
            When existing owners do sell, they’re holding years of built-up equity and may push prices higher with the extra cash when they buy another home.

            One trend noted in the Beacon Appraisal report is a rise in Bend sales above $1 millon--46 of the total 141 sales, or about 32% in July. And inventory at the $1 million plus level was only two months. For the 12 months including August of 2022 through July 2023 there were 381 of  a total 1,705 sales above $1 million, or more than 22%.
            However, the report said inventory for sales in the $1.6 to $1.8 million range stood at five months, and above that price level at six months.
            A report by First American Title Company provides another snapshot of the Bend market. As of August 16, the FATC Market Action Index categories Bend as a “slight seller’s market.”

            “In the last few weeks themarket has achieved a relative stasis point in terms of sales to inventory. However, inventory is sufficiently low to keep us in the Seller’s Market zone so watch changes in the MAI. If the market heats up, prices are likely to resume an upward climb,” the report concludes.
            In Redmond, Central Orgon’s second largest housing market, the Beacon report shows a median price increase from June to July from $473,000 to $500,000, but below the $542,000 monthly peak in August of 2022.
            On a rolling 12 months through July the median as $470,500, down $21,000 or 4.27% from the same period of 2021- 2022.
            Overall Redmond inventory, as in Bend, was approximately two weeks but jumped to seven months in the $600,000 to $700,000 category and six months in the $550,000 to $600,000 range, Beacon reported.

Bend home price rise slows; Sales dropping but inventory remains tight

            A quick glance at Bend’s residential real estate market appears to show more of the same in terms of tight inventory and gradually increasing sales activity entering the traditional Spring sales cycle.
            But at the end of March the once superheated 12-month rolling median price increase of single family homes sold on less than an acre has slowed remarkably compared with the same period of 2021 to 2022. The new numbers come from the April report of Beacon Appraisal, based on MLS of Central Oregon data.
            The median price of sales ending March 31 of this year was $706,500, up 8.61% from the $650,500 for the 12 months ending March 31, 2022. However that rise was dramatically below the leap from the previous 12-month period  when the median rose by 21.59%, or $100,500 from $535,000.

            Most national, regonal and local market observers say pandemic-fueled housing price increases that began in 2020 appear to be abating. The question, though, is the extent to which markets may return to more normal price appreciation.
            The fact remains that in Bend, and many areas of the country, prices are beyond the reach of many families in the workforce.
            The key component for direction into the rest of 2023 and beyond will be interest rates for the mid to lower market price sectors, affecting not only first-time and move-up buyers but also builders relying on the commercial lending environment.
            For the first three months of 2023 inventory of single family homes on less than an acre remained steady at only a single month, dropping from a high of 2.06 months in July of 2022 and down from 1.5 months in December of last year. There were 1,890 sales in the past 12 months, 613 fewer – or 24.49% down – from the 2,503 for the same period ending in March of 2022.
            In Redmond, Central Oregon’s second largest home market, the 12 month median sale price was $491,500, $41,500 more than the same period from 2021 to 2022 – a 9.22% increase. That was below the 23.80% jump during the 12 months in 2020 to 2021.
            There were 693 sales in the 12 months ending March 31, 2023, a significant drop of 54% from the 1,506 single family sales in the 12 months ending March 31, 2022.
            The 93 Redmond listings at the end of March translated to an inventory of 1.6 months, still considered a seller’s market – although slightly less constricted that the supply of available homes in Bend.

A Tax on Activity That Creates the Problem: The Real Estate Transfer Tax

            Note: The following commentary first appeared as a guest column in the Bend Bulletin.
              Housing affordability for working families is near the top of 2023 agendas for Bend and other Oregon cities that have experienced rapidly appreciated home prices.
            How to address the challenge, wherein a free market sets prices, will require cooperation by government, nonprofit and private sectors – all of which will benefit from strategies to improve livability of a community.
            In Oregon, one of the most effective and least burdensome methods that could help fund affordable housing is—for now-- not possible. It’s called an excise tax in some states, a transfer tax in others.  Significantly, the tax can draw revenue indexed to inflated housing prices that have created the affordability problem, in turn serving to mitigate it.
            In Oregon a state law specifically prohibits a tax on the sale of real property unless it was enacted prior to March 31, 1997. Only Washington County, with a tax of 0.10% of closing prices, was grandfathered under that legislation.
           Oregon is one of 14 states that don’t tax the sale of real estate, according to the recent data from the Lincoln Intitute. https://tinyurl.com/2omsj9j9
           Even though state law already prohibited a transfer tax, Measure 79 passed by voters in 2012 by an approximately 59 to 41 percent vote embedded the prohibition in the state constitution.
           According to campaign reports, by December of 2011, a year before the vote, substantial funding to support the measure had come from from the National Association of Realtors, which reportedly gave $735,000 and the Oregon Association of Realtors, $332,140.
           At a recent Bend Neighborhood Leadership Alliance meeting, board members heard Bend housing director Lynne McConnell note two of the major challenges for creating more affordable housing in the city – money and available land.
            A board member raised the question of why a transfer tax, or another measure could not be implemented to create funds for affordable housing.
            To that issue, at the meeting assistant city attorney Ian Leitheiser explained state law and the constitutional barrier to a transfer tax.
           In Leitheiser’s words, there is, “…a large well-equipped industry or two with powerful lobbyists in the state that will squawk pretty loudly when people start talking about transferring their bread and butter of selling real property.”
            Given that the rolling median price of a Bend single family home sold in 2022 was $723,500 it’s unlikely that a transfer tax rate similar to Washington County’s 0.10%, or $723.50 in this case, would significantly impede real estate sales.
            The tax could be paid by either buyer or seller, or shared between them. Sales subject to the tax could also be tiered to reduce impact in lower price ranges.
           The MLS of Central Oregon database shows 2022 sales in Bend of single family homes on less than an acre $1,908,095,782. A modest transfer tax of 0.10% would have yielded $1,908,096. The sales do not include single family homes on more than an acre, townhomes and condos or undeveloped lots.
           A local option tax for cities and counties would allow them to target strategies for their specific needs. Provisions could require that the tax sunset or have to be reauthorized after a defined period. Proceeds not deployed could be returned to a housing trust fund and redistributed to qualified projects, maybe to reduce infrastructure costs for new construction.
            Funds might also be used with other sources to provide transitional shelter opportunities for homeless populations.
           A ballot initiative to repeal the Measure 79 constitutional roadblock to a transfer tax would be a step in the right direction, while concurrently repealing the related 1990s legislation. Perhaps the industry groups that backed the transfer tax ban could come together to support its demise.
            The financial impact on home buyers and sellers, and real estate and building industries, would be minimal. The benefits for more affordable housing could be substantial.
-by Lee Hicks

 

Bend and regional housing: Static early 2023 with many issues in play

             “Stasis” and “rebalancing” are a couple of terms now used to describe the Bend and Central Oregon housing market at the conclusion of 2022.
            And any major movement up or down will likely depend on the same factors that economists, the Federal Reserve, the Biden administration and politicians continue to assess and debate – inflation, a possible recession, interest rates amid an overarching and divided political landscape.
            The monthy median price for a Bend single family home on less than an acre in December of 2022, was $678,000, compared to $675,000 the same month of 2021 and the peak monthly median for the year reached $773,000 in March.
            The numbers are derived from The Beacon Report, compiled by Beacon Appraisal Group with data from the MLS of Central Oregon database.
            For the entire 12 months ending in December the rolling median sale price was $723,500, 13% above the $642,500 for the same period of 2021.
            Bend single family home sales for the 12 months of last year dropped to 2023, a more than 17% drop, or 457 sales, from the 2,480 reported for all of 2021.
            Inventory at the end of December was 1.5 months, calculated by averaging sales the previous 12 months and dividing into the currently active listings of 226 homes. Notably, at the end of 2021 there were only 74 current listings, a scant 0.4 month supply. A more stable buyer-seller balanced market is considered to be four to six months, technically meaning Bend is still a seller’s market.

2022 by the numbers

      

    But seller’s appear to be sitting on the sideline for a number of reasons. High interest rates would mean many buyers would face higher payments if they buy another home; prices have been leveling in Bend, leading some sellers to hope for a return to the escalating appreciation of previous years. And buyers may also be waiting for an improvement in inflation trends and interest rates.

 

The R word and political direction enter the discussion

            Add into the mix the possibility of a recession, uncertainty of political direction following recent elections and a presidential vote looming in 2024; and a tough year for stocks and retirement accounts. Waiting out the housing market may have considerable appeal.
            Days on market, a marker of demand rose to 30 days, the highest level since April of 2020, when the tabulation of that indicator was revised to reflect the days from the listing date to an accepted offer, rather than a closed sale.
            For much of 2020, 2021 and 2022 the DOMs were in single digits before rising steadily to double digits from July of this year– with the exception of a blip down from October to November.
            One of the more notable signals of a softening market for new single family homes is a steady drop in building permits, which ended 2022 at the lowest level in four years. In April of 2021 a four year high of 90 permits was recorded, dropping to 29 in December of 2021, then rising to 87 in March of 2022, before plummeting since August to only 16 permits issued in December.
            As in 2021, the four highest sale price ranges of 2022, in categories of $50,000, were from $450,000 to $650,000. Another trend continued with the number of $1 million plus sales rising from 15.74% of 2021 sales to 19.67% in 2022, indicating some strength in the more upscale categories.
            Going north 18 miles to Redmond, 2022 closed in December with monthly median single family prices at $425.000, below the $467,000 the same month of 2021 and substantially off the $538,000 reached in April this year.
            On a rolling 12 month basis, the 2022 Redmond median price was $512,000, a rise of 15% from the $446,500 for the same period of 2021 – slightly more than the 13% Bend increase.
            Most Redmond sales were clustered in the $400,000 to $600,000 range with only two sales at more than $1 million. Redmond also had more than 100 sales in the lower $300,000 to $400,000 range, with only 70 in Bend.
            Redmond’s total sales dropped from 1,071 in 2021 to 782 in 2022, while the number of listings at year end rose to 112 from 37 the previous year. Based on the average monthly sales Redmond’s inventory stood at 1.5 months, compared to 0.4 months at the end of 2021.
            It’s likely that Redmond’s market experiences some of the same factors as Bend, in the lack of inventory along with seller and buyer hesitation – by choice and/or necessity – due to background economic factors.
            Together, Bend and Redmond account for 75% of the Central Oregon housing market, with a total of 3,094 of the 4,215 sales across the region.

A regional homebuilder see's "rebalancing" in 2023

           In a recent blog post, Pahlisch Homes, the top middle to lower luxury homebuilder in the region, called the current market in a “much needed rebalancing” stage, citing inflation, recession fears and higher interest rates as slowing activity.

Interest rates since 1971

            But the company said optimistically, “…there are plenty of reasons to believe that the housing market will come out strong on the other side.”
            One statistic on the positive side, the company post noted, is that interest rates remain below the 7.76% fixed rate 30-year average from April of 1971 to December of 2022. As of January 5, Freddie Mac reported an average rate of 6.48%.
            Pahlisch's  point is well-taken. But consumers had become conditioned to historically low rates the past two years, even half of the current rate. Changing perceptions takes time.
            First American Title’s weekly market activity indicator continued to rank the Bend housing as in “stasis” as of January 10.  The national title company observed that prices have not moved upward for several weeks, but homes listed for sale are “sufficiently low to keep us in the Seller’s Market zone..”
          Another potentially more dire concern that could upend all economic sectors– housing, retailing, stocks and other investments – could be a battle over raising the nation’s debt ceiling. This is often a contentious issue, pitting Republicans and Democrats in brinkmanship negotiations that are often resolved at the last minute with long-term solutions kicked down the road.
            Now, with “burn it down” factions holding sway in the new Republican House majority, raising the ceiling could be even more difficult.
            As a financial report from Axios Macro put it:
            “A self-inflicted fiscal crisis could come at a terrible time amid a fragile U. S. economy, and undermine a Treasury market that underpins the world financial system.
            In that case, it’s unlikely that housing in Bend or anywhere else in the country would be insulated against the prevailing economic climate.

A market in flux. Looking for the inflection point and direction

             A widely followed report on the Bend and Central Oregon real estate market through the 12 months ending October 31 is out.
            And…drum roll…parsing the statistics leads to no observable dramatic changes, albeit there are signs that sales could be reflecting uncertainty over such factors as rising mortgage rates, tenacious but wavering inflation and possibly a recession on the horizon--or maybe not.
            All told, Bend’s market appears to be faring better than elsewhere in the country including the marjor metro centers of the Northwest, where pricing and sales volumes are beginning to mirror the overarching macro economic challenges. But Central Oregon real estate went south, and fell deeper and later than other areas in the last recession.
            It may be time to hang on and hold your breath.
            In the new report from Beacon Appraisal Group, the median price of a Bend single family home on less than an acre that sold in October was $680,000, the first time since January that the price dropped below $700,000 and a 6.2% drop from the month before. The high monthly number for the year was $773,000 in March.
            Beacon’s statistics are based on the MLS of Central Oregon database.
            On a rolling median for the past 12 months, the median sold price was $723,500 – 15% ahead of the $631,500 for the same months from 2020 to 2021.
            In the past 12 months there were a total of 2,177 sales, while at the end of October 327 homes were listed on the MLS of Central Oregon. Averaging the 12 months of sales over the period translates to approximately a two-month inventory of homes on the market.
            A more balanced market is considered four to six months supply, but the October inventory still represents double available listings compared to the same month of 2021, and substantially above the paultry 0.3 months in January of 2022.

              In Redmond, the second largest regional sub-market, the October median price dropped to $478,000 -  down 9% from $525,000 in September. The 12 months rolling median was 21% above the same months from 2020 through October 2021.
            Redmond’s inventory mirrored Bend, at two months, based on 842 sales for the past 12 months and 135 active listings at the end of October.
            Some indications of current market conditions locally and nationally:
            -Many economists warn that a recession is coming in 2023, but don’t agree how severe it could be. Others are not so sure and the White House says if one is on the horizon it would be mild.
            -Mortgage rates for for conventional 30 year terms are now locked firmly above 7% or higher. That’s the highest in two decades and eclipses the annual average of only 2.96% in 2021. There are signs the Federal Reserve will hike again before year-end but perhaps not the 75 basis points that’s been the norm this year.
            -The last year the annual rate average topped 7% was 2000, when it was 8.05%, still substantially below the monstrous 16.63% in 1981.

First Amerian Title Bend report

            -Accelerating rates have created turmoil in the mortgage bond market. Real estate investment trusts (REITS) that are highly leveraged are facing margin calls depleting their cash reserves, as the Fed and major banks leave the market and thereby shrink demand.
            -Homebuilders are scrambling to adjust production to meet already sagging demand from interest rate and inflation factors. New home prices in Bend are regularly “adjusted” downward and those under construction might raise the prospect of heading to the rental market until prices stabilize.
            -The two major national residential listing and database services, Zillow and Redfin, are now highlighting through email pushes the continued price drops in the Bend market and larger ones such as Seattle and Portland.
            -Both Zillow and Redfin have pulled back from their “home flip” strategies to buy homes directly from owners for cash, fix them up and sell at a profit. For Zillow the program drained a reported $800 million plus from company coffers. But that debacle hasn’t stopped copycat companies in Europe from testing the strategy.
            -Broker open houses – nearly absent in the overheated market – are back in the marketing toolbox, sometimes over entire weekends and during the week for the same properties. The “This one won’t last, act quickly” mindset and multiple offers has faded with sellers offering to cover buyer closing costs, and other incentives.
            -Locally, the Deschutes County Planning Department reported that permitting activity outside the Bend city limits through September of 2022 declined on a calendar year basis, with a drop of 32.7% in applications for single family homes.
            Where to from here?
            The current market fluctuations and uncertainty are likely contributing to both buyer and seller indecision.
            Homeowners already in place with low mortgage rates are more inclined to stay put and wait out market direction, perhaps willing to absorb some decline in prices until the future is more clear.
            In turn this further constricts inventory and props up prices, making purchases by prospective buyers facing high interest rates even less accessible.
            Although prices in many areas of the country, and in Bend and Central Oregon, are falling, with the substantial runup in value over the past two years it’s an open question when we’ll see a market more in balance.
            The question is what inflection point in a mix of various factors will reveal a guide to the future?