How does an increase in the median home price affect the local real estate market?
Median price is a worthwhile metric to look at over a span of time, but that’s really about the extent of its usefulness. While it makes for interesting headlines each month, the reality is that median home price isn’t the greatest datapoint to measure the health of the real estate economy on a micro or month-to-month basis. Over at least several months—if not years—the median home price becomes an interesting metric relative to other time periods. Otherwise, it’s just the mid-point of all the recent sales.
For example, if the median home price is $600,000 one month and it’s $675,000 the next, it will certainly raise some eyebrows, but it’s important to step back and consider that it’s really just the median price of all home sales that month. And, if a greater number of more expensive homes sell in the second month—like they did this February—it’s no surprise that the median home price goes up. It most certainly does not translate to your home that was worth $600,000 two months ago now being worth $675,000—that’s a fallacy.
Nevertheless, if we look at median price over a span of time, especially the ten-year span we cover in our annual market study, it certainly points to an overall increase in property values in Bend. And, as those values creep up—or skyrocket up as they recently have—it adversely affects what people can buy, with some being priced out of the local market altogether.
Although it’s certainly encouraging as a homeowner to see your investment value appreciate at a high rate, it’s healthiest for our entire community if the trend isn’t on an intergalactic trajectory. Hopefully, we’ll see some of that balance restored in the next couple of years. I think that will happen, and with a higher probability than a recession or value retraction.
I’ve lived in Bend for a long time and am tempted to list my home while the median home price is at an all-time high. What should I know?
I would first ask what the full scope of your objectives are. If you plan to stay in Bend and merely want to capitalize on the equity in your home, I’d be worried that you might be making a mistake. However, if you have other considerations, with my guidance, you can make a well-informed, deliberate decision that will set you up for success—success beyond merely cashing in your equity through a sale.
Why is pricing strategy important, even in a market with high demand and high value?
Because at the wrong price, the property won’t sell. Oftentimes, a home priced incorrectly won’t even receive an offer, and without an offer, there’s no opportunity to negotiate, and certainly, no sale.
What time of year should I list my home?
Soon. Based on our annual data since 2012, homes listed in the first few months of the year tend to sell on time for the asking price. That said, like so many things affected by the pandemic, listing your home later in the year in 2020 or 2021 might have yielded more profit. So, if your only objective was to make the biggest profit possible—which is rarely the case for most sellers—and you listed earlier in the year, you didn’t quite time it perfectly. But you also shouldn’t expect to.
The inventory of homes for sale in Bend has been too low for 10 years now, and it’s certainly gotten worse during the last two years. Over the last decade, buyers have struggled at varying degrees to achieve their real estate goals with as few compromises as possible.
Each year of the past decade, as fresh inventory becomes available (usually between about February 15 and April 1), we’ve seen homes sell for the best premiums at the fastest pace. Although conventional thinking is that homes sell best in June and July when the grass is green and families are on summer break, for the most part, that hasn’t been true of the Bend real estate market since the bottom of the last recession in the fourth quarter of 2011.
Why is the inventory in Bend so limited?
We frequently hear this question and there’s no simple answer. Certainly, demand for homes has far outstripped supply, especially through the pandemic. Many households have relocated to improve their quality of life, and that is something Bend continues to offer compared with larger, more densely populated metropolitan areas.
Additionally, we haven’t built anywhere close to as many dwellings in Bend compared with the prior real estate market peak in 2005-2006. In fact, we’ve averaged less than one third of the construction of single-family homes or higher density multi-family residences in the years since that market peak. Part of the problem is that Bend continues to be constrained by the availability of buildable land, largely due to Oregon land use laws and anti-growth factions who want to preserve what Bend once was and will never be again.
The low inventory of homes for sale in Bend has also been a bit of a hermeneutic circle as it’s affecting intra-migration too. As inventory has dropped and demand and values have increased at unprecedented rates, it’s become even more difficult for an existing resident—including current homeowners—to move within Bend. Sure, they could likely yield a fantastic premium on their investment by selling their home, but the question remains: What will they replace it with, and can they find it in Bend? I believe this has held some people back from listing their Bend homes and is another factor that limits inventory.
What steps are the civic and business communities in Bend taking to alleviate a limited inventory and increased housing costs?
Right now, I’d venture to say the civic community is at odds with the business community. The best step forward is a balanced approach to expanding areas of development and incentivizing infill development, where vacant or underutilized parcels within existing city limits are developed. Both types of development should be compatible with the existing inventory of land, zoning and infrastructure. However, to predicate development on infill only—and at proposed heights that, for example, exceed our fire department’s ability to respond to an emergency—is a callous and egregious linear approach that will further exacerbate problems in our community.
Bend’s governance has a long history of making horrible monetary decisions based on symbolic ideals that have not benefitted the community as a whole, and unfortunately, I think a balanced approach will be difficult to achieve with the political leanings of the current city council.
How will the available inventory be increased?
There is no single answer, and unfortunately there is such a diverse array of opinions and a division of ideals, that progress toward providing more homes in Bend is stagnant. Typically, the real estate and development community provides long-term, thoughtful planning to increase the inventory of buildable land properties, however there is an anti-growth contingent who equates this necessary growth to an ugly notion of urban sprawl.
Personally, I think we need a multi-faceted approach. The City of Bend needs to get to work on the next Urban Growth Boundary expansion; we’re currently non-compliant with state laws on UGB expansion. We also need more City of Bend employees to help process land-use and construction permits in a timely manner, as well as a city council that is more balanced in their approach and less focused on personal agendas.
We also need a revamp of some building codes and land use laws to facilitate infill development. Although there some effort being made on this front, to a certain extent it’s misguided by symbolic ideals that aren’t reasonable or effective. Any effort to restrict a UGB expansion that would provide more single-family homes in order to build multi-story, higher density dwellings in the core area is not a balanced or multi-faceted approach.
We need both types of housing, and we need the two opposing factions to stop battling and identify a balanced, multi-faceted and equitable approach. Gosh, this concept could do well all the way to the top ranks of government!
If people can’t move because of limited inventory, won’t that perpetuate the problem?
At least to a certain extent, yes. But just as there are 31+ flavors at Baskin Robbins, there are many unique circumstances that face an individual household that is trying to make an informed decision to move successfully.
How could increased interest rates affect financing?
Fundamentally, a higher mortgage interest rate adversely impacts a borrower’s purchasing power.
For example, a home purchased for $600,000 with 20% down, and financed at a 3.525% interest rate, translates to a monthly mortgage payment of $2,162 (including principal and interest only). If the interest rate were to increase by 1%—and the buyer wanted to maintain an approximately similar monthly payment—they would need to purchase a home with a price of $540,000 and provide a 20% down payment.
But the conversation doesn’t normally stop there. Typically, the conversation turns to “well if interest rates continue to go up, then prices will likely fall,” or an even a bolder declaration that “we’re in a bubble” and headed for a massive correction.
There’s really no indication that we’re experiencing a “housing bubble,” other than the fact that values have dramatically increased in a short span of time. The last time that happened, in 2008, the real estate market crashed. However, it’s not that simple. Without going deeper on the “bubble” commentary, let’s take a look at the numbers again.
From the example above, the cost of the home would need to drop by more than 10% to warrant waiting to purchase a home at a lower price with the higher interest rate. I think it’s unlikely that we’ll see any measurable value retraction, but rather slower growth.
That being the case, if the $600,000 house increased in value by 5% (rather typical, if not a little better than typical—but nowhere near the 12-28% increase in value we’ve seen over the last couple of years), the price would then be $630,000.
Purchased for $630,000 with a 20% down payment and financed at 3.525% interest, the monthly payment for this home is $2,270 (including principal and interest only). To get that monthly payment back down near the original amount of $2,162, the interest rate would need to be 3%. Therefore, in comparison to $600,000 at 3.525%, it’s better to buy now.
How should I time my real estate sale or purchase?
Ultimately, I think too many people get caught up in interest rates, property values and market timing. The best time to buy real estate was yesterday. Always. And since we don’t have the ability to travel back in time, the best approach is to align yourself with a competent real estate broker along with a well-respected mortgage professional to help you make the most informed and calculated decision possible.
A good real estate team, one with integrity, will help you make the best decision possible and maximize your opportunity for success. One of our most fundamental values at the Skjersaa Group is that there is never a wrong time to do the right thing. And every one of us will always use our experience and knowledge to guide our clients to making the best possible decision for them. Often that means completing the sale or purchase of real estate, which is what generates income to support our families. And other times it means electing to not pursue a sale or purchase, and if that’s the case, we’re going to communicate that in no uncertain terms. Everyone on our team has stories that illustrate that sometimes the best action for our client is inaction. Subsequently, there are two direct outcomes from these suspended transactions. First, we didn’t generate any income. Secondly, not only can we “sleep at night,” but we’ve established a solid relationship with a client who will appreciate our help guiding them through another real estate transaction when the time is right for them.
How can first-time home buyers compete in a super competitive market?
There are quite a few different strategies for composing appealing offers, including the potential to minimize some contingencies. However, this is best considered only when fully understood by the buyer and balanced with their own objectives and personal threshold for risk. There are numerous advantages to having a well-qualified, competent team on your side—inclusive of your real estate broker along with your mortgage broker—if you’re a first-time buyer. A good real estate broker can craft a strategic offer and utilizing the services of a well-known, well-liked and competent local lender will help as well.
Should I add an ADU (Accessory Dwelling Unit)?
Maybe. It’s a potentially viable solution for adding living space to your property that could be utilized in a variety of ways, and in many circumstances, could really add a lot of value to your property. But this is really only possible to assess on an individual basis. We have a lot of experience with ADUs and would be happy to guide you.