Summer is over, and the 3rd Quarter numbers for Bend and Eugene’s real estate markets are in.
The verdict? To start, buyer activity is on the up-and-up and prices are rising, particularly in Bend. It’s also important, though, to contextualize the general direction of Bend and Eugene’s markets within the larger picture of an unfolding pandemic and possible longer-term economic fallout.
We will look at how Bend and Eugene’s markets might follow these larger trends, and how they might buck them in 2021. Read on as we give a summary of the national real estate market then dive into the numbers before offering our forecast for the road ahead.
Taking a Deeper Look at the National Real Estate Boom in Q3 of 2020
Throughout the 3rd quarter, real estate markets across the country defied the pandemic-related slowdown, with more buyers entering the market than ever.
When pandemic-related restrictions first took hold in Q2, the market saw a predictable slowdown in both buyer and seller activity. Toward the end of the 2nd quarter, however, shutdown orders started lifting and buyers came flooding back into the market. Sellers took longer to follow suit, but new listings have started to get closer to their pre-pandemic numbers.
Still, there’s been a serious imbalance nationwide between buyer and seller activity. According to the number-crunchers at Zillow, inventory is down 35% year-over-year nationwide. At the same time, new listings are down just 13.8%.
That means buyers are snapping up the leftover inventory from 2019. What happens when those leftovers are gone?
A boom in new construction is an obvious result. Nationwide, 27,700 new residential construction jobs have been added in recent months, but supply constraints continue to hinder the industry.
As we’ve gotten closer to the Fall, existing properties have started to come on the market at a rate approaching pre-pandemic numbers. For now though, it’s too little, too late, and rising prices are an obvious result.
Nationwide, the median sale price for residential properties is up 9.3% year-over year. 3-5% has been the norm for the past chunk of time. Meanwhile, incomes have risen just 3% for the average American.
In large part, this disparity has been fueled by plummeting interest rates. Mortgage rates hit yet another record low at the end of September, averaging 3.05% nationwide for 30-year fixed conventional mortgages.
A report by an International Monetary Fund economist indicates that the current real estate boom is being fueled disproportionately by activity in lower-income ZIP codes and higher-income ZIP codes.
For lower incomes, the author speculates that this is tied to FOMO (fear of missing out) around low interest rates. For those with higher incomes, there is FOMO around the perceived possibility that hot real estate markets will keep getting hotter.
Of course, when we say “lower incomes,” some qualification is necessary. The restaurant, hospitality, and retail industries have been particularly hard-hit by the pandemic, but those in these industries were already among those least likely to purchase a home.
That, along with low interest rates and speculation, helps to explain the present gap between the broader economy and real estate purchases nationwide. There is also a very real possibility that the stock market is currently inflated.
Given the fraught status of COVID-19 prevention efforts in the U.S., the question needs to be asked of whether these trends are sustainable, and how they might affect–or not affect–local real estate markets, Eugene and Bend’s included.
Before we get to the bigger questions, though, let’s look at the numbers for Bend and Eugene and see what they have to tell us.
3rd Quarter 2020 Market Report for Eugene
Eugene’s market saw a year-over-year increase in both buyer and seller activity in Q3 of 2020.
Relative to the rest of the country, though, its numbers are actually somewhat pedestrian. Sales of residential properties increased only 2% overall. Meanwhile, new listings were up 5% thanks to a prolonged buying season encouraging more sellers to put their homes on the market in September.
Superficially, Eugene’s Q3 numbers indicate a little bit of a shift toward a buyer’s market, especially when we consider the outright buying frenzy taking place in many other parts of the country. (Bend is included, as we will see below.) Before we jump to conclusions, though, some further context is necessary.
Through the third quarter of 2020, Eugene’s market continued to experience robust appreciation, with the median sale price for all residential properties rising from $324,000 to $356,250. That’s a 10% increase and a bit higher than the current national average.
So why is Eugene’s market continuing to appreciate as much as it is even as inventory isn’t getting noticeably tighter? There’s actually a pretty simple explanation: Eugene didn’t have much surplus inventory heading into the pandemic to begin with.
For at least the past five years, turnkey homes in desirable locations have gone fast in Eugene, attracting multiple offers and selling for above list price. Record-low interest rates have indeed led more buyers to enter Eugene’s market and make offers on homes.
These buyers are all making offers on the same homes, however. That’s the main factor driving up prices right now in Eugene while overall sales numbers stay flat. We used to see multiple offers mainly on sub-$400k homes, but they’re becoming more and more common even toward the upper end of Eugene’s market.
A quick look at the market activity for different price points in Eugene shows that there haven’t been any seismic shifts from Q3 of 2019 to Q3 of 2020. The overall ratio of sales to new listings has remained fairly consistent at most price points.
Buyer and seller activity are up significantly, however, in the upper-middle end of Eugene’s market. Purchases of homes in the $450-600k range rose 44%, while new listings rose 30%. Purchases of homes in the $600-800k range rose 57%, while new listings rose 53%.
A minor surge in new construction at these price points helps in part to explain the shift. Listings of homes constructed in 2019 or 2020 rose from 18 in Q3 of 2019 to 63 in Q3 of 2020, including a whopping 35 in September. Sales rose from just 9 to 34.
Our experience indicates that these price points are the most desirable for those relocating to Eugene from out-of-state. New construction in the $450-800k range has therefore helped stave off an inventory squeeze headed into the Fall.
Bare ground is extremely limited, however, and most of this building is taking place in very limited geographical areas where lots tend to be small.
3rd Quarter 2020 Market Report for Bend
While Eugene in some ways lagged behind national trends through Q3 of 2020, Bend galloped ahead of them, resulting in an unprecedented shortage of residential inventory. Even if you’re willing to pay (and pay you must), it’s difficult to find a home in Bend right now.
It isn’t that Bend suddenly became a hot destination in the middle of the night. Even before the pandemic took its hold in public awareness, Bend’s inventory was gradually diminishing.
At the end of Q3 of 2019, Bend had 992 active residential listings, down slightly from 1,096 a year earlier. By the end of the year, that number had dwindled to 719 compared to 898 the year before, following unusually high buyer activity in the Fall.
Of course, the fun really started at the end of Q2 of 2020, when buyers began to return to Bend’s market en masse while sellers didn’t.
The third quarter did see a significant uptick in seller activity, with new listings through the end of Q3 of 2020 down just 9% year-over-year. However, with Bend already facing an inventory shortage and sales up 25%, the scene was set for a massive decrease in available properties.
By the end of Q3 of 2020, just 323 residential properties were available for sale in Bend, compared to 1058 a year earlier. Meanwhile, the median sale price rose from $464,900 to $539,500, a 14% increase.
Through the third quarter of 2020, sales outstripped new listings at every single price point in Bend below $1 million. Not surprisingly, we’re seeing a significant shortage in the $300-450k range, with 13% more sales than new listings and only 33 currently active properties. The $600-800k range is also getting squeezed, though, with 22% more sales than new listings.
New listings tend to diminish through the Fall months. Even if more sellers than normal decide to join the party late, there are certainly buyers out there who are still looking after coming up dry during the summer buying season.
It’s all a recipe for inventory to dry up even further, even as builders work overtime to meet the demand. So what’s driving Bend’s buyers’ rush?
Low interest rates are one obvious factor. Home purchases utilizing conventional financing rose 25% between Q3 of 2019 and Q3 of 2020.
Bend’s market, however, has long been unaffordable for those making anywhere close to the area’s median income. As low as interest rates have dipped, we doubt it’s been enough, unfortunately, to tip the scales for most of Bend’s residents.
Rather, relocation from out-of-state seems to be a big, if not the biggest factor driving Bend’s surge of buyers. With people all of a sudden receiving the green light to work remotely, many are jumping on the opportunity to do so in Bend. Wouldn’t you?
Notably, all-cash purchases in Bend rose even more than financed purchases, up 29% year-over-year. It’s actually the luxury segment of Bend’s market which has seen the greatest uptick in both buyer and seller activity.
Purchases of $800,000+ homes rose 55% year-over-year, while new listings rose 50%. The vast majority of these (82%) are purchased with cash, and many are vacation homes or second residences.
Of course, all of this is interesting food for thought, but what does it mean for the future of Bend and Eugene’s markets? Read on, and we’ll offer our prognostications.
Forecasting Eugene and Bend’s Markets in Early 2021 and Beyond
Toward the beginning of our analysis, we offered an overview of the national real estate market and raised some pointed questions about the overall direction of the economy.
The end of 2020 and beginning of 2021 could very well see a triple-whammy of political turmoil around the November election, stock market losses, and a possible resurgence of COVID-19 and new lockdown measures.
Interest rates are likely to remain low, even though it’s doubtful they’ll drop any lower, but it may be all too much for prospective buyers to stomach. The surge of buyers we’ve seen in the summer of 2020 came largely from pent-up demand that had accumulated in the winter and spring, but sentiment could certainly shift toward not buying next summer.
Meanwhile, if mortgage forbearance options run out and certain sectors of the economy still haven’t picked up, more homes might suddenly start hitting the market during the slowest time of year real estate-wise. That will include rental and VRBO properties that have become an unsustainable drain on investors’ portfolios.
Whether or not all of those (potential) factors lead to depreciation will depend a lot upon the particulars of individual markets. That brings us to our most important question: how resilient will Bend and Eugene’s markets be in the face of the challenges that might emerge in the months ahead?
Let’s start with Eugene. The bump in activity that we saw in Q3 of 2020 was largely a result of a slow Q2, when lockdown measures were in full force. We expect year-end numbers to be remarkably similar to 2019’s, albeit with steeper appreciation mirroring the general national trend.
Barring unforeseen and outlandish circumstances (yes, more outlandish than everything else that’s happened in 2020), a sell-off large enough to impact Eugene’s bottom line is unlikely. Eugene’s market has remained remarkably stable over the past number of years, appreciating at a rate higher than the national average but never going too crazy.
Barriers to development, chief among them a lack of buildable land, have kept speculation at bay. Meanwhile, the star of the University of Oregon has continued to shine brighter and brighter. In-person learning may be out in 2020-21, but the investment that’s been placed in the infrastructure of the UO isn’t going anywhere.
While Eugene remains something of a niche destination, we expect that it will continue to entice enough out-of-state transplants to keep inventory tight into the foreseeable future. Depending upon the state of the economy, appreciation might slow to closer to 4-5%, but the market will otherwise maintain its current momentum.
In contrast, for better or for worse, the pandemic has solidified Bend’s status as a bona fide destination in its own right. Inventory is tight enough now in the lower and middle ends of Bend’s market that it’s bound to generate pent-up demand.
Some buyers may finally back off during the winter months after striking out during the summer and early fall, but we expect many of those folks to be back during the spring. Even if one or several waves of new inventory hit the market, willing buyers shouldn’t be far away.
New construction will certainly account for a large portion of new inventory, but for the time being, it’s unlikely that builders will be able to keep up with the demand, much less oversaturate the market like they did in the several years preceding the 2008 recession.
Bend’s luxury market is a thornier subject, as subject as it is to the tribulations of the stock market. The flurry of activity we’ve seen in Q3 of 2020 indicates a certain momentum, though, that we don’t foresee slowing down too much.
We expect that prices in Bend will continue to appreciate into the Fall, albeit at a slightly lesser rate, before flattening in the winter. The spring buying season will be a busy one, however, and all bets are off for next summer.
The picture is obviously still developing, and the next several months will be incredibly telling. We will offer a revised 2021 forecast for Bend and Eugene toward the end of the year.
For now, though, we think the numbers for the third quarter offer some hints of reassurance for those thinking of entering either market, even if it’s rough going for our clients who are struggling to find the right home in Bend or Eugene.