There’s no beating around the bush: the novel Coronavirus is the story of the first quarter of 2020. It’s obviously the number one factor affecting the real estate market right now in Oregon and elsewhere.
The time will certainly come to survey the human and economic impact and assess where we go from here. That time isn’t quite now, with Coronavirus cases expected to peak in Oregon on May 2. Barring a major plot twist, Governor Kate Brown’s stay-at-home order is unlikely to lift prior to then or even in at least the few weeks afterward.
With that said, the market data for the first three months of 2020 provides some interesting food for thought in assessing the health of Bend and Eugene’s markets. It also doesn’t hurt to make allowances for the future.
One of the questions on most folks’ minds is whether home values in Eugene and Bend will plummet, and if so for how long. Later in the article, we’ll take a good hard look at the possible scenarios.
Regardless of exactly how things play out, there are a few categories of homeowners who are likely to be especially hard-hit. Namely, these include people who have little equity built up on their homes and owners of rental or AirBnB properties.
LOHR Real Estate was right in the thick of the last financial crisis. After the housing bubble burst at the end of 2007, Kip and Megan shifted their whole focus toward getting the skills under their belts to negotiate short sales with banks and help clients sell their homes they could no longer afford to keep.
The current crisis won’t play out exactly the way things did in 2008. But looking at the past can certainly give us some hints about what to expect for the future. So that’s just what we’ll be doing after we look at what’s been up with Eugene and Bend’s markets the last three months.
First, let’s analyze the first quarter market data for Eugene and Bend.
Looking at Eugene’s Market in Quarter 1 of 2020
COVID-19 didn’t truly enter into the public consciousness, at least in the United States, until early March. Since then, it’s obviously become a bigger and bigger presence in all our lives.
We’d expect to see indications of its impact as we get closer to the end of the quarter, and that is indeed the case.
In the first two months of 2020, listings of detached single-family homes were up in Eugene, with 385 properties listed, compared to 320 in January and February of 2019. Sales were down, however, dropping from 291 to 259.
This drop in sales can largely be explained by low inventory in the 4th quarter of 2019. Only 424 homes were listed in Q4 of 2019, compared to 524 a year earlier.
Indeed, 513 homes went pending in January and February of 2020, compared to just 425 a year earlier. In other words, signs pointed toward people buying up the influx of new inventory. Prices were also appreciating, with a median sale price of $335,000 in January and $362,000 in February.
So what did the numbers look like in March? 253 detached single-family homes were listed in Eugene, a significant jump from just 209 a year earlier. Sales were slightly higher, at 166 versus 158 in March of 2019. That isn’t surprising, with more properties having gone pending in January and February.
Of course, the most up-to-the-moment and therefore important piece of data we have in assessing the impact of COVID-19 is pending sales. These dropped from 206 in March of 2019 to just 162 in March of 2020, in spite of the influx of new inventory.
Under normal circumstances, that would be a striking number. In a market with as severe of a housing shortage as Eugene’s, more inventory should mean more purchases. But in this case, the culprit is obvious: COVID-19.
Nationwide, new listings dropped significantly in the second half of March compared to the first half. That hasn’t been the case in Eugene, however. New listings and pending sales were virtually the same in the second half of March as they were in the first half.
There are a few possible explanations, which we will go into later. But first, let’s look at the market data for Bend.
Looking at Bend’s Market in Quarter 1 of 2020
By and large, Bend’s numbers for the first quarter of 2020 mirror Eugene’s. New listings of detached single-family homes were up slightly in January and February compared to a year earlier, with 520 in 2020 and 473 in 2019.
In Bend’s case, sales increased similarly, going up from 342 to 375, with a median sale price of $475,00. Pending sales increased significantly in January and February, going from 425 in 2019 to 513.
In other words, buyer demand in Bend was heating up faster than the influx of new inventory. At the beginning of the year, the economic forecast was still rosy compared to a year earlier. A recession was a looming possibility, but recent told-you-so proclamations aside, most experts were putting the odds of a recession at less than 1 in 3.
That illusion started to crumble in March, but what do the numbers show? March of 2020 saw a significant increase in new listings, with 365 compared to 291 a year earlier. Meanwhile, 274 homes sold, compared to 227 in March of 2019.
Pending sales, however, dropped from 266 in March of 2019 to 216 in March of 2020. This figure is certainly significant, but it doesn’t indicate wholesale hesitation on the part of home buyers in Bend. Week-by-week statistics aren’t available, unfortunately, so we can’t say whether buyer activity dropped significantly in the second half of March.
The overall picture is remarkably similar to Eugene’s: a mostly strong start to the year carried through into March’s sales figures, but clear signs emerged of buyer hesitation. There was also a significant, though not enormous influx of new listings.
What’s the Situation on the Ground in Bend and Eugene?
Numbers are numbers, and a much clearer picture will emerge once we have the market data for April. Anecdotally, however, anxiety is running high among both buyers and sellers in Bend and Eugene.
Homes that would have received multiple offers and gone off the market in days are sitting on the market for several weeks before they find buyers. Meanwhile, sellers are having to balance their own concerns about the virus with the need to market their homes. Potential buyers are often being screened, and in some cases sellers are offering virtual tours only.
Others have simply withdrawn their homes from the market. From the beginning of March through April 6, 56 single family homes were withdrawn or cancelled in Bend, while 46 were withdrawn or cancelled in Eugene. That’s about three times the normal rate.
Still, homes are going on the market and buyers are writing offers on them. The noticeable but not huge influx of new listings we saw in March may be a sign of things to come as financial necessity compels more people to sell their homes.
Some media outlets have forecasted that the national housing market will “grind to a halt” because buyers won’t be able to view homes, but that simply hasn’t been the case. It isn’t news that real estate activity has shifted increasingly online in recent years. In a sense, the real estate industry has already rehearsed for a situation like COVID-19.
Pending sales were down 21% in Eugene from a year earlier and 19% in Bend. That number will drop further in April. But thus far, while the drop is statistically significant, it’s hardly armageddon.
A recent survey of Bend agents indicated that people were seeing buyer activity drop by something around 80%. But the reality–so far–doesn’t quite match this perception.
In our own experience, contact from prospective buyers has diminished but hardly disappeared. Interestingly, our web traffic has picked up in the past one or two weeks to almost its normal level. People obviously aren’t making plans to fly up to Bend or Eugene in order to tour neighborhoods though.
We’d venture to say that people who were already looking for homes in Bend and Eugene and in a position to buy haven’t pulled out en masse. Due to both cities’ ultra-low inventory, a number of buyers have been looking at homes for months or even longer. If the perfect home hits the market, many of these buyers are still ready to pull the trigger.
Meanwhile, people who had already made plans to put their homes on the market by-and-large still did so. COVID-19 may even be accelerating some people’s decision to sell their homes if they expect home values to drop later on. The influx of new inventory in Bend and Eugene compared to March of 2019 suggests just that.
Where Do Bend and Eugene’s Real Estate Markets Go from Here?
To recap, the data from March for both Bend and Eugene shows a noticeable but not huge decline in buyer activity. The numbers also show a noticeable but not huge influx of new listings.
Buyer activity will likely continue to diminish through at least April and May. This decline will have less to do with stay-at-home orders and more to do with personal and financial uncertainty.
Times are rough for many people, and plans to move are being put on hold. Of course, there will be others who are eager to take advantage of a less competitive playing field. That will prevent buyer activity from cratering, and we don’t expect it to drop much further than 40%.
New listings could start to decrease in April and drop further in May, when the spread of COVID-19 will likely hit its peak in Oregon.
In particular, significantly less owner-occupied homes will enter the market. People who can choose will wait to move and sell their homes until the stay-at-home order lifts. Meanwhile, many homeowners will take advantage of mortgage forbearance options, meaning that we aren’t likely to see a flood of new inventory in the next few months.
Buyers who took advantage of low down payment programs and haven’t had time to build equity will be especially vulnerable, however. If they are required to seek forbearance and especially if home values drop, it won’t be long before they find themselves in a negative equity position.
But something people forget about the 2008 recession is that home values didn’t simply plummet overnight, and some areas were hit much harder than others.
Comparing the 2008 Recession to a Post-COVID-19 Housing Market
Eugene, for one, fared relatively well. In the 2nd quarter of 2007, homes in Eugene sold for a median of $270,000. Summer, of course, is when the stock market tanked.
But home values actually went up to $277,000 in the 3rd quarter, dropping to $265,000 in the 4th quarter and then $253,000 in the first quarter of 2008. Eugene’s market didn’t bottom out until 2012, when the median sale price was $209,000 for the year. That represents a drop of about 25% from peak values.
Bend did not fare as well following the 2008 recession. Home values peaked in May of 2007, when detached single-family homes sold for a median of $378,000. The drop-off was relatively swift.
By the end of 2007, the median sale price had dropped to $325,000, falling steadily from there to around $225,000 in the first quarter of 2009. Bend’s market reached its nadir in the first quarter of 2011, when the median sale price was only $178,000, a drop of 45% from peak values.
A full economic history is beyond the scope of this article. Needless to say, numerous factors were at play. We’ll give just a brief overview, however.
In the years prior to 2008, lending standards were lax and interest rates significantly higher than they are today. Many people took on mortgages they could barely afford even in the best of economic circumstances.
Because so many unqualified buyers were being encouraged to enter the market, demand was inflated artificially and prices rose more sharply than could be sustained. Also, speculative investment was driving large portions of the housing market, particularly in Bend. Those dollars obviously dried up quickly, causing its market to plummet relatively swiftly.
The situation today is different in many respects, even if there appear to be some similarities.
So, How Can Bend and Eugene Homeowners and Buyers Respond?
In recent years, home values in Bend and Eugene have indeed risen faster than wage growth. The causes are different this time around, however.
In brief, low inventory has been the defining factor in Bend and particularly in Eugene during the past five years. The demand for both cities’ limited inventory hasn’t been driven by investors but by people who want to live there for reasons related to quality of life.
Vacation rentals do make up an outsize portion of Bend’s market, and times will be rough for owners of vacation rentals, including AirBnB properties, across the country. Times will also be rough for owners of one or several rental properties, with many tenants unable to make rent payments into the near future.
Again, buyers with very little equity will also be quite vulnerable even to a small amount of depreciation. We will look at all these segments of the market more extensively in a future article.
In any case, high demand and stricter lending standards have raised the bar significantly for first-time home buyers in both Bend and Eugene, for both better and for worse. As a result, many homeowners will be in a better position to weather the storm than before.
While the economic impact of COVID-19 will be sharper than the recession of 2008, the recovery could be much swifter. There are no guarantees, however. The vicious spiral that sent the housing market tumbling for years following the 2008 crisis is unlikely to repeat in the same way, but it will take some time for things to shake out.
Many segments of the economy will fail to recover until well after the end of the pandemic, and unemployment numbers are likely to get worse before they get better. As time goes on, more people will have to put their homes on the market, and they will have to sell them for less money.
In the shorter-term, a pent-up supply of inventory could hit the market fairly quickly following the first wave of COVID-19. If buyers are still lukewarm or just flat-out unable to make a home purchase, there’s certain to be downward pressure on home prices.
Our Main Takeaways For Now
If you’re thinking of buying or selling this year, here are a few things to keep in mind. Buyers may be waiting for prices to drop. That’s reasonable enough: nobody wants their home to end up being worth less than they paid for it. But there are a few different things to consider.
Right now, interest rates are at historic lows and should stay that way through 2020. Because of uncertainty in the markets, lenders are already making it harder to borrow, especially in the case of jumbo loans. Waiting too long may prevent you from buying down the road.
It’s also important to ask: how much money do you have to put down, and long are you planning to hang on to your home? We don’t know when the market will trough, but chances are good that the process won’t be nearly as drawn out as it was the last time around.
Buyers should be able to enjoy both a little more inventory in the late summer and early fall and a more even playing field when negotiating. We still will not see a buyer’s market on the most desirable properties, but you will be more likely to get it at list price. The less than shiny properties will spend significantly longer on the market than before, and you might even get a deal.
For sellers, there is every reason to believe that prices in both Eugene and Bend will decline from here. How far is anyone’s guess, but we wouldn’t e surprised to see at least a 10% drop in Eugene and a 20% drop in Bend over the next 2-3 years. So, if you have been waiting for the top in order to cash out your equity, we are here, at least until we emerge from the other side of the upcoming recession.
For home owners who have 10% equity or less or are in danger of being unemployed, it is time to understand what options are available to you and start to think about an exit strategy if it comes to that. Still, it isn’t necessary to hit the panic button just yet.
The banks took a beating in the Great Recession and learned some hard lessons as a result.
Offering distressed homeowners essentially consequence free mortgage payment deferrals for up to a year is a new wrinkle that was not available in the last recession. It will soften the blow for both the banks and for homeowners. Folks will be able to keep their homes and banks can keep some out of foreclosure or short sale.
Just understand that once the music stops, there will not be enough chairs for everyone. Those who did not plan ahead will be left holding the bag.
We will be paying close attention to market and will revise that picture if new signs emerge. For the foreseeable future, we will be issuing market reports on a monthly instead of quarterly basis. Stay tuned, and reach out any time–we want to be here for you in whatever way we can.