We’re sure you’re familiar with the common saying “What goes up must come down.” Housing markets, common wisdom goes, can be pretty volatile. They might spend years inflating, inflating, inflating–and then all of a sudden, when all the conditions are right, the housing price bubble pops, leaving a big wreck behind.
That, of course, is what happened in 2008. The Oregon housing market was hard hit and the Bend real estate market was especially affected. Rampant speculation and unsustainable lending prices led to Bend’s home values dropping in some cases more than 100%.
As we enter into less certain economic conditions in 2019 with rising interest rates and talk of a looming trade war, some anxiety about the Oregon housing market might be understandable. Home prices in both Bend and Eugene have risen at a rate that would have been unimaginable to Oregonians twenty or thirty years ago. As we’ve pointed out in a previous article, it’s a tight market right now for buyers in Bend and Eugene, with record-low inventory and record-high prices.
So the question is: having risen this high, are Bend and Eugene’s housing markets due to plummet? Do Bend and Eugene homeowners have reason to worry, and do Bend and Eugene home buyers have reason to look forward to more affordable housing?
It’s a complicated question that deserves more than a cursory answer. We’re not fortune tellers, nor are we economists. But we do strive to give our clients the very best advice available, which means keeping our finger firmly on the pulse of our local markets.
Our honest professional diagnosis: we’re confident that the Eugene and Bend markets will remain reasonably healthy at the very least through 2019, and likely beyond.
Bend’s market in particular may be due for a bit of a cool-down, but reports of a Bend housing bubble have, for now, the ring of hyperbole. Eugene’s housing market, on the other hand, looks poised for only a possible cool-down at the upper end of the market. The market for Eugene starter homes and trade-ups in 2019 should meanwhile remain very, very tight.
Comparing Eugene and Bend’s Housing Markets to the National Real Estate Market
Locally, robust economic growth and quality of life have driven steady growth in Eugene and Bend’s housing markets over the past decade. While prices aren’t as low as buyers might wish, Eugene and Bend’s increases are relatively modest compared to to larger metropolitan centers on the West Coast.
There are indications that in cities like Los Angeles, San Francisco, Seattle, and Portland, prices have simply risen beyond what homeowners can afford and what lenders are willing to finance.
These cities have recently seen a marked increase in inventory, while home prices are clearly plateauing. Bloomberg reports that in June of 2018, Seattle’s inventory was up 24% compared to a year ago, while Portland’s inventory was up a striking 32%.
Mind you, these inventory increases basically represent an increase from “crazy-stupid-soul-crushingly-low” to “still pretty danged low.” Nationwide, there are some indicators of a cool-down, but reports of a full-fledged housing bubble are premature.
Why Nationwide Statistics Don’t Point to a Housing Bubble in Bend and Eugene
It’s important, basically, to put nationwide statistics in context. Bloomberg’s report indicates that new home purchases have slowed to an eight-month low. Nationwide, housing inventory reached a low point in late 2017 and has risen steadily since then.
We’d argue, however, that these statistics are driven by the markets that experienced the most dramatic price increases, Seattle, San Francisco, and Portland among them.
The economics are simple: when prices cross the threshold of what people can afford, homes will sit on the market longer. When homes sit on the market longer, buyers gain more leverage, and sellers drop prices until equilibrium is regained.
Healthy markets naturally feature some amount of give and take. Federal interest rates feature prominently in this dynamic.
After the Great Recession, the Federal Reserve dropped rates to a sixty-year low, and it’s only been in the past two years that rates have climbed significantly. When interest rates increase, buying power decreases, acting as a healthy corrective for markets that are growing too rapidly.
In other words, the market trends we’re seeing now are in no way indicative of a pending free-fall. 2008’s crash was caused by irresponsible lending practices and faulty economic policy. These factors simply aren’t at play in today’s market.
Envisioning doomsday scenarios is a popular past-time these days, but we don’t see any compelling reasons to fear the worst when it comes to the national housing market.
So, What About Eugene and Bend’s Housing Markets?
When it comes to Eugene and Bend’s markets, the question isn’t so much whether we’re in a housing bubble that is due to burst. The question, rather, is whether the market is due simply to cool off. Let’s look at the facts.
For June 2018, Eugene’s Register Guard reported that the median sale price for homes in Lane County was a record $297,000 for June 2018, up almost $30,000 from the previous year. The median price for all homes sold in Eugene likewise peaked, at $313,000 in June of 2018. Inventory remains extremely low, at just 1.7 months.
The supply of homes is, in other words, only barely meeting the demand, and believe us, that 1.7 months of inventory includes plenty of duds.
Herein, then, lies the crux of the Eugene market’s persistent climb. Competition for available homes is still fierce enough that bidding wars and offers well above the listing price are still common.
Recently, we worked with a buyer who put in an offer on a home in the starter range (i.e., $200-250,000.) This was a modest 2 bed 1 bath home on the market for $219,000.
The listing agent indicated that the seller would review all offers a week after the listing was posted and would not accept offers prior to that date. After doing extensive research, our client decided to put in an offer well above list price. In fact, $16,000 higher.
At the time of submitting the offer, there were six in play, and our client did not win the lottery. The seller decided to accept an offer that had a very short closing period and all cash. This is a prime example of the fierce competition that still exists in our market here in Eugene.
Bend’s housing inventory isn’t too much higher, weighing in at a lean 2.7 months as of November 2018. New constructions represent much of this inventory, and in Bend, these tend toward luxury homes. June’s median sale price was a record $425,600.
At the same time, Bend’s housing inventory has been slowly but surely trending upward since early 2017, even after accounting for usual seasonal shifts. Buyers of trade-up and premium homes in Bend will start to have more choices, and at the very least, prices shouldn’t increase through 2019 to the same extent that they have in the past several years.
Still, there’s some truth to the common notion that well-off Californians are relocating to Bend from even more expensive markets, continuing to drive local housing prices higher and higher. Eugene’s quality of life and robust economy also make it an increasingly attractive destination for people relocating from across the country.
The important takeaway: Eugene and Bend are strong seller’s markets. Nationwide trends notwithstanding, we see them remaining that way through 2019 at the very least.
So, if you’re a buyer, deciding to wait out the market puts you at risk of climbing interest rates, higher prices, and the possibility of even less properties to choose from.
If you’re thinking of taking the plunge, be sure to read our article on Tips for Home Buyers in a Tight Real Estate Market. You can also contact our Eugene office or our Bend office, and we’ll get started on your home search right away or even just have a conversation with you about whether it makes sense for you to enter the market. .
The same applies if you’re thinking of selling but not sure you can get enough to make it worth your while. Simply contact us and we’ll give you a free property valuation, no strings attached. Again, we’re also happy just to chat.
Who are we? Glad you asked. Go to our Team page, and you’ll find out. Thanks for reading, and best of luck navigating the market!