It isn’t news that home values are soaring in Bend and Eugene, Oregon. That’s the case across most of the country due to an unprecedented combination of factors – record-low interest rates, a nationwide lumber shortage, and pandemic-related inventory declines to name just a few.
The question, though, is whether current prices are sustainable or not. That’s especially important if you’re thinking of buying or selling a home in the near future. Are Bend, Eugene, and other markets across the country in the midst of a real estate bubble?
Not to spoil the plot, but the answer is no. A better question to ask is whether real estate markets like ours can expect a correction or not and what that might entail. Read on and we’ll explore the possibilities in depth.
What’s Been Happening to Home Values in Bend and Eugene, Oregon
Most of us were around in 2008 when the previously red-hot housing market came crashing back down to earth. Home values in Eugene and particularly in Bend spent a few years in the dumps but have been on a swift rise ever since then, particularly in the past several years.
2021 has been completely off-the-charts though. In May, Eugene homes sold for a median of $424,000, up 17% year-over-year. In Bend, homes sold for a median of $628,500, up an incredible 36% year-over-year. (That’s actually a little lower than April’s record median of $652,500.)
To cut to the chase, we don’t believe that this rate of appreciation is sustainable. Analysts expect that nationwide, prices will appreciate only half as much in 2022 as they have in 2021.
That’s far different, though, from saying that we’re in the middle of a real estate bubble. Prices may flatten somewhat, but no one is suggesting that we are headed toward a full-scale market meltdown.
Still, there may be a good argument for a pending correction. The Atlantic’s Derek Thompson recently published an article on “Why You Should Wait Out the Wild Housing Market.” Let’s examine some of his ideas and see whether they might or might not apply to the situation on the ground in Bend and Eugene.
Will there be a Correction in Real Estate Markets Nationwide?
Thompson points to all the usual suspects when framing the current situation in real estate markets nationwide. But he also points to another factor that’s often overlooked: the emergence of the millennial generation as the largest home-buying demographic in the United States.
Homeownership remains out of reach for many millennials, but the median net worth of those aged 35 to 44 rose 44% between 2016 and 2019. In other words, older millennials were primed to enter the housing market exactly when it started to blow up in mid-2020.
We’ll come back to that point in a future article, because it’s an interesting one when considering the future of Bend and Eugene’s markets. For now, though, let’s look at the question of housing inventory.
Nationwide, inventory fell to an all-time low in April of 2021. Beginning in early May, however, new listings finally started to outpace buyer activity. New construction has also rebounded in spite of supply constraints, with new housing starts at 15-year highs.
That’s the crux of Thompson’s argument: housing markets reached “peak insanity” in the spring, and things shouldn’t get any crazier from here.
But just because things won’t get crazier doesn’t mean the market will stop being crazy overnight. Even if inventory continues to increase at the present rate, economists expect a 14-month wait before inventory rebounds to pre-pandemic levels.
We may reach a tipping point where prices in some of the most overheated markets start to correct. Thompson points to locations where urban residents “bought second homes in a panic” as a possible example.
But as long as inventory remains low – and it’s really, really low right now nationwide – prices aren’t going to decline anytime soon. If we’re asking whether our local markets are due for a correction, local inventory is the first place to look.
Should Buyers Wait to Enter Bend and Eugene’s Real Estate Markets?
It’s been tough going these past few months for would-be homebuyers in the Bend and Eugene areas.
Bidding wars are more common than ever at all price points, and it’s been a game of chicken in terms of who is willing (and able) to make the most over-the-top offer. Buyers who miss out on one property throw more of their chips on the table the next time, but they’re also competing against other buyers who are equally desperate. That has created a vicious cycle of ever-escalating offers.
In this kind of environment, sellers have all the leverage, and they know it. Lavish demands like rent-free occupancy after close, shortened windows for inspections, and waiving the appraisal contingency are now fairly normal.
It’s a lot to stomach if you’re just looking for a place for you and your loved ones to call home. Whether you’ve been right in the thick of it or have just been on the sidelines watching prices rise, rise, and rise, you’re probably tempted to wait and let everyone cool their jets a little bit. It’s bound to happen eventually, right?
Well, the answer is yes and no. First, the good news: residential inventory has risen in both Bend and Eugene in the past several months.
Bend reached its low point in March at 0.61 months, with inventory since rising to 0.77 months. Eugene’s inventory was at its lowest in April (0.6 months) and has since risen to 0.7 months. In May, new listings outstripped pending sales by 11% in Bend and 7% in Eugene.
That’s welcome news for buyers, but let’s put those numbers into context. The average inventory nationwide was 4.4 months in April of 2021, so even in the context of a broad inventory crunch, Bend and Eugene’s numbers are stupendously low.
The modest inventory increase we’re seeing in our local markets simply isn’t enough to tip the scales in favor of buyers – for now, anyway.
Bend and Eugene’s markets will remain extremely tight through the summer buying season and into the fall. We may start to see inventory accumulate a bit in the slower winter months, however.
As a result, buyers can probably look forward to less competition during 2022’s spring and summer buying season. Bidding wars and stratospheric offers will be less common, and appraisers’ valuations will have caught up to the reality of the market.
But prices will continue to appreciate, and there’s a strong possibility interest rates will be higher a year from now. In other words, it will be somewhat easier to find a home, but you’ll have to pay more for the privledge.
The decision of whether to purchase or sell a home – and when – is of course a totally personal one. We’re here to help match your personal and financial situation to the reality of the market, or just introduce you to the Bend or Eugene areas. Reach out today for the personal LOHR touch!