In this section you will find the 2007 end-of-the-year update to the Bend and Central Oregon real estate market and trends, with population and MLS statistics, tables, graphs and more.

While the Bend Oregon real estate market saw record setting increases in real estate prices in 2005, the market began to "adjust" and become more "normal" in 2006 and 2007, but also bucked some national trends. 

6Stats & Facts
6Analysis & Crystal Ball
6Sales Price Tables
6Average Price Graph
6Median Price Graph
6Sold On Lots Graph - Yearly
6Sold On Acreage Graph - Yearly
6Sold On Lots Graph - Monthly
6Active Listings

The housing market changed a lot in 2007 from the conditions we saw just a few years ago, as the market "adjusted", slowed and started transitioning into a more "normal" real estate market in contrast with the super-heated and unsustainable "seller's market" of 2004 and 2005.

You can blame the rapid increase in prices on the fact someone told the world that Bend is a great place to live, which led to record growth in population. You can attribute it to the lack of buildable or developable land, record low interest rates, high rates of appreciation, and speculation by short term investors. The law of supply and demand, more than anything, has been the driving force that fueled the increases in sales prices and will certainly impact the market in 2008.

My goal here is to note some of the most important factors that affect the Bend and Central Oregon market and how they impacted the market in 2007. This will include statistics, news events, local social and economic conditions and trends. I will also offer my personal opinions and analysis, and crystal ball projections as to where the market will go in 2008. My goal is to provide you with some of the information you should consider if you are thinking about buying or selling real estate in 2008.

I am admittedly a "the glass is half-full" person, but I can honestly say that I don't see a "bubble bursting, prices crashing" future for Bend. While the market will continue to "adjust" and certainly move more towards a more "normal" market in 2008, I see the Bend real estate market as somewhat buffered from national trends and having a tremendous future.

In 2006 I suggested that the Bend Oregon and Central Oregon real estate market was likely to slow down, adjust and become more "normal" in 2007. While I was partly correct, there were some surprises and the market did not become "normal".

• In 2005, the average and median sales price of homes on lots in Bend increased at a record and seemingly unsustainable rate of 23%. And yet in 2006 the average sales price of homes on lots increased 21%, and the median price increased 26%. 2007 saw the average sale price go up 5% to $426,044, but the median sales price dropped 2% from $351,978 to $345,000. In the last 5 years, the average sales price of homes on lots in Bend has increased 105%, and the median sales price has increased 104%. (Table  Average Chart  Median Chart) The average list price of active listings at the end of the year dipped by 6% in 2006, but went up by 2% in 2007 to $520,264. The median list price was up 5% in 2006, and down 5% in 2007 to $393,500. (Table)
  
  
• The average sales price of rural homes on more than one acre increased 27% in 2005, and skyrocketed 44% in 2006, but dropped 3% in 2007 to $722,807. The median sales price had gone up 29% in 2005, and 35% in 2006, and slowed to just a 1% increase in 2007 at $599,900. At these prices many buyers chose to forgo their desire for "elbow room" and buy more house for the money in town. (Table  Average Chart  Median Chart) The average list price of active listings at the end of the 2006 was down 9%, and dropped 8% to $978,373 in 2007. The median list price dropped 1% in 2006 and 16% in 2007 to $729,900. (Table)
  
  
• As the sale and list prices went up, demand slowed, the number of homes sold dropped, and the number of unsold homes (active listings) jumped dramatically. The number of homes on lots that sold in 2006, dropped 27% from 2005 and another 27% in 2007. Sales of homes on an acre or more dropped by 34% in 2006 and 41% in 2007. (Chart-lots  Chart-acreage) The number of active listings of homes on lots peaked for the year in August as it did in 2006. The 1,624 listings in August 2007 represented a 12% increase from August 2006, and an increase from 9.1 to 11.9 months of inventory based on the sales rate for the previous 12 months. The 1,243 active listings on lots at the end of 2007 also represented an increase of 12% since the first of the year, and an increase from 6.4 months of inventory to 9.8 months. (Chart  Table)
  
  
• Bend Oregon continues to get national press as "a best place to retire"; "the Palm Springs of Oregon"; "the recreational capital of Oregon", "a best adventure town", "a telecommuting heaven"; and other categories, and people continued to move to Bend and Central Oregon albeit at a slower rate. The Portland State University Population Research Center, estimated that as of July 1, 2006 Bend's population increased 7%, or by 4,960 to 75,290 since 2005, and by 2,490 or 3%, to 77,780 as of 7/1/07. Much of this slow down was because people wanting to move to Bend have been unable to sell their homes in other parts of the Country. This slowing in-migration was also reflected by Deschutes County, which increased 6.4% in 2006 and 5.4% in 2007 or 8,195 to 160,810. Never the less, Deschutes County was second only to Crook County which grew by 5.5%. By comparison, Multnomah County, the most populated county in the state increased by just 1.2%, or 8,480 to 710,025, and the State increase was 1.5%.
  
  
• The Milken Institute, a Santa Monica California based think tank, released a report in September that ranked Bend as the #1 best performing small metro areas of the 179 areas studied in the nation. This was up from last year's ranking at #2. The study measures both short and long term growth in jobs, wages & salaries, population and high tech.
  
  
• Bend was added to the newly published Sperlings Best Places for the first time. Bend was ranked #56 among the top 400 places to live in the U.S. Portland was ranked #3 in the nation, Corvallis was #14, Medford #34 (up from 72 in 2006), Eugene at #68, and Salem at #82. Also at Sperlings, Bend's cost of living was ranked 3.40% higher than the U.S. average.
  
  
• Business Week Magazine published an article Hot Spots That Have Cooled Lure Savvy Retirees. Bend along with San Diego, Miami and Fort Mill SC, were the top picks as best values for places to retire, because of the slow market which represents "golden opportunities for retirees who can choose when and where they want to move".
  
  
• The Office of Federal Housing Enterprise Oversight released their housing price index report for the third quarter of 2007. U.S. home prices decreased for the first time in 13 years, by .04% from the second quarter of 2007 according to the HPI. Bend had slipped from its number one ranking through much of 2006 to the metropolitan area with the 10th highest rate of house price appreciation after the first quarter of 2007, with a .37% increase. The second quarter report showed a decrease of 2.07%, and Bend ranked 138. The 3rd quarter HPI ranked Bend 189 out of 287 in the nation but showed just a .96% increase for the quarter and .66% for the year. Oregon dropped from 7th highest in the nation to 11th at 5.55% for the year, and .37% for the quarter. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings of the same properties. The HPI is based on transactions involving only conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
  
  
• The City of Bend published an updated proposed Urban Growth Boundary and UAR expansion plan in June. Most of the expansion is NE of the City giving priority to the City's Juniper Ridge project, which has drawn increasing criticism and a call to stop the project. School boundary issues with Redmond, transportation issues with ODOT, lack of community support for the Juniper Ridge concept, other issues and appeals will likely continue to delay the expansion for some time. More organized opposition to the project, such as Do Juniper Ridge Right has resulted in the City at least revisiting the issues, and reconsidering the current plans for expanding the UGB. What is ultimately decided will have a major impact on the future of the overall market.
  
  
• With the increasing population, real estate prices and anti-growth sentiments, Bend has seen a number of laws enacted and building code and policy changes in recent years to address "affordability" and "control" growth. A law was passed in 2006 that effectively put a moratorium on mobile home park owners closing their parks and redeveloping the land until some solution can be found to assist the people living in the parks find other affordable housing. Another law attached an "affordable housing fee" to all new construction, and another law being considered would require developers to dedicate a substantial amount of land in new developments to "affordable housing". Building codes have been changed to reduce the size of homes that can be built on any particular lot and thus increasing the dollar per square foot cost of new homes. The sum result of these actions may slow growth and perhaps increase the supply of "affordable housing", but will also likely have some unintended consequences and increase prices overall.
  
  
• In response to the national subprime mortgage problems, The Hope Now Alliance, a partnership between mortgage companies and nonprofit housing counselors, began a nationwide mail campaign in November to offer help to home owners who are having trouble meeting their mortgage payments. Changes have already been made in FHA lending guidelines to assist borrowers in trouble, and there is a movement afloat among some of the largest lenders to freeze the rate for 5 years on some of the "teaser rate" loans that are about to reset. If a borrower is having problems there are an increasing number of options available, and fixed rate 30 year loans are at the lowest rate in over 2 years.
  

Since late Spring of 2006, the Bend Oregon real estate market has been going through a period of adjustment, from a "seller's market" with record high sales and appreciation rates to a "buyer's market" with low sales and flat to decreasing prices in 2007. The market did continue to adjust in 2007, but is still far from "normal".

After three years of double digit increases in the median sales price for homes on lots of less than an acre, prices remained flat through the first three quarters of 2007. After Labor Day and the start of school, demand and the median sales price of homes on lots dropped in the fourth quarter and ended the year with a 2% decrease year-to-date, while the average sale price actually ended with a 5% increase YTD.

2006 saw inventory levels spike and demand decrease as measured by the number of homes sold. This trend continued in 2007 with inventory levels exceeding 2006, and the number of homes on lots sold dropping by 27%. One of the keys to the market becoming more "normal" is to absorb the excess inventory and bring supply back into balance with demand. This didn't happen. 2007 ended with the number of homes on lots on the market at 12% higher than 2006, or an increase from 6.4 months of inventory to 9.8 months, where around 6 months of inventory is considered "normal". Furthermore the number of sales for the month of December dropped to a record low.

To understand the current market, it may be helpful to look back a few years. Many variables came together to create the beginnings of a "Seller's Market" in late 2003 and 2004 with low supply and high demand, which led to rapidly increasing prices. Someone had told the world how special Bend was, and people were flocking to the area. As one of the fastest growing areas in the nation, this in-migration contributed to a high demand for a relatively low number of homes. The once-in-a lifetime exclusion of taxes on the first $500,000 of profit on the sale of a primary residence, had been changed to allow the exclusion after two years of living in a home, and wasn't limited to once in a lifetime. This change in tax policy, the dot.com market bust, 40 year record low interest rates and record high increases in real estate appreciation rates attracted short term investors. All these things fed the demand.

The long held view of looking at the purchase of real estate as a long term investment, shifted to short term and the opportunity to "flip" real estate investments. Mortgage providers with access to "cheap" money reacted to the demand by providing "subprime" loan programs that made it easy for just about anyone to get a loan. Lenders relied more on the rapidly appreciating prices to protect the loans, than the ability of the borrowers to repay the loan. The national media spotlighted the booming market and the profits that some investors were making, neighbors started telling other neighbors just how much they had made buying and selling, and there were even new TV programs describing just how easy it was to "flip" a house. More and more people jumped into real estate investment, and a "Seller's market" was created. Almost every new listing that came on the market got multiple, competing offers. It became almost impossible to buy a home in Bend without paying more than list price and market values went up.

Prices and the number of homes skyrocketed as demand increased. With little land available to be developed (~85% of Deschutes County is some form of Government land) as the local government has been slow to expand the UGB, builders were willing to pay almost any price for buildable land. Building permits in Bend increased to levels that exceeded Portland as the builders ratcheted up to meet the demand, and increased their prices sometimes monthly. Sellers of existing homes followed suit. It was a great time to be a seller.

Meanwhile antigrowth, or controlled growth forces on the City Counsel enacted laws and building codes that further added to the cost of construction in the form of increased building permits fees, system development charges and other fees that when combined added an average of $20,000 to the cost of a 1,500 square foot home. The expansion of the Urban Growth Boundary was delayed to prevent sprawl, but resulted in huge increases in the price of the little land available for development. Prices reached a level where people who relied on local wages could no longer afford to buy a home. However, supply began to exceed demand and appreciation slowed and many short term investors quit buying. Then with the "subprime market crisis" of 2007, the availability of easy financing dried up. Nationally real estate markets slowed or slumped, and people that wanted to move to Bend were unable to sell their homes, in-migration slowed, which further lowered demand. Locally sellers began to have problems selling. The excess supply put downward pressure on prices. It became a good time to be a buyer.

Contributing to and perhaps exacerbating the problems, the national media started hyping the problems with the market. In 2007, you could open just about any newspaper or watch TV just about any evening and see or read about some doom-and-gloom news about the "mortgage market crisis", "the foreclosure crisis", the "tanking real estate market", etc. While a lot of the national real estate trends were real, the stories tended to distort and sometimes exaggerate the problems.

Zillions of homeowners to loose their homes because of the subprime mortgage market crisis, was the message understood by many in 2007. Foreclosures up 100% and no loans available were the headlines. Don't buy now said the experts on TV, as prices are crashing and you will be able to buy for less. The reality was that the actual number of people loosing their homes was fairly small as compared to what was implied by the percent increase quoted in the news. Most of the foreclosures were in just a few states, and Oregon ranked 49th with relatively few foreclosures. Yes, lending standards have been tightened, and some forms of subprime loans are gone. However, interest rates on conventional conforming loans are still near record lows, jumbo loans over $417,000 are still widely available albeit at slightly higher interest rates, and even "no-doc", "Alt-A", and 3% and no-down payment loans are still available. Prices? They did fall in some parts of the country, and even "crashed" in some cities, but not in Bend, as already discussed.

The national message about the real estate market has spawned a lot of misleading information, and resulted in many buyers losing confidence in the market, and convinced many to wait for prices to crash. Yes, the Bend real estate market is sluggish, supply is still out of balance with demand, and if you want to sell it is likely to take you longer than it did during the "seller's market". Yes, there is downward pressure on market values, and if you want to sell, then chances are you won't be able to sell for the same price that you once could. Yes, things are likely to get worse before they get better. Yes, the subprime crisis will have long reaching and unpredictable ripple effects. Yes, there are going to be people that are going to be hurt by this slower market, and some will lose their properties. But is the sky falling in Bend and across the nation as all the national news would suggest?

Blanche Evans a Realty Times Columnist wrote a column this past summer about a recent Orange County Association of Realtors meeting, where a local economist Gary Watts gave a talk where the main message was - keep news about housing in perspective. To borrow and change an old saying, I think the reports of the death of the Bend real estate market have been greatly exaggerated. Consider these quotes from the Blanche Evans article:

"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." Business Week, 1969

"The median price of a home today is approaching $50,000 ... housing experts predict price rises in the future won't be that great." National Business, 1977

"The golden age of risk-free run-ups in home prices is gone." Money Magazine, 1985

"A home is where the bad investment is." San Francisco Examiner, 1996

It is a matter of perspective. Real estate is local, not national. Personally, I think the glass is still more than half full in Bend Oregon.

Though the statistics and trends noted, might suggest that Bend is a somewhat unique market and not as subject to national trends as most markets, they also show that the area is not immune to the laws of supply and demand, or to a sluggish nation wide real estate market. The crystal ball question is what is in store for 2008? Will prices fall? If so, how far will they go? When will the market bottom out?

To predict what will happen in 2008 is almost impossible, but there are some variables to watch that will impact the market. As interest rates rise, people qualify for lower loan amounts and sales go down. If interest rates rise significantly in 2008, you can expect sales and prices to trend downward.

People continued to move here in 2007, and although fewer in number, Deschutes County had the second highest growth rate in the State. As the markets around the Country improve, more people will be able to sell, and in-migration should increase. Unlike some of the worst hit cities like Detroit, unemployment in Bend is still very low, job growth is high and because of the delays in expanding the UGB, there isn't likely to be much new, less expensive land available for many years, if ever. Unlike a large city such as Detroit, it takes far fewer people in number to move to Bend to impact the demand for homes.

While inventory levels peaked in August and began to drop through the rest of 2007, the big questions are whether we will see a big spike in inventory again this year, how many buyers will return to the market, and just how long will it take to absorb the excess inventory. Many of the homes on the market in 2007 were sellers who were still trying to sell at peak prices and were slow to accept the changing market. Some of these have given up and withdrawn their listings. Builders who reacted to the high demand of 2005, overbuilt in light of the decreasing demand and were still saddled with excess inventory in 2007. Most have cut back and will build less until demand increases, and they sell their excess inventory. Building permits were down in 2007 to a small fraction of what they were in 2005, and far less than 2006. Many short term investors who bought properties in 2004 and 2005 have tried to "flip" their investments, and tried for the top prices they anticipated when purchasing the properties. Some have sold, some have reduced their prices, some have converted their properties into rentals until demand increases. Some are finding it impossible to sell at a profit. It is hard to estimate how many of all these properties will be brought back on the market in 2008. The big question will be how long will it take to absorb the excess inventory, and for supply to come back into balance with demand. If inventory goes up and buyers don't return to the market, there will be continued downward pressure on prices.

Many housing forecasters believe that existing and new home sales and prices will bottom out in 2008, either in the second or the third quarter. The National Association of Realtors is perhaps a bit more optimistic and is forecasting that sales and prices will stabilize in the second quarter and rise through the second half of the year. Others are more pessimistic and think it will take several more years for the national real estate market to rebound. The Fed has reduced interest rates, and most expect them to cut them more in 2008. Lenders are looking for ways to help people in risk of loosing their homes, and conventional loan limits are likely to be increased.

I tend to believe that all the major reasons why people want to live in Bend for the quality of life and lifestyle still exist, and that as Bend led and outperformed most areas on the way up, that it will also rebound more quickly than most. I also believe there is a pent up demand in Bend, and that we will see buyers returning to the market. Whether that will happen in 2008 is yet to be seen. It all depends...

In 2008 buyers and sellers must take care to not make real estate decisions based solely on what happened in 2007, any particular study, set of statistics, general national trends or what they might hear on television. As I have tried to describe, there are a lot of variables that will affect the dynamic Bend and Central Oregon's real estate market, and each person's circumstances are unique, and perhaps not subject to overall trends.

Buyers and investors will find few short term investment opportunities, will need to consider longer term investments, and buy more carefully. However it could be a good time to be a buyer as the market adjusts, if you buy "smart". Prices may come down in many price ranges, and there will be bargains on many properties as long as supply exceeds demand. In this "buyers market", buyers will find lots of homes to choose from, at least in the short term, and are likely to find sellers highly motivated and negotiable. Many builders are reducing prices on their over-supply or offering incentives to buyers. Buying while the market is adjusting can be wiser than sitting on the fence and guessing when prices will bottom out, especially if you are a long term investor or buying a home that you plan on living in for 2 to 5 years or more. Many of the homes that sold in December were for far less than list price. Though prices may trend downward in 2008, they will certainly go up in the long run, as well as interest rates. There may never be a better time to negotiate a "best buy" than in 2008.

Unless you need to sell, you might want to wait. To sell in this "buyer's market", you will need to be much more careful, competitive, patient and realistic in pricing and marketing your property in 2008. The market value of your property will likely be a moving target, so if you really need to sell, you need to let go of the price that you "want" to sell for, price the property according to the market conditions and competition today, and be willing to react to decreased demand and prices. You can't take this personally. Market value is what a buyer is willing to pay for your property...today, not last year, not 2006. The properties that have the best location, are in the best condition, that are marketed the most professionally, and are the best value for the price range, are the ones that will sell in 2008. The days of just hanging a for-sale sign outside and having buyers beat a path to your door are over - good marketing and positioning will be critical. In some cases there will be only two solutions for sellers - time or price.

As I have said, Its almost impossible to predict how long it will take for the market to adjust and shake out. I think it is likely that inventory levels will again increase this Spring and more buyers will return to the market, but it is hard to predict how long it will take for supply to come back into balance with demand. The market may become more "normal" in 2008, or it could take much longer. It might be a good to time to buy or a good time to sell, depending on your individual needs and goals, and the property.

With the key reasons why people want to live here unchanging, there will probably always be a higher level of demand here than for less desirable areas, and Bend will probably continue to buck the national trends. In my view, Bend will continue to grow, and smart, educated, long term investments in real estate will be safe. I don't believe that the market will "crash"...just adjust. Should you buy or sell? As I tried to say above, be careful about believing everything you read or hear. What is happening nationwide, isn't necessarily applicable to Bend. What is happening across town in one neighborhood, isn't necessarily what is happening in your neighborhood. Be careful about making decisions without getting all the facts….and a full perspective. Every property and personal situation is unique. Buying or selling depends on the particular property, your circumstances and goals. With so many variables in play in today's real estate market, the need to educate yourself has never been higher.

Come back each month to see if the prices are going to drop or increase and what happens in this dynamic market. In the meantime, please contact me if you have questions or want to discuss these trends and your particular circumstances in more detail, and whether you should buy or sell. It all depends...