2009 began much as 2008 ended, with the Country and Bend in recession and suffering from the biggest financial crisis this Country has seen since the Great Depression. And while the 2009 real estate statistics for Bend reflect this turmoil, August 2009 brought some continuing positive trends, numbers and evidence of an improving market especially in increased demand and lower supply.Crystal Ball
For the local market to stabilize and improve, supply has needed to come down and demand increase. As long as supply exceeds demand there is downward pressure on prices. Demand seemingly bottomed out and was flat from November 2008 through February 2009 with the number or sales varying by only two ( Chart ). However since then sales steadily increased through July, dipped a bit in August, but rebounded in September and jumped 14% in October to a record number of sales for the month since August of 2006.
Though some of this increase in demand can be explained as normal summer seasonal increases which do tend to drop off in the fall, sales of homes on lots YTD are outpacing 2008 by 24%. Even the number of sales of homes on acreage are up 30% YTD. Increased buyer confidence, the $8,000 first-time home buyer incentive which was scheduled to expire November 30, low interest rates, lower prices and an increase in the number of low priced distress properties all help explain this positive trend of more demand. 72% of the sales of homes on lots this month were distress sales.
On the supply side of the equation, except for a slight increase in March, the number of homes on lots on the market has dropped each month since July 2008. This is in spite of the fact that historically supply tends to start increasing during the Spring and Summer selling seasons. Not only are the current number of active listings 41% less than this time last year, supply is also the lowest it has been since May 2006. This is especially note worthy as it was in the spring and early summer of 2006, that the market started shifting to a buyer's market with inventory going up and demand going down.
The Inventory Absorption Rate, as one of the more useful measures of supply in relation to demand also showed continued improvement in October. The IAR has dropped each month since last August where it was 16.5 months of inventory of homes on lots to just 7.2 this October. This was 50% less than October 2008 and 43% less than the first of the year, showing that supply *may* be coming back into balance with demand. ( Sales Price Table ) The IAR is calculated by dividing the number of active listings by the average number of sales per month over the last 12 months. This number averages in aberrations and the seasonal variations in supply and demand over an entire year. Historically around 6 months of inventory represents a balanced market.
While the current IAR at 7.2 is certainly encouraging, does this mean the Bend real estate market is almost balanced? Not necessarily. The sales for October were probably skewed higher because of the pressure on first-time homebuyers to take advantage of the first-time home buyer credit of $8,000 which was due to expire November 30th. Furthermore, the 7.2 months of inventory represents all price ranges. Some price ranges are far from normal. For example for homes on lots over $1,000,000 the IAR is 30 months of inventory and for less than $300,000 there is just 4.8 months of inventory. Sales are likely to drop off next month which will probably increase the IAR. Last year November through February sales were record lows.
The most 'negative' statistics again in October were the 27-28% drop in the average and median sale price of homes on lots since this time last year. The median list price was also down 15% YOY. With both the list prices and sales prices of homes down significantly from last October, does that mean 'overall' market values and prices have fallen that much? Not necessarily. These statistics present an incomplete and distorted picture of how the market is trending. These statistics primarily show that the majority of sales thus far this year have been low priced 'distress sales', but do not necessarily reflect overall market values of non-distressed properties or apply to every neighborhood.
To illustrate how the low priced distress properties have distorted the median and average sales prices consider the 174 houses on lots sold in October. 72% of those were either bank foreclosures or shorts sales. The average sale price of these 'distress' priced properties was $239,931 as compared to $365,847 for the 'normal priced' properties. The median sales price for the 'distress' priced properties was just $185,000 while the median sales price 'normal priced' properties sold was $253,500. The distress sales heavily skewed and distorted the statistics.
In March the median list price of homes on lots dropped to $299,999 which was the first time it was below $300,000 since the seller's market began. However, the median list price increased each month to $325,000 in July but started dropping thereafter and is back to $298,000 in October. The bump up this summer can probably be explained by the normal 'increased summer seller optimism' which tends to go away after Labor Day. Never the less the overall list prices are skewed downward given that ~34% of the active listings of homes on lots were either short sale or bank owned foreclosures.
Overall October did offer significantly more positive than negative trends. There were three year record sales for the month and demand is up significantly for the year. Supply has come way down and the distressed priced properties are being absorbed. The YTD median sales price of homes on lots was the same for 5 months over the summer, and though it is 27% less than this time last year, it has dropped only 8% since January, and much of that can be attributed to distress priced properties. Even sales of homes on acreage is up significantly. All these statistics show the Bend market is continuing to adjust, improve and come closer to 'normalizing'. It is still too early to suggest that the local market has bottomed out or that it is turning around, but the statistics and trends are certainly pointing that way.
Most economic experts are seeing signs of a slowly improving economy and suggest that the recession has ended in theory. They also caution that unemployment will increase and the rebound and growth will be slow. Locally things may still get worse before they get better with increasing unemployment and increasing numbers of distressed properties. Some are predicting another wave of foreclosures coming after the first of the year. However I am encouraged by the increase in demand, relatively low supply, improving consumer confidence and buyer activity. While the market is likely to slow over the winter, I think we may have reason to be optimistic about the short term future and certainly the long term.Buying and Selling in 2009
In the short term I expect the number of sales to drop off next month. I think many of the first time home buyers have already pulled the trigger thinking that they had only until November 30th to close and qualify for the $8,000 tax credit. However we may see an increase in other buyers with the tax credit expanded to include non-first-time home buyers.
I am seeing increased buyer confidence but expect a bit less activity. Last winter November through February were at a record low, but we should do better this year. The number of pending sales is up over last year. With the normal drop in seasonal demand and fewer sales, inventory could increase. While some buyers may continue to hold back for more signs of the economy improving, prices going lower or generally until their confidence in the future and their job security is restored, I also believe that there is still significant pent up demand locally and more will decide that now is the right time to buy. The extended tax credit may be the stimulus needed to get some buyers off the fence. Sellers that have to sell will reduce their prices as much as possible, but others that do not have to sell may withdraw their listings until next Spring.
Investors and first time home owners have been buying more of the low priced distressed properties and multiple offers for foreclosures are becoming common. I also think that the increased odds of the record low interest rates going up in the next few months will motivate some buyers to act rather than risk higher interest rates.
Short sales and foreclosures are likely to continue to be the majority of properties to sell until they are absorbed. While the number of distressed properties because of subprime loans may be waning, I suspect that we may see an increasing number of new distressed properties coming on the market because of continued high unemployment. The government programs designed to help home owners refinance and restructure their loans and avoid foreclosure have had only limited success. As noted, local builders have mostly purged their excess inventory, so there will be few if any new homes sold at, or below cost, and we aren't likely to see many new homes started until next Spring except for custom homes. Though distressed properties will continue to be absorbed, overall supply may creep up as seasonal demand drops. If supply creeps up as demand goes down, then we will also see this reflected with the Inventory Absorption Rate getting worse.
Once again, it certainly is not clear when or if the market has bottomed out or when the local or the national economy will improve, but it is clear after 10 months that 2009 has certainly been better than 2008 and that overall the trends are positive. I still believe that the Bend market will rebound and has a better long term future and upside than most places in the Country. The only question is how long it will take.
Should you buy or sell? It is hard to make general recommendations, but it is a great time to be a buyer, and not so good to be a seller. It all depends on your particular situation.
If your economic and job situation is fairly stable, it could be a good time to buy given the low prices and interest rates. The best time to buy may already have passed. There is still a relatively large selection of houses to pick from, but not nearly as many as a year ago, and your choices may continue to decrease. Already some of the buyer negotiation leverage has been lost in some price ranges because of relatively low inventory levels. Multiple offers for foreclosures are common now. Never the less, there are still many opportunities for the first time home buyer, long term investors, or someone who will live in a new home for at least 3 to 5 years. In addition to the new buyer incentives, there are good conventional loans available for buyers with average to good credit, FHA loans available at 96.5% LTV, construction loans, and investor loans with as little as 20% down payments. Interest rates crept up from a low this past Spring at 4.75% to 5.00% to 5.25+% for conventional loans this Summer, but seem to be dropping again slightly. Some jumbo loan interest rates have come down to 5.75%.
It is important to remember that rising interest rates could negate any advantage of waiting for lower prices. If interest rates go up 1%, the sales price of that home you might be considering would have to go down 10%, or the price paid would be the same whether you waited or bought today at the lower interest rate. Last summer interest rates went up and have been dropping a bit this fall. Hopefully these rates will continue to be available through the rest of 2009, but I don't expect interest rates to get much lower than they are, and they certainly will go up in the long run. Some have suggested we will see increased interest rates after the first of the year.
If you are waiting for prices to bottom out, remember that the bottom can only be viewed in hindsight, and that eventually the excess inventory will be purged and prices will start back up. The number of homes on the market is down 41% from this time last year--you have far fewer homes to pick from. The YTD median sales price was the same for 5 months this summer and only dipped a bit since. The opportunity to buy blow-out priced new construction has already passed for the most part. If you are thinking about buying, then it is important to at least get your ducks lined up, get prequalified for financing and educate yourself so if the right opportunity presents itself, you will be ready to act. If you are thinking about buying, it is a good time to call or email me.
Sellers will continue to be very challenged to compete in this market for the relatively few buyers with the high inventory and against the low priced distressed properties. If you don't have to sell, it might be wise to wait. You might investigate the new options to refinance and restructure your loan, and consider settling in until the market improves. With that said, inventory levels are down in some price ranges, and if you bought your property many years ago or have considerable equity, and can sell at a low enough price to compete, you can also buy proportionally low priced properties in today's market. In other words, what you loose on the sale of your current home, you can make up on the purchase of the replacement home. Also there is far less competition today than there was last year, and the number of buyers is up.
If you want or need to sell then you will need to price and position the property competitively from the start. While the market adjusts, those properties that have the best location, the best "curb appeal", the best condition, and are the best value for the price range and neighborhood are the ones that are most likely to sell. Good planning, marketing, staging and positioning will be critical. In some cases there will be only two solutions for sellers - time or price.
Should you buy or sell? I will continue to say, be careful about believing everything you read or hear. National trends do not necessarily apply to Bend, to a particular neighborhood or property or to your circumstances. Real estate is local. Take all statistics with a grain of salt. You need to do your homework and plan well. With so many variables in play in today's real estate market, the need to educate yourself as to your options has never been higher. There is both danger and opportunity in today's market, and I can help you see the difference.
Come back next month to see what happens in this dynamic market. In the meantime, please contact me if you have questions, comments, feedback or want to discuss your particular circumstances in more detail, and whether you should buy or sell...it all depends.