2024 Central Oregon real estate - trends to watch
Last updated 11/28/2023 at 11:44am
After some time off, we’re back with our usual Q&A about rental properties and housing. But first, let’s start with a look at some major market trends.
2024 is shaping up to be a different sort of real estate season in Sisters. After several years of bidding wars, new Covid-fueled residents, cheap money, and massive price increases, things are finally settling down. Let’s take a look at a few trends driving the local real estate market.
1. End of the ZoomTown BoomTown
This cute phrase was coined to describe quaint, quiet, idyllic towns that got overrun by wage slaves from big cities when businesses decided everyone could work from home. Instead of staying in their actual homes, these remote workers moved to cool places like Sisters, Sandpoint, and Whitefish. The result was higher rents and higher home values.
Now that these workers are being called back to the home office, demand for rentals and housing in these places is slacking. Areas like Boise and others have seen double-digit percent declines in values, but that’s not happening locally.
2. Interest rates
This is the big thing in real estate right now. Pretty much every homeowner who purchased before 2023 is sitting on an interest rate that starts with a 3 or a 4. With rates now hanging around 7 percent, people just can’t afford to sell their current house and give up that sweet, sweet cheap money even if they would like to move. The result? Less supply, which is keeping prices high.
Combining fewer sellers with the fact that higher interest rates have made houses unaffordable for many potential home buyers, and you have a recipe for a slowdown.
What does that mean in real-world terms? Say it was just a year or so ago, and you wanted to buy a little place in town. For a $700K house with 20 percent down, your monthly payment would have been around $2,300. At today’s rates, you’d be looking at more like $3,700. Sobering indeed.
Now some smart people are saying we’re going to get some interest rate relief in 2024, but nobody’s talking about a return to the threes and fours anytime soon.
For those of you born after 1980, inflation is bad. It is (basically) when the price of retail goods seems to increase rapidly for no good reason. Any skeptics are welcome to check your current grocery bills against last year’s, for evidence. The real kicker here is that inflation is generally not accompanied by higher wages, so we all see reduced purchasing power.
The housing market, and especially new construction, is not exempt from this. Raw material prices and labor are high, and will continue to increase. This means that the likelihood of newly constructed “affordable” single-family homes remains unlikely.
For individuals, inflation means a higher percentage of income going to essentials like food and gas.
4. To bubble or not to bubble
Many of us remember the 2008 housing crash and the ensuing recession. With some vocal commentators screaming “housing bubble” and “recession,” many are wondering if we’ll see a repeat. One crucial difference between now and 2008 is the amount of equity the average homeowner has.
In 2008, banks were giving away zero-down loans, and doing a poor (or criminal) job of verifying ability to repay. This led to a huge mess when the economy turned down and borrowers, unable to make payments, simply walked away from their loans.
Since 2008, lending requirements were tightened considerably, and even a significant drop in housing prices would not create negative equity for a significant amount of owners. This means a lower likelihood of a recession -ueled crash in property values.
5. Low housing supply
But, but, but... the Governor said “more affordable housing.” I know, we all wish politicians could repeal the laws of supply and demand. But a bunch of affordable single-family housing springing up isn’t going to happen any time soon.
Remember that whole 2008 housing crash thing? Builders basically stopped building for five years after that, and we’re still feeling the effects. Today, permitting and planning processes remain expensive and cumbersome, discouraging building. Also, our new friends high interest rates and inflation will continue to make new construction a challenging business case.
What does all this mean? My crystal ball is cloudy and I’m suspicious of anyone who claimed to know the direction of the market. But for those interested in real estate, I would pay close attention to these particular trends. And while I think it’s safe to say that dramatic market swings are not likely in our area, anything can (and often does) happen.
Mike Zoormajian is a principal at WetDog Properties in Sisters. Providing local real estate, property management, and investor services. Questions and comments to: [email protected]. Free advice is worth what you pay for it. Consult a real attorney before doing anything crazy.