2012 Bend Forecast Speakers See Signs of Recovery as Prices Level Out
The year 2012 is looking a lot like 2003, a keynote speaker suggested at the latest annual Real Estate Forecast Breakfast organized by the Bend Chamber.
Ron Ross, principal broker with Compass Commercial Real Estate Services, pointed to data showing average Bend home prices and sales volume by the end of last year almost exactly approaching that of the same period close to a decade ago.
“We are back in balance, and right about where we should be,” Ross told a packed house at the Riverhouse Convention Center. “The problem is the path we took to get here, with the stratospheric rise and fall in between before correction of the bubble.”
Ross charted data showing a consistent steady trend of around 6 percent annual appreciation from the mid 1980’s until the early 2000’s, with the rate skyrocketing to around 16 percent a year from “the aberration of” 2005 to 2007, prefacing an equally precipitous drop.
Media reports starkly illustrated the roller coaster ride, with headlines going from trumpeting the City’s housing stock as having the highest appreciation in the country to the greatest depreciation nationally.
He added: “The big question is, are we done correcting? I am going to say yes, we are close. It is no secret that the real estate market is hot in certain price ranges with low inventory, and I believe the winter of 2011 and 2012 is going to mark the beginning of the housing market recovery in Bend.
“Trends are moving in a positive direction and we have to accept a ‘new normal’ in the market, which is a lot healthier. But we can’t wait for the economy to get back to where it was in 2005. That’s not going to happen any time soon.”
In fact, if the six percent annual appreciation trend had continued to track from 1986 to now the average home price, of around $238,000, would be right on target, rather than the boom of 2004-2007 when “the notion took hold that everyone should own a home” and median value spiked at over $400,000 before “falling of a cliff” around 2008.
The peak to trough represented around a 44 percent drop in value over a four-year period, with residential lot prices experiencing an even more dramatic collapse after plummeting 68 percent in a two-year timeframe mid decade.
Ross added that if a six percent appreciation rate was to continue, it would take around 10 years from now to get back to previous peak levels, or 20 years if a three percent figure – mirroring current average annual U.S. inflation – was applied.
By contrast, average housing rental rates have remained fairly balanced and had not experienced the speculative bubble and crash syndrome, rather being driven by market supply and demand fundamentals.
In regards to future “safe haven” investment principles, Ross advocated long-term horizons of 5-20+ years, using caution with leverage, and diversification through all asset classes.
With perceived affordability regarding value, and interest rates near record lows of around four percent fixed for 30-year terms, Ross also observed “opportunity is knocking, and there may never be a better opportunity to buy a house”.
Data showed that the comparable down payment for an average home in Bend had dropped to around $46,000 currently, compared to over $85,000 in 2007 – representing a reduction in monthly payment from $1,935 to $910.
He added that the commercial real estate market typically lagged the residential sector by a year or two, and that there were “amazing opportunities” for business owner-users to buy a building. Given its finite supply, well positioned land acquisition could also represent future upside value.
In a wide-ranging address dubbed “Shocked, Revised and Polarized” fellow keynote speaker and national economist John Mitchell echoed Ross’s sentiments regarding the real estate market returning to 2003 levels.
Turning to the national perspective, he forecast that the next year would see more renters in the marketplace and a continued decrease in home homeownership, adding: “You will notice different attitudes on the part of the young, tighter credit standards, and so forth.”
He postulated that the ongoing rapid rise in the rental market was partially due to the lingering volume of distressed leftover properties from the housing bubble.
Mitchell said mortgage giants Fannie Mae and Freddie Mac were sitting on many such properties, when they should pursue a policy of selling in mass quantities to further widen the rental market. “If they would sell quickly and in big lots, then investors could go in, buy a bunch of the properties, and become landlords,” he said.
He conceded that the recession – which reportedly “technically” ended in June 2009 – went deeper than first thought, and as the economy struggled through the perceived third year of recovery almost everyone in a 2011 Wall Street Journal poll of economists was overly optimistic regarding growth predictions for last year.
Mitchell observed that while the real estate market was trending towards stability, with output and consumer spending also rising, there were still many outside factors that could threaten a fragile recovery in housing or the economy in general.
Any combination of issues, including the debt crisis in Europe (particularly Greece), the threat of rising oil prices, national policies, unemployment and faltering consumer confidence could jeopardize the tepid recovery anticipated in 2012.
Mitchell said short term prospects for Gross Domestic Product (GDP) growth ranged from 2.2-2.7 percent for 2012, with a continual gradual expansion predicted of from 2.8-3.2 percent in 2013. Inflation was forecast at 1.5-3.2%, with the Federal Reserve holding interest rates steady for the foreseeable future.
Overall, for 2012, Mitchell pointed out that Central Oregon still had all the things that made it attractive before the bubble burst, regional and national economies were recovering, and mobility would continue to increase, with stronger labor markets.
Nationally, employment picked up in the second half of 2011 and Oregon also added 20,000 jobs last year after losing more than 100,000 in 2009.
Mitchell added: “We may over correct on the downside, but if we step back, we are close, and getting closer to a normal environment.
“As we go into 2012, I’m assuming and I believe that you’re going to see things more dramatically improve.
“We’ve got rising construction activity and increasing sales. We still have downward pressure on prices, but I think that’s the last thing that’s going to end.
“Housing affordability is at record levels, and, nationally, home prices are back to about 2003 levels.”
According to recently released national figures, home prices continued to fall last year in Bend, dropping less than 1 percent, but on a positive note prices rose 2.66 percent from the third to fourth quarter.
Some 22 percent of homeowners across the U.S. were still underwater in terms of owing more than their home is worth, and since the market collapsed in 2008 around $7 trillion in home equity had been wiped out.
“The American Dream for most people meant having their children be better off than them,” said Mitchell. “Now, that’s not so sure. Kids are still living at home.”
