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COVID-19 has thrown plenty of curveballs our way, and we’ve seen some strange economic conditions over the past two years as a result. And the pandemic isn’t over yet, which makes issuing economic predictions risky, but at the start of a new year we always like to take stock of the current situation and assess the outlook — even if it’s full of caveats — for the year ahead.
With that disclaimer out of the way, let’s take a look at what we think we can expect in the Central Oregon residential and commercial real estate markets in 2022.
A Booming Housing Market
There’s never been a better time to sell a house in Bend. Central Oregon has long been an attractive place to live, but the pandemic has driven a new influx of residents that shows no signs of stopping. The increased need for housing — coupled with labor and building material shortages that have left builders struggling to keep up — has created a supply-and-demand mismatch and led to bidding wars and record high prices. In 2021, the average sale price of a single-family home on less than an acre increased 26.6 percent from the previous year, to $774,860.
There is some indication that more affordable options will emerge in 2022. While supply chain issues continue to affect the progress of build sites and thus limit inventory, new home developments are being completed, and we’re also seeing more multifamily complexes that will offer lower-cost housing and expand the available rental options.
On the other side of the equation, the year began with rising mortgage rates, making it more challenging for buyers to find homes in their price range. In the second week of January, according to data from the Mortgage Bankers Association, the average rate on the most popular U.S. home loan, the fixed 30-year mortgage, reached 3.64 percent — a new high since March 2020. Potential homebuyers should anticipate that high rates will continue, as the Federal Reserve is expected to raise interest rates to combat inflation.
A Diverging Commercial Real Estate Market
The pandemic had widely variable impacts on different businesses and different sectors of the economy, and these effects are reflected in the commercial real estate market. While some Central Oregon retailers were destroyed by COVID, others were able to survive and even thrive. Consumer demand is currently robust, and many new businesses are opening. Occupancy and lease rates are strong, and we expect to see new retail construction in 2022. Similarly, the increased popularity of e-commerce increased the demand for storage and distribution centers — indicating a corresponding demand for industrial buildings. This trend is leading to the migration of companies to Central Oregon and further growth/construction in the industrial and multifamily sector.
The office sector, in contrast, has yet to recover. Bend office vacancies remain stable at under ten percent, but remote working continues to present challenges in this market, as companies look to cut costs, and many employees prefer the flexibility of working from home. Lease rates are flat, and we see no new office construction in Central Oregon at the moment.
Beyond the pandemic — but connected to it — inflation is also affecting commercial real estate. Inflation is the highest it’s been in the last 35 years, and although rents typically tend to rise with inflation (and interest rates), many commercial properties have long-term leases with low annual rent increases, which puts pressure on capitalization rates and property values. Shortages in housing, labor, services and supplies — which Central Oregon can expect to feel, just like other regions — all fuel further inflation as well as holding back an otherwise rapidly expanding economy.
Growth is another key variable we’re watching. The rapid pace of growth seen last year certainly isn’t sustainable, but Central Oregon continues to be a hugely popular destination and we don’t expect a massive slowdown this year or over the long term. Oregon’s Employment Department forecasts 18 percent job growth for Central Oregon between now and 2030, making ours the fastest-growing region of the state, just outpacing Portland. And high job growth means high demand for real estate, commercial as well as residential.
Success in an Evolving Market
Central Oregon continues to have an extremely strong real estate market, and although rapid growth is certainly driving up prices, at Washington Trust Bank we offer a wide range of loan options that allow us to set our clients up for success.
If you’re looking to buy real estate in Central Oregon — whether you’re a newcomer or a longtime resident, whether you need a home loan or commercial real estate financing — our advisers are available to walk you through the process. Together we can find a solution that will help you achieve your financial goals for 2022.
Cory Allen is senior vice president and team leader for Washington Trust Bank in Central Oregon. He can be reached at CJAllen@watrust.com.
