The million dollar question right now in the Bend real estate market and markets throughout the United States is when will housing inventory bottom out? We saw prices hit bottom in Central Oregon in February 2011 at $102 per square foot. Since then prices have steadily climbed to January’s level of $125 per square foot. Part of the reason for the increase in home prices has been a steady decline in inventory over the same period as illustrated in the chart below.
There are a couple of factors that have contributed to the declining numbers of homes for sale in Bend and the surrounding areas. The first is a large reduction in bank owned homes for sale. Mark Fleming, chief economist for CoreLogic, a real estate data company, said in January, “The most encouraging foreclosure trend…..is that the inventory of foreclosed properties is almost 20 percent smaller than a year ago. This big improvement indicates we are working toward resolving the backlog of the most distressed assets in the shadow inventory.”
The second factor is the mentality that homeowners get in a market where home prices are rising. In the same way that no one wants to sell their home at the bottom of the market, everyone wants to sell at the top. Those who can be patient will wait to list their home for sale for as long as they can afford to in order to try to get the best price possible. Which brings us back to our million dollar question, how long will sellers continue to hold back inventory?
Looking at real estate market history in Central Oregon, February should be the low point for inventory this year and possibly the bottom for the foreseeable future. A lack of inventory has brought builders back to the market to the point that new construction now accounts for 19.4% of all homes for sale in Bend. Heading into Spring we can expect builder activity to increase which will, of course, add more houses to inventory.
Warmer weather should also bring a natural increase in inventory from sellers who didn’t want to list their homes for sale during the holidays and cold winter months. Not many people look forward to driving a big moving truck in the snow and ice.
Buyers could have a positive effect on inventory as well. Strong demand from buyers throughout Spring and Summer would drive competition for the limited number of homes for sale and therefore keep prices climbing. As prices rise more home owners will be tempted to sell their homes and “buy up” while interest rates are still low.
Investors might also find themselves tempted by rising prices this year. For the last three years investors have been the most active segment of buyers in Bend and Redmond and many of them were able to purchase houses at fantastically low prices. Some investors will look to sell this year and lock in their profits.
The seasonal sales combined with increased builder activity, rising prices and profit taking should bring a healthy number of homes to market over the next five or six months. If demand from buyers remains strong relative to the number of houses for sale thereby sustain prices or even improve them, February could be the inventory bottom.
You can read more monthly sales reports: Bend Home Prices.
Real Estate Sales information courtesy of Central Oregon MLS