When hot property cools off
Published: December 28. 2007 4:00AM PST
After nearly a quarter of a century without a serious downturn, history finally caught up with the Central Oregon housing market in 2007.
Swooning like an oxygen-starved sprinter at the end of a too-long run, the region’s residential real estate market struggled by nearly every measure throughout the year.
Bend, the region’s largest city, averaged about 129 sales per month of single homes on urban lots throughout the year, down 27 percent from the 2006 pace and 46 percent off the torrid pace of 2005.
Median prices on the homes that did sell held relatively steady, settling in at $349,000 through the first three quarters of the year, according to Central Oregon Multiple Listing Service data.
But high sales prices were cold comfort to would-be home sellers who found it difficult to move their homes at any price.
Bend started the year with more than 1,100 unsold homes on the market, according to MLS data reported by Bratton Appraisal Group’s Mike Caba. That number quickly soared to more than 1,600 by June as speculators and other homeowners tried to sell at the same time.
The number of listings gradually shrank to around 1,300 by early this month, as some homes sold and some would-be sellers opted to pull their homes off the market to wait for another season.
Still, at the year’s average monthly sales rate, it would take more than a year to sell off even that reduced year-end inventory level — more than the six months of inventory that most industry observers say is the hallmark of a well-balanced market.
The region’s other local markets had similar stories to tell in 2007.
More than 572 unsold homes on urban lots were on the market in Redmond by the middle of December, according to Caba’s numbers — a 13-month supply at the year’s average sales rates.
Sales in La Pine were off 52 percent from 2006 through the third quarter, according to the Central Oregon Association of Realtors. The same was true in Jefferson County. In Crook County, sales numbers slipped by more than 46 percent.
The chill in local home sales, which actually started in summer 2006, found its roots in a number of factors, including the virtual disappearance of speculators and investors. They accounted for more than 25 percent of sales at the peak of the boom in some of Bend’s most popular new subdivisions, including NorthWest Crossing, according to Brooks Resources Corp. CEO Mike Hollern, whose company developed the subdivision.
The market has begun to claim some casualties.
Mortgage defaults
Mortgage defaults in Des-chutes County rose to their highest level in more than 10 years, with more than 560 mortgages falling far enough into arrears to enter the first stages of foreclosure by Dec. 20, according to county records. But this year’s ratio of mortgage defaults, about 7.6 per 1,000 housing units, is comparable to the next highest year on record, 2002, when the county had about 7.4 default notices filed per 1,000 housing units through Dec. 20.
Buena Vista Custom Homes, a Lake Oswego developer who moved into the Bend market in early 2006, tried to pull out with an auction of 29 empty homes in its inaugural northeast Bend subdivision in mid-December, but the auction was a bust. Even though most of the builder’s Portland-area homes sold, not a single Bend home moved at a price that Buena Vista President Roger Pollock would accept.
Most builders hit the brakes as the market soured. The total number of building permits issued through November this year was down nearly 55 percent from the same period in 2006, according to numbers compiled by Cascade Central Business Consultants President Don Patton. Most builders reported staff layoffs through the year, and subcontractors slashed prices to try to keep their own crews working.
Unemployment stats
The downturn in the region’s largest economic sector failed to show up by year’s end in local unemployment statistics, but some parts of the industry have been hard hit. In Deschutes County alone, for example, the number of licensed mortgage originators dropped from 319 at the end of March to 257 by late August, according to the Oregon Division of Finance and Corporate Securities — a 19.4 percent drop in five months.
The slide in building permits and fees also is threatening to have its effects on public services. In Bend, the Police Department has said it will hold off on plans to hire new officers and buy new patrol cars, now that revenues are crimped by the slide in income from building permits, engineering fees and planning fees. The Fire Department faces similar issues, and Community Development Department Director Mel Oberst has said he will likely have to lay off 10 people in the city’s planning division.
With the residential housing market still reeling from the aftermath of a popped bubble, what’s the probability of a recovery?
High, some market observers say. But maybe not anytime soon.
Hayden Homes President Dennis Murphy said in September that he thought the local housing market might show some signs of recovery by the end of next year — or, “maybe longer. But it’s going to be a long, cold winter.”
Hollern, of Brooks Resources, one of the region’s largest and oldest development companies, said later in the fall that he doesn’t expect to see strong signs of recovery until 2009, at the earliest, or possibly 2010. The inventory of unsold homes, in his estimation, is too great to be eliminated quickly, unless something unforeseen happens in the marketplace.
Hollern and other industry leaders, meanwhile, say they are adjusting their operations to deal with the end of a building and real estate sales boom that most knew could not last.
Mark Kramer, general manager of the region’s largest custom cabinetmaker, Brian’s Cabinets, said his company is planning to push fairly aggressively into the factory-produced storage cabinetry market for garages and closets, hoping to offset at least some of the drawdown in demand for higher-end work.
In the long term, he said, optimism still reigns.
“No one expected it to continue at the pace it was going at,” Kramer said, “But the thing about Central Oregon is, it’s still a great place to be, and everybody I talk to still feels comfortable about making an investment in a home here. Maybe there’s going to be a little bit of a lull in the market, but nobody feels there is going to be a decline in the long term.”
Central Oregon’s commercial real estate market stayed hot longer than the housing market did, but it, too, started to cool as the year drew to an end.
Unlike the housing market, commercial real estate is driven entirely by investors. No one buys because they fell in love with a cute commercial office building. But they do buy if a variety of numbers line up in attractive ways — interest rates, growth in the local economy, and the value of alternative investments being chief among them.
Two of those factors started to deteriorate toward the end of the summer. Hit by a national credit squeeze, interest rates on local loans rose, and banks demanded higher qualification standards from their borrowers, according to Compass Points, a quarterly newsletter on the local commercial real estate industry published by Bend-based Compass Commercial Real Estate Services. At the same time, demand for leased space weakened as businesses associated with the housing industry — title companies, mortgage brokers and real estate brokers, in particular — either shrunk their staffs, curtailed their expansion plans, or closed their operations altogether.
By the end of the third quarter, Bend’s absorption of industrial and commercial space fell 60 percent below the 2006 level, according to Compass’ surveys.
There were bright spots. Bend’s Old Mill District managed to quickly lease most of the new space it built in its shopping district, and vacancy rates in Bend’s downtown remained at a very low 2.1 percent. Still, Compass, the region’s largest commercial real estate brokerage, predicted a challenging market for the next 18 to 24 months — a double-edged sword that could force sellers and building owners to keep prices and lease rates in check, but also could present patient buyers with the potential to find better deals than the markets have offered in a number of years.
Broken Top
Real estate was slow, but not boring, in southwest Bend this year.
The members of one of Bend’s most exclusive golf clubs, the Broken Top Club, reacted angrily in January when a Seattle-based development group bought the club and quickly announced plans to build a new hotel/condo and retail complex on the site of its 15-year-old clubhouse.
As the year progressed, the battle for Broken Top turned into a struggle not just over the future of the golf course and its clubhouse, but of the gated subdivision that surrounds it.
The Broken Top Community Association, which represents the 634 property owners in the Broken Top neighborhood, sued to keep commercial development out of its subdivision. A group of club members went to court, too, to defend an agreement they made in 2006 to buy the club — albeit it slowly — from former owners Don Bauhofer and John Leitz and their Arrowood Development LLC.
Finally, by late summer, the club’s membership group announced that it had raised enough money to buy the club outright, securing it from any thought of major redevelopment. Deschutes County Circuit Court Judge ordered the new owners — a pair of trusts devoted to Seattle developer Paul Brenneke’s family members — to sell it to the club members, settling the club’s fate once and for all.
The deal closed in late October for $8.36 million. Now, its owner/members are trying to figure out ways to attract enough new members at the $55,000 buy-in price to keep its operations solvent.
Clotheslines
Fed up by global warming and the energy-gobbling affluence she saw all around her, Bend’s Susan Taylor decided to try one of the most obvious things she thought she could do to help change the world last spring.
She hung her laundry to dry in the sun in the backyard of her Awbrey Butte house.
A neighbor, however, complained to Awbrey Butte’s developers, Brooks Resources.
As it turned out, Awbrey Butte — like thousands of subdivisions throughout the country — has a set of rules in place banning the visible display of hanging laundry, and Brooks asked Taylor to gather her laundry in, or build something to screen it from the eyes of neighbors.
Instead, Taylor showed her laundry to the world and became a media sensation in the process.
The Wall Street Journal picked up on her plight after she contacted a national Web site that’s devoted to promoting natural laundry drying. The story went worldwide within days, making Taylor the poster woman for changing restrictive — or outdated, as she called them — codes, covenants and restrictions in subdivisions throughout the land.
Brooks toyed with the idea of calling for a vote of Awbrey Butte’s 800 or so homeowners to determine whether they wanted the drying rule changed. But it opted, in the end, to offer some preapproved screening plans instead. That option didn’t satisfy Taylor. She said she and her husband put their home up for sale in October, planning to move someplace in Central Oregon with less restrictive codes.
David Fisher can be reached at 617-7862 or at dfisher@bendbulletin.com.
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