David Fisher / The Bulletin

Linda Laws and her husband have been trying to sell their little 712-square-foot rental house on west Bend's Northwest 12th Street since June.

The price, after a drop from the initial listing price, is standing at $349,000 - still a tidy profit on a house they bought for $135,000 in 2002, then renovated.

The Laws want to wheel their gains on the 12th Street house and another one they own on Baltimore Avenue into an investment property they have already bought in another state.

But there's a problem: Hundreds of other people have the same idea this summer.

The number of homes for sale in Bend has risen 249 percent since the first of the year, overwhelming the flow of buyers that has remained strong through most of the year, but not strong enough to keep ”For Sale” signs from cropping up like summer dandelions.

Buyers have plenty of choices, and some are hanging back to wait for prices to drop, RE/MAX Equity Group broker David Foster said.

Some sellers, meanwhile, are getting frustrated.

”I think we're at the point now where we'll just make this thing work, and maybe take the houses off the market until the market gets better,” Laws said Wednesday. ”I'm not sure.”

Month-to-month sales volumes in the region's priciest markets, Bend and Redmond, skidded in July from June, according to the Central Oregon Multiple Listing Service. Bend posted 162 sales, down 32.5 percent from June. Redmond's 68 sales marked a 9.3 percent decline.

Those numbers were still good enough to keep the region's year-to-date sales on track to beat the pace of 2004, then a record year. But they lagged far behind the torrid pace of 2005 - 41.7 percent off of July 2005's sales in Bend, and 34 percent off in Redmond.

Prices sliding?

Median sales prices, meanwhile, continued to rise.

Bend's median on the 162 sales that closed in July reached $354,000, according to the MLS, up 22.3 percent from July 2005 and significantly higher than the $343,950 median for the first six months of the year.

Redmond's July median reached $268,200, up 35.6 percent from the same month last year and also up from its six-month median.

Prices in Crook County, home to fast-growing Prineville, rose to $226,750 on July sales, up 51.2 percent from July 2005. And Jefferson County prices, with Madras in the mix, rose 35.4 percent to $180,000 on monthly sales that more than doubled from the same month last year.

Median sales prices reflect the level at which half are higher and half are lower. But the results may be a bit illusory.

Average prices throughout the region - the total of all sales prices divided by the total number of homes sold - show prices rising steadily this year through June, except for a minor pullback in April, said Bill Berger, managing principal broker of The Hasson Company Realtors.

Then, there's a sharp drop - the regionwide average sale price dipped from $393,000 in June to $371,000 in July, Berger said, a drop of 5.6 percent in a month.

That could partly reflect the rising sales of less expensive housing in Jefferson and Crook counties, combined with a pullback in sales in more expensive Bend and Redmond, Berger said. It also could reflect a weakening in pricing power created by a spike in inventory that started erupting in about the middle of May.

”For that to come down to $371,000 in one month, that was a fair-sized drop, and I think we are going to see that coming down some more,” Berger said. ”My take on it is that we are going to see some fairly significant price decreases for the next couple of months before we see it start to level out.”

Others ”think it might take a couple of years for prices to shake out,” RE/MAX's Foster said. ”I don't lean that direction. I think Bend is a little more special than that. But it's really hard to say.”

Or the downdraft may be beginning to correct itself already.

Anecdotally, Coldwell Banker-Morris broker Norma DuBois said the agents in her office have seen an uptick in prospective buyers in the last couple of weeks, while the flood of homes entering the market seems to have slowed.

Sellers will have to price their homes below the market and bring them on in pristine condition if they expect quick sales in the near future, at least until some of the excess inventory clears away, DuBois said, but she expects flattening mortgage interest rates and the area's still-strong attractions to buttress the market before the year is out.

”I think we've hit the bottom and we're on our way back up,” she said.

Buyers' market

David Lereah, the National Association of Realtors' chief economist, expects home sales nationwide to end the year down about 6.5 percent, which would make it the third strongest sales year in history.

Pending home sales dropped 9.6 percent in June from their June 2005 levels, according to NAR statistics, but the index rose 0.4 percent in June from the month before, leading Lereah to reiterate his predictions that the nationwide sales slide is about to level off as sellers adjust their prices to attract buyers.

”We are going from a seller's market to a buyer's market,” he told The Associated Press earlier this month. ”It looks like the worst is behind us and sales are starting to level off.”

Average interest rates on 30-year mortgages have risen from 5.8 percent in August 2005 to 6.55 percent this month, according to Freddie Mac, a national lending agency. Lereah said he expects the increases to level off as the year progresses, settling in around the 6.9 percent level by year's end.

In California, the source of much of Central Oregon's out-of-town buying traffic, June sales were off 26.3 percent from June 2005, according to the California Association of Realtors, while median prices rose 6.2 percent to $575,800.

The average listing price for homes on less than one acre on the Bend market dipped from $566,212 in June to $530,385 in July, down about 3 percent since the first of the year, according to the monthly analysis Foster posts on his Web site, http://david foster.biz.

Speculators flee

Inventory has built rapidly in the once-tight Bend market, Berger and other market watchers say, for one key reason: Speculators are trying to bail out at the top price. Their houses are crowding a market that's already full of the normal traffic - people selling because they have to move, builders selling new homes, and long-term residents trying to move up to better homes.

Bend alone had 1,322 active listings on July 31, according to Foster's analysis of the MLS numbers - about a six-month supply, based on average sales velocities so far this year.

It had 387 listings on July 31, 2005.

The biggest chunk of unsold housing inventory in Bend stood in the $350,000 to $450,000 price range in July, with 441 homes available, according to Foster's analysis. Forty-five sold in that price range.

On the other end of the scale, 79 Bend homes on city-sized lots were priced at more than $1 million, according to Foster's numbers. Only two sold.

George Hale, a co-founder of Bend-based WoodHill Homes, said the inventory buildup is causing him to trim his production plans this year, but he's still bullish on the long haul.

WoodHill sold about 25 percent of its homes to investors in 2005, Hale said, but those buyers ”are pretty much gone.” He's cutting this year's production plans to compensate, dropping from a planned 115 to 120 homes to around 100. But he's going ahead with major new land developments for future years.

”The things that draw people to Bend are still in place, and it doesn't take a lot of in-migration to Bend to have a lot of effect,” Hale said. ”This is just an adjustment.”

Hale is apparently not alone. Building permits issued in Bend dropped from 173 in June to 85 in July, Berger said. Redmond permits plunged from 56 in June to 27 in July.

Sellers react

It's hard to tell how sellers will react to the upwelling of inventory, Foster noted. Some are selling because they have to sell. Others are just testing the waters at intentionally high prices, trying to see whether a buyer ”with a bucket of money and a box of stupid” will show up to pay too much.

Some will slash their prices far enough to create some good deals, he said. Some will convert their properties to rentals, rather than trying to flip them for a short-term sale. Others will simply pull their properties off the market, or let their listings expire, until the market strengthens.

And some will get something close to what they're asking for, with a little normal dickering.

”I'm telling my agents they need to be looking really hard at any offer they get at this point,” Berger said.

Despite the glut, there's still movement in the market.

Stevi Hjertstedt scurried to get out of her Foxborough home in southeast Bend Wednesday morning before a Realtor showed up with some prospective buyers.

The 1,427-square-foot house is listed for $309,900. The Hjert-stedts paid $185,400 for it when they bought it in 2004, according to county records, but they're not shooting for the quick profit - they're moving to Grand Forks, N.D., because Pieter Hjertstedt, who works for Burlington Northern Santa Fe Railroad, got transferred and promoted.

The asking price, if they get anywhere near it, will buy them a bigger house in North Dakota with an extra bedroom, Stevi Hjertstedt said - the flip side of the sticker shock they faced when they bought their Fox- borough place in 2004.

”When we bought two years ago, we thought it was outrageous,” she said. ”But when they told us what they were going to list this house for I was shocked. I said, 'We're stealing.' But, you know? It's priced appropriately for the market.”

As in most Bend neighborhoods, she's competing with some investors and speculators who are also trying to get out.

A bigger house one street over, bought by an Oakland, Calif., resident in 2001 for $213,746, according to county records, is listed at $348,900 - price reduced. Another, owned by a Bend investor, is priced at $298,000 - up 68.6 percent from the $207,000 purchase price in February 2005.

David Staley, a full-time real estate investor and currency trader, said he's trying to get around the inventory glut by going direct to the buyer. He and his wife are planning to auction their investment house and an empty lot at 947 N.E. Purcell Blvd. to the highest bidder this weekend after a pair of Saturday and Sunday open houses.

Staley picked up the house last year in a tax-free property exchange deal. He carved the lot off the home's property, opening room for a new buyer to build a second house.

The auction, Staley said, ”just seemed like a good way to sell it quick. We really didn't figure we needed to get the maximum profit out of it.”