Central Oregon’s Housing Woes

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 By Damon Runberg 
 Regional Economist 
 Crook, Deschutes, Jefferson, Klamath, and Lake counties
 damon.m.runberg@oregon.gov 

It has been well documented that in Central Oregon, particularly Bend, housing is in short supply. According to data from the Multiple Listing Service analyzed by the Beacon Appraisal Group we see that available inventory of residential real estate has remained below a single month since spring of 2020. That is very low. Generally, six months of inventory is associated with moderate home price appreciation. Levels below that have led to our very rapid home price appreciation over the past six months.

The lack of available housing on the market is not unique to us here in Central Oregon. Nationally, months of supply dropped to a record low of 1.9 in December 2020. The pandemic is to blame for much of these supply issues. Generally, geographic mobility has been reduced, leading to less churn amongst owners of existing homes. Moving during a pandemic can be stressful if you are in a vulnerable population and fewer are moving for work/career reasons due to many jobs remaining remote for the time being. Additionally, historically low mortgage interest rates ramped up demand for residential real estate.

Home prices have responded to this low supply and high demand environment. According to Zillow’s home price index, home prices rose roughly 8% nationally in 2020, compared with 3.3% in 2019. Deschutes County’s home prices rose a staggering 12.7% in 2020 compared with 3.7% in 2019. Perhaps more shocking is the fact that Zillow estimates that roughly 63% of the home price appreciation in Deschutes County over the past year happened since the end of summer.

When we see dramatic increases in valuation like this affordability becomes a major concern, particularly if wages are not keeping pace. Let’s see how much it would cost to mortgage the average house in Deschutes County priced around $485,000 according to Zillow. If you are able to scrape together a large down payment of 20% to avoid private mortgage insurance, you are looking at a loan of about $388,000. As I said earlier, mortgage rates are near historical lows. Let’s assume you qualify for a 3% rate on a 30-year mortgage. That is a monthly mortgage payment of roughly $1,920 when taking into account insurance and taxes. But if you were only able to put down 10% your monthly payment would be closer to $2,300.

Who can afford a home in that price range? The U.S. Department of Housing and Urban Development (HUD) considers those who spend more than 30% of their income on housing cost burdened. It isn’t a perfect measure of what you can afford, but it is a good starting point. According to the U.S. Census Bureau, the Deschutes County median household income in 2019 was $71,640. If the median household in Deschutes County could somehow scrape together that $97,000 (20%) down payment it would still be marginally cost burdened, spending 32% of their income on housing. If they could only put down 10% they would become severely cost burdened, approaching 40% of their income on housing. For some context, in the Salem metropolitan area the median household is not cost burdened at roughly 26% of their income on the average house with a 20% down payment and only marginally cost burdened with a 10% down payment, spending 31% of their income on housing.

Even if you could barely afford to buy a home around $485,000 in the Bend area you would be hard pressed to find one on the market. As of January, there were only seven active listings in the entire City of Bend below $500,000. However, there are some signs that housing inventory may start increasing in the next six to 12 months. As the pandemic wanes we will likely see an increase in churn within existing homes as normal geographic mobility picks back up. Although it is expected that our population will continue to grow at a fast pace, the churn of people moving within the region, as well as those out-migrants leaving the region, will lead to a more stable supply of housing on the market.

Longer-term optimism comes from the trend in new housing units permitted in 2020. According to the U.S. Census Building Permits Survey, Deschutes County posted the highest number of residential units permitted since before the last recession. We finished the year with permits up nearly 19% from 2019 (+375 units). These new housing units permitted won’t immediately help our supply constraints, but we should start seeing an increase of new homes on the market by mid-late summer 2021. Hopefully the pace of building continues to accelerate as we move into 2021 as the solution to our housing woes is to build more housing.

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