State of the Market Early 2024

STATE OF THE MARKET

A LETTER FROM THE TEAM

EARLY 2024 UPDATE AND OUTLOOK

After a few years of unprecedented real estate growth, we encountered an equally extreme period of about 18-20 months of interest rate increases. This combo of rising prices paired with higher costs to borrow money, pushed housing affordability to levels we haven’t seen before (see Chart 1). This led to a year where we saw drastically fewer homes come to market, and sell, than what we saw in the years leading up to the pandemic. However, what it didn’t lead to were big price reductions. In fact, prices were up both nationally and locally in the last 12 months. While on the surface, this can seem confusing, it is our sincere hope that by taking a few moments to recap what we have seen, we will be able to explain why the market behaved as it did, and perhaps shed some light on some things we can expect in the year to come.

ECONOMIC TRENDS

With this being an election year, we expect that the headlines about how elections affect real estate will start midyear. We will get out in front of this and suggest that our clients try to ignore the noise and stay focused on the more important factors in this market. The reality is that elections can provide some uncertainty around potential tax and policy changes, which may cause buyers to be cautious as the elections near. However, they rarely cause any major shifts in the factors that affect buyers and sellers. The real factors to watch this year are similar to the factors from the last few years and include: inflation, wages, interest rates, housing inventory, and prices to name a few.

Let’s start with inflation and wages. At this time last year, we saw wage growth and inflation intersecting at about 6% (see Chart 2). Now one year later, we have seen inflation drop to a more manageable level of 3.4% and wage growth remains relatively strong at 5.2%. The Federal Reserve has set a target of 2% inflation, so we aren’t quite there yet, but the discussion has changed from talk of future rate hikes to the expectation of multiple rate cuts in the coming year. This is a huge shift and is an indication that the Fed believes the economy is on stable ground, is “landing softly” as they had intended, and overall heading in the right direction. As a reminder, mortgage rates and the Fed Funds rate are different, so don’t get confused when you hear about the Fed cutting rates. We talked about the differences in prior editions of this piece, available by scanning the QR on the middle page.

Changes in mortgage rates have arguably been the biggest driver of activity in the past few years. The artificially low interest rates of the pandemic era led to a surge in buyer activity and prices unlike any we had seen before. Since the beginning of 2022, the overall trend in rates has been significantly to the upside, with an occasional pullback. What we saw fairly consistently was that movements in rates have been nearly a mirror image of existing home sale activity. When rates go up, fewer homes sell and when rates go down, more homes sell (see Chart 3). Since late October, rates have come off significantly, and locally we saw an uptick in pending activity in December for the first time in 15 years. As we head into the seasonally expected busy spring market, we will be watching to see how much of an uptick there is in sales.

SALES AND INVENTORY

It is not surprising to hear that home sales have fallen dramatically over the past 12-18 months. It has been the headline in several articles and is often meant to alarm people into thinking that the market is not doing well. There are a couple of things at play here that are worth considering. First, during the years leading up to the pandemic in Deschutes County, we saw roughly between 6000-6300 homes on average selling in a 12 month period (see Chart 4). However, for nearly two years during the pandemic, this 12 month average spiked to between 7000-8000. What was happening was that people who likely would have bought in

Central Oregon in 2022 and 2023, jumped in sooner and increased the sales between 2020-2021. It wasn’t that people lost interest in Central Oregon in 2022 and 2023, but rather many thousands of them had already moved here.

Also, with about 70% of owners sitting on rates of 4% or less, and knowing that for a good portion of 2023 their replacement purchase would be in the 7-8% range, it is no wonder sellers decided to stay put. In 2023, there were roughly 38% fewer homes for sale than there were in the last year before the pandemic. However, there were only 32% fewer sales last year compared to 2019. The fact that home sales didn’t drop as much as available homes did is an indication that there is still demand in the market even with fewer choices. With rates reduced to levels not seen since early last year, and expectations that they will continue to fall (see Buyer’s Corner), it will no doubt get both buyers and sellers off the fence. We will need to watch how the expected new listings get absorbed and continue to monitor where the balance falls between buyers and sellers.

PRICES AND LISTING TIME

Earlier in this article we alluded to the Fed’s use of the phrase “soft landing,” however, this can be a bit misleading as it seems to imply a fall in prices. Since we didn’t anticipate a fall in Central Oregon, we have always talked in terms of stabilizing and normalizing. The rates at which prices were increasing and the speed at which homes were selling were statistically high and well above the norm. We expected that homes would not lose value, but that the rate at which they increased would cool and that appreciation would head back to more normal levels. This is exactly what we saw with the average price in Bend ending the year 3.3% higher than where it ended in 2022.

On a similar note, we saw the average sale to list price go back to the expected range of roughly 96-98%. This shows that fewer buyers were overpaying, fewer sellers were shooting for the stars in their pricing, and a small amount of negotiating was present in many sales. Also, it is worth pointing out that the median selling time frame in Bend was roughly 40 days (see Chart 5), right in line with historical norms. We would like to point out that with such a small number of monthly sales, we are still seeing some large movements month to month. In any given month, a handful of homes with high prices, low prices, or high days on market, can skew the data, and so we caution our clients to not read too much into one monthly number. It is important to look at the whole picture to get a better sense of potential shifts.

FINAL THOUGHTS

It is always hard to paint a complete picture of the real estate market in just a few short paragraphs and accompanying charts. The biggest reason for this is that each person is different and their goals are unique. The fact is that we can only help you achieve your goals by understanding where it is you want to go, and we can only do this by asking questions and not just sharing data. We hope you can use this data to get a good understanding of what is happening, and let it be an indication of how serious we are about what we do. We would love the opportunity to hear from you and help craft a plan that sets you up for success in the next chapter of your life.

- Steve LaCrosse

THE DIFFERENCE IS EXCELLENCE

OUR WHY

is to help smart people meet their personal and financial goals through strategic real estate investment.

OUR PROCESS is to streamline home buying and selling by supporting clients at every stage with a dedicated team of experts.

Cascade

https://www.statista.com/statistics/201568/change-in-the-composite-us-housing-affordability-in-

OUR RESULTS comprise a proven history of selling homes faster and for more money, and guiding buyers through successful purchases.

What’s unique about the Ladd Group is that our team is built around making sure you achieve your goals in a seamless and effortless manner. Our team covers it all, with in-house experts in marketing, videography, transaction management, operations, and sales. REFERENCES:

https://www.mortgagenewsdaily.com/data/existing-home-sales#chart-existing-home-sales-vs-30yr-rate https://coar.stats.10kresearch.com/infoserv/s-v1/6YNN-HgY https://coar.stats.10kresearch.com/infoserv/s-v1/6YGf-xgf https://www.marthastewart.com/curb-appeal-most-important-to-home-buyers-study-april-2023-7481435 https://www.nar.realtor/sites/default/files/documents/2023-profile-of-home-staging-03-30-2023.pdf

BUYER’S CORNER

Given the low levels of housing affordability combined with low inventory and persistently stable prices, we need to ask how this has affected buyers. Specifically, we will examine how buyer confidence, demographics, and demand have changed in the last year or could change in the year to come.

CONFIDENCE

Heading into 2023, the interest rate environment had buyers expecting good things. Last year, according to numbers from Fannie Mae, we started the year with 37% of Americans thinking that prices would go down over the next 12 months. By the end of 2024, this number was less than 25%. Also, a Fannie Mae survey at the end of the year showed that 31% of respondents expect rates to go down in 2024, which was more than double what the poll showed in October (see chart A). Both of these polls indicate that buyer sentiment is shifting in a positive direction.

GEOGRAPHICS

Over the past few years, it is likely no surprise that the largest number of people moving to Bend are coming from Portland, California, and Seattle (in that order). We will also say that we have seen a growing number of “recently local” buyers as well. These are buyers who have already sold their previous home and have relocated to Bend, but decided to rent and get acclimated while they continue to shop. We don’t have exact numbers on these buyers, but they have been growing. Since the majority of the data we do have is based on tax records, they can be a bit lagging. However, our digital content provides timely analytics and insights into where the buyers are searching from. Based on this data, we have seen a significant increase in the number of people searching and moving from Southern California, Texas, and Arizona.

PENT UP DEMAND

What can often be overlooked in these discussions are the details of why people buy homes. The reality is that interest rates and prices are some of the factors involved in purchasing, but the reasoning behind making the purchase usually comes from a fundamental need for more space, less space, a new location for a job, etc. Chief Economist for the National Association of Realtors recently provided some insights into what has transpired over the last two years while buyers slowly paused their searches and patiently waited in hopes that rates would improve (see Chart B). When you take into account some of these numbers, it is no wonder experts are predicting an uptick in activity in 2024.

TYPES

This can be broken down into a few categories. First, despite the shifts in interest rates over the past 24 months, locally we are still seeing roughly 75% of all transactions being financed. There have been months where we have seen more cash buyers step in, but overall, the breakdown remains consistent. Also, at a national level, 29% of purchases were by first-time buyers, which is down only slightly from December 2022 levels (31%). It is reassuring to see that overall, financed and first-time home buyers are still present in similar ratios as last year, and are not getting squeezed out by cash-heavy buyers. These numbers are likely to remain steady or improve since as rates have fallen, new purchase applications have steadily risen and ended the year 22% higher than where they were at the end of 2022.

SELLER’S CORNER

The past two years have produced a whirlwind of juxtapositions for sellers in the Central Oregon market, and one can be forgiven for wondering just which headlines to believe. The truth is that a roughly 3-4% increase in interest rates since 2021 has affected the market from every anglereducing the affordability for buyers, causing sellers to remain in their current homes at low rates, and giving pause to investors and cash-heavy participants who wonder if there is a “better deal” to be had by waiting. Change is on the horizon yet again, as the reduction of interest rates is likely to ease all three scenarios in the coming months, to resume a more typical flow of transactions.

During this delicate evolution, there will be sellers who have excellent success, and they are likely to be those who pay particular attention to the preparation of their homes. According to a recent survey, 75% of home shoppers want a home’s exterior to look “impeccable.” Similarly, a study by the National Association of Realtors indicated that agents frequently recommend typical improvements such as professional cleaning (88% of the time), decluttering (96%), and paint touch ups (58%). In a market with growing inventory and newly empowered buyers, sellers will find great value in ensuring that their homes stand out against similar homes just a bit more. To accomplish this, we suggest the simplicity of a few basic but time-tested selling principles. Among them, preparing the home with the five senses in mind:

Sight - Though this section could encompass everything from curb appeal to staging (call us for a complimentary audit for our specific suggestions on these), this suggestion is about attending to all the little repairs, touch-ups, and spiff cleans that make a home shine. The little things that were overlooked in the frenzy of the past few years are likely to be noticed in today’s slower market, and outstanding visual touchups or home repairs can have larger ramifications as buyers then begin to wonder “what’s under the hood,” to use an automotive analogy.

Sound - Music can be a great way to create ambiance for a private showing, but should be kept low and not impede normal conversation. The genre can vary and ideally suits the home style - a little more tempo and energy for a modern home, for example. Water features are a great option as well if music is not preferred. On the spectrum of lowcost solutions, even a small bubbling countertop fountain can be very soothing and grounding, while comfortably cutting the silence.

Smell - This is a pivotal component of a welcoming home and can be relevant for both good and bad smells. As the owner of a home, it is easy to become “odor blind” to things like pet smells, trash, heavy air fresheners, or even last night’s dinner. Our guidance is to minimize and neutralize. Consider cleaning your home’s carpets, opening windows before a visit, and using only fresh and light scents or the occasional simmer pot on your stove in preparation for a showing.

Touch - Perhaps a more apt word for this would be “touch-less” as the goal here is to handle the little things for the buyer in advance: lights on, curtains up, fireplaces roaring, hot tub covers turned back, a (muted) movie playing in the home theater room, radiant flooring warming their toes as they wander through the primary bath. This will help ensure that potential buyers have a comprehensive experience of all of the home’s amenities without being forced to fiddle and fuss.

Taste - Stay with us, we know this sounds trivial. But formal showings are definitely “back,” and this means buyers are lingering longer as they consider more deeply the options before them. This year, we are reminding sellers to think of a showing as “company coming to visit.” Providing bottled water (we always do), as well as mints or hard candies, and possibly fresh cookies or packaged granola bars, alongside an array of information about the home, will ensure such guests feel welcome and valued for a lasting impression.

- Erin Martin

Marriages Divorces Net New Jobs Deaths

Erin Martin isn’t just an amazing broker, she is an amazing human and we would highly recommend her and the Ladd group to anyone looking to purchase a home in Bend.

Worked with Steve Lacrosse over the past year on our home-buying ambitions. He spent time to truly understand what we were looking for and helped us through a few offers until we found what we were looking for.

We had the absolute best experience working with Bryan Hilts of the Ladd Group.

My husband and I bought a home in Bend, OR from Stormy Clark. She was amazing to work with.

My wife and I had the good fortune to work with Jaclyn Oakland and the Ladd Group for the recent purchase of our new home in Bend. Jaclyn was very knowledgable about the market.

We are thrilled to have found Erik and the Ladd Group to help us find our forever home with amazing views!

Gratitude OVERLOAD!! Thanks to Ladd Group’s incredible generosity, a $10,000 matching challenge ignited a ripple effect. Two more amazing donors joined the cause, adding $5,000 and $10,000 to the match.

-Ranae Staley, Executive Director,The Giving Plate

TAKING COMMUNITY INVOLVEMENT TO NEW HEIGHTS.

The Ladd Group is committed to elevating Central Oregon through dedicated engagement and impactful giving. These are just a few of the many ways in which we are honored to serve our community.