By Bill Valentine CFA for the Bend Bulletin
Valentine Ventures, LLC
The year 2020 will not likely be remembered for many good things, although owners of residential real estate in Central Oregon may feel partially different.
The shift in workplace dynamics caused by the pandemic is likely to lead to an acceleration in the already strong fundamentals that continue to drive prices higher for real estate in our community, recession be damned. And we should prepare for a massive inflow of new residents, beginning this summer, and continuing into the foreseeable future.
Is this a good thing? Well, as mentioned, residential property owners can expect the values of their home and land to grow handsomely over the coming years — to the delight of those working in that industry.
Is it a bad thing? That depends on what you are looking at. And we’ll get to that in a moment.
In June of 2017, I was requested to speak to several real estate firms in Bend on my updated view of the residential property market for Central Oregon.
My presentation then centered around a few points.
• Central Oregon was not in a “bubble” like 2006 because that was caused by a credit-created inflation phenomenon that no longer exists.
• Interest rates were likely to stay lower for longer than most expected.
• Prices were headed higher because there are infinitely more people desirous of living in Central Oregon than the housing supply was able to absorb due to the urban growth boundary constraints around cities like Bend and Redmond.
As long as the average prices of real estate in our feeder areas (Bay Area, Seattle, Portland, etc.) remain higher than in Central Oregon, moving here would remain a compelling proposition for residents there.
Unless you’ve slept through the last six months — and wouldn’t that have been nice? — you can start to see how COVID-19 will further distort the supply and demand imbalance, to the benefit of price increases.
Huge numbers of workers have endured the shelter-in-place rules by working from home. In the process, the acceptance of virtual meetings has become broad-based. Co-workers and customers have become quite comfortable doing meetings online; at the same time, workers have gotten a taste of the benefits of working from their house or their favorite hangout spot. This is not a fad; it’s a trajectory.
When juxtaposing the work-from-anywhere trend with the downside of closely packed-in living — along with its congested commuter traffic, higher crime rates, high cost of urban living and the regulations and taxes that are disproportionately borne by urban residents—it doesn’t take a rocket scientist to see how a community with more space, nature, recreational opportunities and thriving culture makes for a persuasive alternative means of lifestyle and living.
Is this a good or bad thing? It’s both and everything in between, and largely dependent on your prospective.
The growth spurt, and price increases, are unequivocally positive for owners of properties and those who develop, build, appraise, lend-to and insure real estate and its owners. By extension, the local economy and business benefit from this wealth effect as greater capital is used for consumption and investment.
But it’s a stickier wicket when considering the burden placed on the infrastructure and labor force. Most of what I worry about is the diminishment in the workers who are the lifeblood of our community. With the increase in prices — which have also made renting more expensive — our teachers, civil servants, tradespeople, hourly workers and so on, are finding it increasingly difficult to have an opportunity to own a home and build a life here. They will continue to have to drive in from communities on our outskirts and farther away.
What’s the answer? I’ll leave that to those above my pay grade best suited to handle. But the elimination of the primary cause of the wealth gap in Central Oregon — the urban growth boundary laws — would be a great start (albeit a gargantuan task) to allowing the supply of homes to better keep up with demand.
Until then, prepare to meet your new neighbors.