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Blockbuster This Summer

Housing Frenzy, Part Deux



In late March, I stepped into the Editor position at the Source and, in preparation, began looking for a house in Bend. I have owned homes in Portland, know what I like and also know the business end of a hammer. I wasn't afraid of a fixer-upper, but also was hoping to find something near downtown, a simple, turn-key craftsman. There were a couple of short sales on the eastside, and some stale ranch-style homes on busy streets. Then, one week after starting my search, a cute 1920s craftsman hit the market. My realtor told me to submit a full-price offer, at roughly $260,000. A day later I was informed that if I'd like to increase my offer an additional $25,000—nearly 10 percent over asking price—I could climb into the back-up position for an already accepted offer—a way over-market offer.

Two days later, on the second house I found, I didn't make the same mistake: I simply started my bidding at $20,000 over the asking price.

Likewise, the Source's Senior Writer James Williams was looking for his first house. Tired of burning money as a renter and hoping to take advantage of low interest rates, he started looking for a place in January. But when he found the right combination—a house he likes and that he can afford—his realtor was out of town. When she returned, less than two days after the house went up for sale, it was already too late.

When another house he liked hit the market, he acted quickly and made a full-price offer. That house sat on the market for less than 72 hours.

"That's how this shit is going right now," Williams explained in an inner-office email to me. He summed up Bend's current housing market in one word, "FRENZY."

As much anecdotal as bottom-line calculations, the real estate market is a tale told in stories and in real numbers. And, right now, all indicators are clearly and loudly announcing that the market is back, and, yes, it is once again a frenzy.

But what those numbers and those stories aren't yet answering is perhaps the more important questions: What lessons were learned from the last boom-bust? And, is this current boomlet sustainable?

The story of Bend's housing market is well-known and painful. Few people in town are familiar—either as "victims" or FOV—with the housing bust that occurred over the past several years.

Throughout the '90s, Bend enjoyed a jack-and-the-bean-stalk rise in housing prices. Largely fueled by retirees looking for sunny golf courses and by big-city refugees looking for a quality-of-life place to raise their kids, the housing market in Bend piggybacked on a national uptick in housing sales.

While gobbling up real estate and flipping houses became a national obsession, Bend did it better than most. From 2001 to 2005, median house prices nearly doubled, and the number of subdivisions tripled, with 136 registered with the city during the '90s, and more than 300 in the subsequent decade.

Then, two years before subprime mortgages provided the pin to pop the national housing bubble, the bottom fell out of Bend's housing market. While TV shows like "Flip This House" debuted, and while housing prices continued to ruthlessly climb in Portland, in 2006, Bend's market began to languish. In the subsequent year, new housing permits dropped from 826 to 533, and monthly housing sales from June to October dropped from 248 to 118. Dozens of unfinished houses still stand as ghost town testimony, and hundreds of homeowners subsequently lost homes.

With nearly 20 percent of the workforce connected to real estate—an unusually high percentage of construction workers and agents—the economy in Bend had doubled-down on the housing boom, and with its failure was doubly damaging. Like a dog that frantically had been chasing its tail for the past five years, the economy here suddenly, dizzyingly collapsed.

When the dust settled at the end of the decade, housing prices from 2006 to 2010 were 50 percent what they had been, one of the worst roller coaster plummets in the country. During that same time, nearby Portland and Seattle held relatively steady with their prices; even Eugene housing prices stayed level. Meanwhile, Deschutes unemployment peaked at 16.8 percent in 2010 and, even as interest rates were slashed, the average time a house languished on Bend's market—a keen indicator of the purchasing power and appetite of home buyers—lengthened to six months.

But back in November, a time when the housing market usually goes into hibernation, local realtor Else Kerkmann started noticing stirrings. A house would last on the market for two days, she explained.

More precisely, over the previous year, the average time on market shortened; by April, that average shelf time was three months. That is a number that includes the glut of short-sale homes held by banks and other slow-moving homes; compared to the sluggish market over the past several years, three months is considered near breakneck speed.

A native to Central Oregon and principal broker for Awbrey Homes and Land, Kerkmann has witnessed the housing rise, boom and bust—and now possible return—from a front row seat. Kerkmann, 35, grew up in Sunriver, her father a commercial developer and her mom a real estate agent. The rebound is both invigorating and concerning for her; Kerkmann has seen the American dream of home ownership distort and torture lives in Central Oregon since she moved here in 2001 and became a real estate agent.

"The market was strong then," she explained.

In a recent interview on a sunny afternoon at Jackson's Corner, Kerkmann explained the recent history of the housing market. As if to emphasis her points, a junky low-slung house sits for sale on an oversized lot across the street, where it had languished on the market for months with a square footage price far above other homes and a seller reportedly unwilling to budge from his $218,000 asking price; yet, in mid-April, even that property slapped a "sale pending" sticker on its for sale sign.

Wearing a black pullover, and sunglass pushed onto her forehead, Kerkmann explained that the slow market had nearly pushed her into a different career.

"I was contemplating phasing out (of real estate)," Kerkmann plainly explained. "The recession was making it hard to make it."

Not only did the slow market affect her career, but in 2005 she and her husband also had bought a second home as a rental property. "Everyone else was doing it," she explained. "A year later we were kicking ourselves," she added. Quickly, the house halved its value, from $350,000 to $175,000.

Her story over the next few years is familiar to many in Bend: The investment started eating into finances and, with a pinched economy, her husband lost his job. She said they considered moving to Portland, a place with more job opportunities. "But what we gained in financial security," she lamented, "we would have lost in piece of mind for our kids' lifestyle."

They stuck it out. Friends lost houses. She returned to school to look for another career as a midwife, a vocation that has steady work. But Kerkmann enjoys real estate and, late last year, even before there were many true, visible indicators that the housing market could return, she decided instead to return full-time and completely to real estate. Last summer, the market did enjoy a small bump, but that wasn't sustained.

This April, though, the numbers affirmed what realtors and buyers had been witnessing for the past several months: The National Association of Home Builders bases its Improving Market Index on gains in employment, home prices and permits for new single-family homes. Each must show improvement for six months in a row. Portland made the list in February, and Corvallis was added in March. In April, Bend joined it.

Compared to 2011, according to the Central Oregon Association of Realtors, sales of single-family homes here were up 17 percent and, correspondingly, prices leapt, with the median home price in Bend last month pushing $250,000—$60,000 more than a year ago.

Although the current frenzied attitude—with potential buyers offering above-market prices—has markings of the last boom-bust, Kerkmann does say that she sees differences.

"I haven't seen as many California buyers myself," assured Kerkmann, using the geographic shorthand to refer to out-of-towners. Instead, she said, she is seeing buyers who already live here—renters becoming owners, and current owners relocating within town.

"I do see people feeling the pressure to buy right now," she added. "That concerns me."

But, in the same breath, she also explains that now is the ideal time to buy, before interest rates ratchet back up.

Part of the reason for the sudden return of demand is that many buyers who had gone under on their last mortgage can once again re-qualify for a loan; generally, any homeowner who defaulted on his or her mortgage must wait a period of time before being able to qualify again for a loan. For many who lost homes in the recent bust that period of time has now lapsed.

Moreover, Kerkmann says, she is encouraged by the tighter requirements by banks and lenders. The last boom was largely permitted by banks that played loose and fast with risky mortgages, all which allowed both banks and buyers to build financial houses of cards. But, new regulations are requiring greater scrutiny and lawmakers are setting in place better safeguards. Currently, for example, the Oregon Legislature is considering a bill to require bank officials to meet with mortgage holders before foreclosing on a house, a step that could help slow down a housing market from plummeting and make the process more humane.

"I certainly hope we learned some lessons," concluded Kerkmann, speaking about the last housing frenzy.

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