Happy New Year! 2017 was a great year for Jackson County real estate. The median sales price for existing single-family residences climbed 10.3 percent last year to $264,700 following a 6.6 percent increase to $239,900 in 2016. The median also surpassed the previous high of $259,000 from before the market collapse in 2007. So real estate in Jackson County is worth more now than it has ever been before!
Although there were more homes for resale in 2017 than 2016, we still have hundreds of buyers that haven’t found their dream home and demand is stacking up. We could have sold many more homes if the inventory was there.
So, what do we predict for 2018? To answer that, we just need to look at all the factors that create the supply and demand and then predict what will happen.
Demand: A good part of our real estate market is driven by retirees and escapees. There are 10,000 people turning 65 in the United States every day so we will see the number of retirees increasing in the years to come growing our area at a faster pace than before. We will also see a ‘short term’ increase in the numbers coming because of issues faced by Californians such as fires, mud slides, lack of housing and some of the highest prices for both rental homes and primary residences in the country. We are also seeing a slow move out of large crowed metropolitan areas to smaller towns as more and more corporations allow their employees to work from home which allows many people to move to smaller, less expensive areas such as ours.
Rental Prices: Another great determiner of demand comes from those who rent. With rental rates extremely high in Jackson County, and only 1% vacancy, rental rate rates are bound to stay high. In most cases, a rental home with a value of $350,000 or less will cost less to buy than it does to rent! This means that many of the 40% of families that rent are trying to get into a position to buy.
Economy: We don’t have much industry in Southern Oregon; it’s mainly medical, manufacturing and the service industry – that’s the bad news. The good news is our economy isn’t affected by short term highs and lows in any one industry. For example, Houston is the center of the US energy Industry, with more than 3,000 energy-related businesses which has their real estate prices tied to the ups and downs in oil prices. The good news for Jackson County is that unemployment is at an all-time low at 4.2%, so almost anyone who wants a job can get a job.
Supply: There were virtually no homes or apartments built in the United States during the housing caused recession lasting from 2007 – 2013. New homes couldn’t compete with the price of foreclosed homes being sold by banks. This has caused a shortage of homes throughout the United States as well as a shortage of good, licensed contractors to build them. We are really feeling this in Southern Oregon as new homes are selling as fast as they can be built. We are also seeing many out of state home buyers parked in rental units waiting, sometimes a year, before they find the home they want to buy. All of this compounded with stringent lending to commercial borrowers creates a lack of new homes. Currently there are just over 700 homes for sale in Jackson County, which is a two month supply, where we used to average 2500 homes for sale prior to the 2007 recession, and new home construction is moving slowly.
Interest rates: Although interest rates are slowly increasing, they are still at a historic low. The Federal Reserve has stated they plan on raising the prime rate three times in 2018 which will probably increase the mortgage interest rate to somewhere between 4.8 – 5% by the end of 2018. Retirees and Escapees aren’t affected too much by interest rate but first time home buyers are. As long as rental prices stay high, and unemployment stays low, first time home buyers will be trying hard to buy their first home.
Income Tax Changes: The new Income tax changes that take effect this year don’t help the Housing Industry, but don’t hurt it very much either. If you are a young millennial buying your first home you probably won’t take advantage of writing off your mortgage or property tax because the new standard deduction will be greater than your real estate cost. But again, as long as renting costs more than buying, the demand for first time home buyers will stay high.
So you can see that our housing demand is at an all-time high and supply is at an all-time low. This has led to a 6.6% increase in real estate pricing in 2016 and a more than 10% year to date increase in 2018. We see nothing in the short term future that will change the supply and demand, so prices in Jackson County are likely to continue to increase by 7 – 10% a year until supply and demand stabilize.
By Graham Farran
#1. My House is Worth!!
There are only two people that ultimately determine what a house is worth – the buyer and the appraiser. To determine a home’s value, many owners add up what they have spent on their house, add what they owe on their house, look on Zillow, or look at what other homes have sold for. Any of these evaluation methods could or could not yield a correct house value, but really it comes down to what the buyer and the appraiser value the home at. Currently we’re in a sellers’ market and we have an influx of retired couples and escapees fleeing large metropolitan markets all moving to smaller rural areas such as ours. This is causing a shortage of homes available for sale in Southern Oregon. Because the demand is so high for the right properties we are seeing the median price of homes increasing by 10% this year and we’re struggling with appraisals coming in at the sale value. If the home appraises lower than the purchase price, there are usually three options – The property is reduced to the appraised price, the buyer and seller split the difference, or the property is sold over appraised price at the original agreed to sales price. The value at which home prices are increasing is somewhat limited by appraisals. If we didn’t have appraisals, real estate values would be increasing by more than 10%. So it is the buyers and the appraisers that have the most influence over pricing.
#2. Banks Will Take a Low-ball Offer
There is a misconception that banks will wheel and deal on their bank owned properties but that is no longer true. During the 2007 – 2012 real estate and lending caused recession, banks dumped hundreds of thousands of homes in the United States. They sold them off using cash auctions at the court house steps, or by selling them below market value. For the most part those times are over. Banks are very disciplined and smart. They know that home values are going up in most US markets and they aren’t in a hurry to sell off their inventory as it’s worth more every day. We are now seeing bank owned properties lingering on the market for months and the banks waiting to get the price they want. Banks never really accepted low-ball offers; they typically came on the market with an aggressive price and lowered it quickly until it sold, or they auctioned off the property to the highest bidder. Of all the bank owned properties sold in the last 6 months, over 50% sold for cash and many sold for over list price. We have had many clients who had to self-learn this; they get frustrated when banks reject their low-ball offers without a counter offer, but this has always been normal operating procedure for a bank. We’re not saying there aren’t some good deals that happen to be bank owned, what we are saying is bank owned homes are no longer the deals they once were and don’t expect an answer from them if you send in a low-ball offer.
#3. I Don’t Want a Home with a HOA
We understand that many buyers don’t want to deal with a Home Owners Association, but almost all newer subdivisions have them. In the past, cities would take responsibility for the streets, sidewalks, street lights and roads within a subdivision, but in today’s world, most cities can’t afford to maintain them so they pass the cost onto the homeowners who create a HOA that collects yearly fees to cover the eventual road and sidewalk repairs. So if you want a home in a subdivision without an HOA, your only choice may be an older 70s or 80s home.
#4 I’m Going to Wait to Buy until Real Estate Prices Go down
Real Estate prices are a matter of supply and demand like all other products and services. We are fortunate that our market appeals to both retirees and escapees moving here from larger metropolitan markets. Currently in the US, there are 10,000 people turning 65 every day and the number of corporations allowing their employees to work from home is also on the increase, so the number of retirees and escapees are increasing. In addition, we have a lot of demand being generated from the 35- 40% of our local population that currently rents. Rental prices have increased drastically in the past few years and we’re seeing an average 2000 square foot home rent for $2,000 month and more in towns like Ashland and Jacksonville. Our demand for rental homes is at an all-time high and our supply is at an all-time low. Add in our historically low interest rates and in many cases it’s cheaper to buy than to rent. We are likely to continue seeing prices increase for the near future, until demand slows down or supply increases but this may take a long while. So prices may go up another 30-40% before they ever level or go down.
#5 I Want to Buy in a Neighborhood Without Renters
Throughout the United States, about 35% of all single family homes are rental homes. Unless there are CC&R’s restricting renters, which is not common in Southern Oregon, a large part of all subdivisions and single family homes are occupied by renters. The percentages of renters are lower for high income subdivisions and higher for low income subdivisions. In our experience, we have not seen a big difference between renters and owners in the way they take care of their homes. We all know examples of both owners and renters that keep their properties immaculate and we all know examples of both owners and renters that fall a little short.
There are many more Real Estate Myths that we will save for another day!