In December 1990, the national average for a 30-year fixed-rate mortgage broke below the 10% barrier for the first time since October 1974. During Paul Volcker's tenure as the Fed Chairman, rates peaked at 18.45% in October 1981 to gain control over spiraling inflation. In March 2009, rates dropped below 5% for the first time in the modern era of mortgages and stayed below that threshold until April 2022. Since breaking through 5% mortgage interest rates in April last year, rates have increased dramatically, with yesterday's rate at 7.92%. While rates have been higher in the past, the price of homes today, even adjusted for inflation, puts affordability at historic lows. The average home buyer paying 18% in the 1980s was not looking at $775,000 homes. Today's median list price in Deschutes County is 775k, the equivalent of 229k in 1981. The furthest back my data goes for Deschutes County is 1997, when the median sold price was 133k for a single-family home.
Depending on your perspective, the above numbers are discouraging or enlightening. While it is correct that real estate appreciates over time, the question today is whether a price crash is on the horizon. The catalyst for a significant price correction is missing from the equation with the inventory of homes for sale at all-time lows. This week, the median price reduction for sold single-family homes in Deschutes County was -4.92%, a far cry from a correction many anticipate.
With many potential sellers sitting on mortgages near 3%, the lack of new listings drives today's trends more than the record buyer demand of the previous cycle beginning in mid-2020. Year-to-date sales for 2023 are 2624, down from last year's 3521. Last year's inventory for this week was 890 homes, while this morning, there are 854 homes listed. Pending sales for this week last year were fifty-six, with fifty-four this week. As mortgage rates increase, fewer sellers list houses, and the balance of homes versus buyers remains intact. The median sale price year-to-date 2022 was 690k for Deschutes County; this year, it is 660k.
While further modest declines in home prices could occur, any significant moves are unlikely without an increase in homes for sale and days listed. However, pent-up buyer demand will undoubtedly increase buyer competition when rates eventually decline. Timing the market is not recommended, but there will surely be a "sweet spot" between falling rates and home prices. Nevertheless, it is likely easier to purchase at a lower price and refinance than to try and accomplish both simultaneously. Also, with seller credits towards a buyer's closing costs and rate buy downs, it is common for buyers today to lock in a first-year interest rate 2% below today's national average.
Like many desirable parts of the country, housing supply in Central Oregon is lacking relative to the in-flow of new residents. Many of my clients are more challenged to find the right home than by prices. When the right property is available, waiting for better pricing only to lose out to another motivated buyer is devastating. The more specific your needs, the more challenging it can be to find the right home. How long will you put your dream of Central Oregon on hold?
No matter what type of property you seek, using a long-term focus is best when looking at your return on investment. Every property owner wants to make a good decision, and using online calculators to estimate value can be fun in a rising market. But calculating intermittent unrealized gains holds little importance unless you want to sell. Buy and hold is where the magic of real estate shines, and looking back to the median of 133k in 1997 for Deschutes County is a perfect example! The median buyer in 1997 who put 20% down on a 30-year fixed-rate mortgage has approximately three years left to pay off the loan at a monthly payment of $750. As high as today's prices seem in comparison, does anyone believe homes will be cheaper than they are today in twenty-five years? Granted, most homeowners do not stay in the same property for the life of a 30-year loan, but the power of time works on every owner's behalf.
Whatever your strategy, contractions in the economy do not last long. If you are waiting for the bottom of the market, staying current on trends and pricing is imperative. The same is true for those of you targeting unique properties in Central Oregon. In many ways, it is more work to monitor the market for change than diving in, and that is why I write these reports every week! As always, if you are interested in a specific neighborhood or metric, let me know, and I will be happy to create a personalized report that fits your needs.