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The Perfect Storm

By Adam Bledsoe, Broker
November 12, 2019

“All my rich friends sold too early.”

Someone said this to me early in the last recession, sometime around 2009-10 as things were crumbling around us, both nationally and locally. At once, it’s stating that one cannot time a market, and that one cannot become wealthy by selling too late. Currently the Central Oregon real estate market is in a “perfect storm” of sorts. We have record-low inventory levels and vacancy rates, historically low interest rates, and several layers of incentives that embolden buyers.

Urban Growth Boundary

Owning real estate in Bend is not unlike owning land on an island. With Oregon’s statute that requires municipalities to define and maintain an Urban Growth Boundary (UGB), land is essentially finite. We have exhausted our inventory, which has forced prices to increase. That being said, the City is very close to completing its UGB expansion effort, which will add approximately 2,400 new acres of developable land to the city. With several master-planned communities already going through the permit process, several hundred new acres will have shovels in the ground on Day 1. The inventory crunch will be alleviated shortly, and as supply increases, prices should relax.

Interest Rates

Rates have been low, really low, for the past 11 years. Since the start of the recession in 2008, the federal funds rate has fluctuated between zero and 2.5%, with most recent trends headed in the downward direction yet again. Put simply, it’s the longest stretch of sub-3% rates in history. How long this continues is anyone’s guess but at some point, rates will rise again. Nothing affects real estate pricing more immediately than interest rates, and we’ve all enjoyed the fruits of low rates for a long time.

Opportunity Zones

In addition to tight inventories and low interest rates, both of which bolster real estate prices, Central Oregon real estate markets have benefitted from the emergence of federally designated opportunity zones and enterprise zones. These designated areas offer development and tax incentives for buyers that embolden them to pay top dollar for real estate “in the zone”. Although these programs vary in timeframe, they terminate, or at least begin to sunset in the near future. For instance, the maximum tax benefit available in an Opportunity Zone investment will begin to sunset at the end of 2019.

Time to Sell?

Record low inventories, historically low rates, and favorable incentives have all supported strong real estate prices in recent years, but the music will stop at some point.  Sometime in 2020, thousands of new acres will be officially brought into the city, interest rates will rise at some point, and development incentives will begin to sunset.  Changes to any of these factors will likely apply negative pressure to Central Oregon real estate prices. One can’t time a market, but selling too soon has made many investors wealthy, and conversely the opposite.

To learn more about this topic, please contact brokers Adam Bledsoe or Joel Thomas, CCIM at Compass Commercial Real Estate Services by calling 541.383.2444.