Let’s Talk Real Estate – September 2016
Being so involved in real estate, we look at sales numbers and home values every month, quarter and year. Sometimes the numbers go up and sometimes the numbers go down, but if you look at the numbers over a longer period of time, they tell a clear story. In the last 5 years, Jackson County has seen the median price of a home increase by over 66%. The story is even better when you consider most of that price increase has come in the last three and a half years as 2011 and 2012 were flat for real estate values. Currently, homes are selling quickly, pending sales are up, and the number of homes available on the market has dropped 12.7% over last summer. To everyone’s surprise, interest rates have stayed low and are still below 4%. There is a general housing shortage in Jackson County and new home starts aren’t keeping up with the demand. From 2007-2013, during the housing crisis, there were very few homes or apartments built in Jackson County and we’re feeling the lack of housing now. We have had population and age growth. Lots of millennials are now looking for their own housing and retirees are back in large numbers. Many who tried to retire in the late 2000’s had to wait for their equity to return in their homes and their 401K’s to return to pre-recession values. On the rental front, rates continue to rise and supply is extremely limited. Homes for rent below $1,000 month are rare and have flocks of tenants competing to rent them.
The Housing Market over the Next 5 years?—Predicting what any market will do in the next 5 years is tricky, at best, but if you look at the economic factors causing home values to increase, they seem to be on track to continue.
Demand—Our current housing shortage will no doubt decrease as developers and builders catch up to demand; but that will take time, at least a few years. In the meantime, demand is increasing and homes sales are increasing. Southern Oregon is becoming more attractive to tourists and retirees and our senior population is slated to double over the next 30 years, so all of this should keep demand growing.
Our Economy—The US economy has been growing now for six years, and it looks like it’s going to continue to grow. My overall view of the U.S. is that we’ve recovered more strongly than any other industrial country and our medium term prospects are probably also the best of any industrial country. There are lots of concerns over a sluggish global economy and the possible results of “Brexit.” The great news is that we live in an area that has few-to-no businesses involved in international trade, so the global economy has very little effect on our area. Some aspects of our local economy are doing extremely well—we have a large agricultural base that is experiencing growth in the wine industry, we are one of the few areas that has banned GMO’s and now the legalization of marijuana. 40% of all the licenses issued by OLLC are to grow marijuana commercially in Oregon have been issued to Jackson and Josephine County, so apparently we have the perfect soil and climate for growing pot, and although we are less than 5% of our states population, we’ll be growing 40% of the pot. Our medical and retail industries are also growing with many new medical services popping-up along Barnett and McAndrews Roads, and retailers such as Men’s Wearhouse, HomeGoods and Marshalls are opening soon.
The Economics of Real Estate—From 2002-2006, we saw home prices and supplies that didn’t make sense. Banks were making it too easy to borrow and flippers, rather than homeowners, represented a great deal of the buyers, and you could rent a home for half the price of owning one. In contrast, our market now consists of loans that are highly-scrutinized, a market where prices are not increasing at rates that excite flippers, and rents that are higher than a mortgage. To demonstrate this, we don’t need to go further than our office and look at two of our employees—one renting and one paying a mortgage. Both live in similar-sized homes and similar neighborhoods, but our employee that rents pays $1,500 a month and our employee that owns pays $1,000 month, which includes her property taxes.
So as long as we uphold the tax benefits of owning a home, keep attracting tourists and retirees, don’t over-build, and mortgage payments are cheaper that rental costs, we will most likely continue to see growth in home values.