Let’s Talk Real Estate – February 2018
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. Real estate in Jackson County is worth more now than ever 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 available.
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 each 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 here 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, enabling 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 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 we aren’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 historic lows. 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 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 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.
Conclusion—As you can see, 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.