Let’s Talk Real Estate – September 2017
Home prices soared over the last 5 years with the median price of a single family home in Jackson County increasing from $176,000 at the end of 2012 to $282,500 as of August 2017, yielding an increase of over 60%. The increase in the median price is only part of the story as we also saw a 30% increase in the number of homes sold in 2017 compared to 2012. Add these two factors together, and you have a huge boom to our local economy. In 2012 the total dollar amount of single family homes sold was $605 million, and based on our current run rate in 2017, we are likely to see $1.2 billion in home sales. These are pretty big numbers for our local economy!
Homes are selling quickly, pending sales are up and the number of homes available on the market has dropped. You can see from the chart that in 2012 the bulk of home sales accrued in the $100,000-$300,000 range and in 2017 the bulk came from the $200,000-$400,000 range, showing how much prices have increased. To everyone’s surprise, interest rates have stayed low and are still around 4%. There is a general housing shortage in Jackson County and new home starts aren’t keeping up with the demand. During the housing crisis, from 2007-2013, there were very few homes or apartments built in Jackson County and we’re feeling the crunch now. We have had both population and age growth with lots of millennials now moving out of their parents’ basement and looking for housing. Retirees are back in large numbers and many of them 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. “Escapees,” those city dwellers escaping commuter traffic, crowds and high costs, are also increasing. On the rental front, rental rates are going up yearly and the supply is going down as investors sell off their rental homes to realize their equity, leaving lots of competition for rental homes—especially those priced under $1,500 month.
So will this market last? There are many economic factors that contribute to the real estate market but the top four are, Local Economy, Demand, Interest Rates and Rental Prices.
Local Economy—Jackson County has a population of just over 212,000 with the largest industries being Healthcare, Agriculture, Lumber, Manufacturing, Services and Tourism. We are currently at our highest employment rate in history with just over 100,000 jobs, which is good considering the large retired population. Our little airport is setting records each month on the number of travelers coming and going. We are continuing to attract more and more tourists because of our interesting combination of outdoor sports, culture, and agricultural diversity. We have seen a huge growth in the wine, cannabis, hops, & hemp industries and our culture keeps growing with new live theaters, art galleries and music venues. All of this keeps attracting more tourists, retirees and escapees. Our medical industry and retirement homes keep expanding but are struggling to keep up with demand.
Supply and Demand—The supply of homes is limited with very low inventory of homes for sale and strong demand for housing coming from three areas: locals, retirees, and escapees.
The local buyer—Our local market is an interesting one. On one hand we worry that as prices go higher, the first time home buyers will be priced out of the market; but on the other hand, rental prices have increased so quickly the financial incentive for buying vs. renting is at an all-time high. In many cases, mortgage payments will be less than rental payments, especially when you factor in the tax savings by writing-off your mortgage. This means whether you rent or buy, you will be paying a higher portion of your income towards housing.
Retirees—10,000 baby boomers a day are turning 65 and that number will continue for the next 19 years, so areas that appeal to retirees will feel the demand for many years to come. Baby Boomers are 26% of the US population so we are heading for a huge population of retirees. We are seeing retirees coming here from all over the country and many of them are checking-out three or four different areas to retire. We don’t always win the competition. We recently had a buyer who was retired from Rochester, New York and looked at Medford, Boise & Colorado Springs. Coming from Rochester, he found our real estate prices to be high, Boise to be the cheapest but it looks like he’ll end up in Colorado Springs because the combination of weather, outdoor activities and real estate prices. The good news is our neighbor to the south has a population just over 39 million and some of the highest-priced real estate. So, in comparison, our home prices look like a deal. In fact, seven out of ten cities with the highest priced real estate are in California. (San Francisco, Redwood City, Cupertino, Los Gatos, Saratoga, Malibu & Newport Beach)
Escapees—We have always seen escapees moving to our valley but it seems like the pace is growing. Escapees are individuals like me who left California, a large, crowed and expensive metropolitan area, for a slower, cheaper and better lifestyle. What’s interesting to me is how many clients we have dealt with from other states. This year alone we have helped many clients relocating from California but also from Arizona, Texas, Hawaii, Alaska, South Africa, Ohio, Montana, Nevada, Washington, New York, Minnesota and Idaho.
Interest Rates—Interest rates are critical to the housing industry and play a big part in how much a buyer can afford. We are currently around 4% interest. The Federal Reserve has done a great job of keeping interest rates low to stimulate the economy while not creating inflation. We’re likely to see slow, small increases in the interest rate every year for the next few years which will make it more expensive to buy the same home.
Rental Price—Rental homes are in high demand and rental prices are crazy. A 2,000 square foot home can rent for $2,000 a month and more in Ashland and Jacksonville. In most cases the financial cost of buying is cheaper than renting when you factor in the tax savings of owning.
So, will our current market of increasing home prices and demand continue? The answer is that it’s very likely. Our local economy is at record employment, demand is increasing with the number or retirees and escapees moving here and rental prices are driving tenants to buy. Lastly, interest rates are still lower than they have been in years. These four economic factors are all pointing in one direction—a positive future for Southern Oregon real estate.