We are in the midst of an international pandemic and experiencing record-breaking unemployment, and yet the Eugene-Springeld area home sales are up 9.4% at the end of third quarter of 2020, the median home price has risen 10.4% and the price per square foot is up 7.5% over the third quarter of 2019. Counter-intuitively, real estate finds itself in a robust bull market.
What is at the root of this surge and can it continue? According to Freddie Mac, Zillow and the National Association of Realtors, nationally, home prices will continue to appreciate over the next twelve months (Forecasts range from 4.3% -7%). As we enter the final months of 2020 and continue to work through the challenges this year has brought, some of us may wonder what impact continued economic uncertainty could have on home prices. Looking at the big picture, the rules of supply and demand will give us the clearest idea of what is to come.
Due to the under-supply of homes on the market today, there’s upward pressure on prices. Consider simple economics: when there is high demand for an item and a low supply of it, consumers are willing to pay more for that item. That is what is happening in today’s real estate market. The housing supply shortage is also resulting in bidding wars which will also drive price points higher in the home sale process.
Under-supply is not easily remedied in housing. In our area, the median residential sales price is $370,000. To relieve the housing shortage would require adding new inventory in this price range. We need our local builders to build at affordable price points.
Unfortunately, despite the best of intentions, our municipalities are now restricting the building of homes to the most challenged land. The remaining land supply (within Eugene’s current urban growth boundaries) contains cost prohibitive overlay requirements, extensive infrastructure investments for access to utilities and tricky topographical challenges requiring significant financial investment just to get the land shovel-ready to build. Before the construction even begins, the owner of the land has to invest significantly in preparing the land, making it impossible to keep the end-users’ costs down. The restricted access to the City’s Land Use and Permitting Department due to COVID policies is currently causing additional costly delays. The end result is cost-prohibitive land prices. If we cannot build more affordable homes, from where will the much needed supply come?
Some believe that relief will come from an increase in housing availability through foreclosure. Many housing experts originally voiced concern that the mortgage forbearance program (which allows families impacted financially by COVID to delay mortgage payments to a later date) could lead to an increase in foreclosures when forbearance’s end. Forecasts anticipated that up to 30% of homeowners would choose to enter forbearance. Less than 10% actually did, and that percentage has been dropping steadily. Black Knight (national lender analysts) recently reported that the national forbearance rate has decreased to 5.6%, with active forbearance’s falling below 3 million for the first time since mid-April. Many of those still in forbearance have continued making timely payments. This seems to indicate that foreclosures will not significantly impact supply either.
In addition, because over two million homeowners are still in forbearance, some experts are concerned that this might lead to another wave of foreclosures like we saw a little over a decade ago during the Great Recession. However, this time is different. Consumers have much greater endurance due to their strong equity position in an appreciating market. Lender assistance is much more prevalent. And buyers of the last ten years have been more stringently ‘vetted’ by lenders prior to procuring their current financing. Because of this, demand should remain high.
Every market provides opportunity. Today is no exception. This may be the ideal time to execute on your long-term game plan. Take a good look as this strong seller’s market, it’s future potential, and the wildly low interest rates as you make your real estate choices.
Marcia Edwards, MBA is a Principal Broker at Windermere Real Estate of Lane County. Marcia offers expertise to homebuyers and sellers in the Eugene area. To learn all the steps to selling smart, contact Marcia at me@marciaedwards.com or 541-221-1454. RealEstateSmart.org.