After nearly a decade of increasing housing prices, high mortgage rates are pushing home prices down — putting buyers and sellers on more even footing.
For Lynnea Miller, principal broker at Bend Premier Real Estate, declining home prices were nothing to be afraid of.
A licensed broker for 22 years, Miller began her tenure as principal broker in 2011, at the tail end of the 2008 subprime mortgage crisis. Unlike the last housing bubble, she expects this price decline will even the playing field between buyers and sellers, leading to a healthier housing market overall.
“It used to be that the asking price was the floor of what would be the agreed to sales price. Now the asking price may be the ceiling. We’re having buyers negotiating back and forth with sellers, and sellers willing to make concessions, which is what we’re used to,” says Miller. “That’s good for all parties involved.”
The Federal Reserve’s decision to increase interest rates this summer was a response to rising inflation, and it’s had an immediate impact on housing prices across the country — and in Oregon. According to data released by the Mortgage Bankers Association this week, the average interest rate on the most popular U.S. home loan exceeded 6% for the first time since 2008.
The Bend Premier Real Estate Office in downtown Bend. Photo: Bend Premier real esate.
Overall home sales in Oregon have declined 27.5% since last year, according to a report released last week by the real estate website Redfin. Also last week, the Office of Economic Analysis published a housing forecast projecting that home prices in Oregon will decline 4%, and decline sharply, in 2023.
For some real estate agents, the drop in housing prices represents an overdue course correction, creating a healthier market where buyers and sellers are on more even footing during negotiations.
In Bend, the median home price is $718,450, according to Redfin, and Mark Zandi, chief economist for Moody’s Analytics, rated Bend’s home prices as being 43.8% overvalued, in an article for Fortune Magazine. And according to Miller, those prices have yet to correct to a healthy level.
Lynnea Miller, principal broker at Bend Premier Real Estate. Credit: Bend Premier Real Estate
Miller says that, for now, things are going well at Bend Premier Real Estate. Her brokers are increasingly taking on listings that have been sitting for a few months, as opposed to the fast-turnaround listings that would receive multiple offers in a single weekend.
“A normal, healthy housing market has a 4-5% annual price growth rate and five or six months of supply,” Miller says. “From March of 2020 to March 2022, we saw a 67% an increase in the price of a single-family home in Bend, and we had two or three weeks’ supply of homes at any one time, which was totally unsustainable.
“Now we’re at a point where we have two or three months of supply. We haven’t seen this kind of supply since 2012. It’s been a seller’s market since then,” Miller adds.
She recalls one buyer who became particularly frustrated with the process after making 10 different offers, all of which were turned down. While the buyer managed to close on a house this year, the process left him discouraged. Miller says her buyer’s story is emblematic of the lopsided power dynamic homebuyers were facing in the real estate market.
According to a 2021 report from digital closing platform Qualia, 32% of home buyers reported paying $50,000 or more over the asking price to buy their home due to competing offers. The housing market has also caused some buyers to resort to new, sometimes questionable tactics to get their offers accepted. This year, a federal judge overturned Oregon’s ban on home buyer “lover letters” — written notes from sellers encouraging the buyer to select them.
But Miller’s view on the Fed’s interest rate hike and ensuing price decline of homes is not entirely rosy. She’s afraid interest rates will go up again, causing buyers to start looking in surrounding areas, or postpone their plans to purchase entirely.
“All of a sudden buyers saw their mortgage interest rates go from 2.5 or 3% to 5.5 or 6%. And that hugely impacts their buying power,” says Miller. “Maybe they can afford homes in Prineville and Madras, but buyers who were largely able to purchase can no longer purchase, even in some of the outlying areas.”
Another risk if mortgage rates continue to rise is a “seller’s strike” — where sellers put off listing their homes until a more favorable real estate market comes around. Miller says she hasn’t had any sellers pull their listings yet, but that could change if sellers start feeling like the balance of power has swung too far away from them.
Miller says part of her job right now, along with the 62 other brokers who work at Bend Premier Real Estate, is temper expectations of buyers who are still expecting the housing market to behave the way it did before the rate hike.
“I would say that our market is in transition. I would say that and that’s a good thing,” says Miller.
To subscribe to Oregon Business, click here.
