SKY'S THE LIMIT?
Local housing prices soared in '05, but national cooling trend may not mean frigid market for Central Oregon
by David Fisher

Housing prices in Central Oregon continued their torrid rise through the last days of 2005.

The median price of a home in Bend rose 23 percent over 2004, according to the Central Oregon Mu1tiple Listing Service, finishing the year at $279,900.

Prices in Redmond rose 25.4 percent; in Sisters, 27.8 percent; and in lower-cost La Pine, 10 percent.

With interest rates rising and fears of market bubbles in some of the country's hottest markets, few expect 2006 to bring a repeat performance. But, given the record-setting pace of 2005, a cool-down may not spell doom.

"We don't want it to dive off, but we don't think the kind of growth and appreciation we've seen can be sustained in a long-term situation," said Brian Bergler, vice president for sales and marketing at Pahlisch Homes, the region's largest builder in 2005. "We actually wou1dn't mind if it slowed slightly."

Why? After five record-setting years, sales numbers need to slow and prices need to moderate so buyers can catch up, National Association of Realtors chief economist David Lereah wrote in an article posted on the association's Web site Tuesday.

Lereah is forecasting a 6 percent decline in new home sales nationwide.

Coupled with a gradual rise in mortgage rates, he predicts that a market slowdown "will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace."

"I think we are certainly going to continue to see growth, and we'll continue to sell a lot of inventory," Coldwell Banker Morris Real Estate broker Norma DuBois said Tuesday. "The units sold will be at least what we did in '05 and probably greater, but I don't think the average price will increase like it did last year. I'm guessing we're going to go down to the 10 (percent) to 11 percent range."

Bend's 2005 prices varied widely, depending on location, but appreciation rates were fairly even across the board.

In the city's priciest northwest section, the median sale price of homes on less than one acre was $415,000, up 27 percent from 2004, according to Dubois' analysis of MLS numbers.

On the northeast side, the median - the price at which half sold for less, half for more - was $235,000, up 23 percent.

Rising land prices accounted for much of the pricing push.

On Bend's northwest side, 236 empty lots of one acre or less sold for a median price of $245,000, DuBois said, up 54 percent.

In the northeast, 112 lots sold for a median of $75,250, up 33 percent.

After two years of double-digit price appreciation, Bend housing is looking expensive to some. But whether prices have risen too high to be sustained is a question that yields different answers, depending on how it's asked.

Bend turned up 19th on a Jan.3 CNN Money list of the most overvalued housing markets, just a few months after it landed in the top 25 of a similar list in USA Today.

Researchers at National City Corp. and Global Insight, a financial information provider, used a comparison of median housing prices and median local wages to produce the list published on CNN Money's Web site. Their analysis concluded that Bend's housing prices are about 56 percent overvalued.

There's a problem, though, with trying to evaluate the local housing market by comparing it to local wages, market observers say: Central Oregon's real estate buyers are coming from outside the region. Their ability to buy real estate in Bend is often more dependent on the value of properties they are selling in their former cities than it is on their ability to earn wages in the Bend job market; and, based on that measure, Bend's housing is not uniquely expensive.

Federal Housing Administration loan limits, which are pegged to local median housing prices, are higher in 244 local markets than they are in Bend, according to the U.S. Department of Housing and Urban Development.

Eighty-seven markets are at or above the FHA maximum limit, which means their median home prices stand at $381,884 or more.

The median price of homes sold in California stood at $548,400 in early November, according to the California Association of Realtors, nearly twice the price in Bend.

Of the 240 homes Pahlisch Homes sold in Central Oregon last year, about 60 percent were sold to buyers from outside the region, Bergler said. Of those, about half were from California.

The price boom in some of California's most expensive markets seems to be fading. Sale prices in two Santa Barbara County areas fell in November for the first time in 47 months, while sales volumes slowed in the San Francisco Bay Area and Central Valley regions.

Still, the California Realtors Association is predicting only a modest increase in unsold inventory statewide through 2006, which would indicate that prices in most areas are likely to moderate rather than plunge.

"If their market flattens or takes a corrective dip, it will definitely affect us to a degree," Bergler said. "But you are still looking at an affordability comparison. Our home prices do still look attractive to someone who's coming from a market with a higher median sales price than we have, and that has been typical in the California markets."