I had the distinct pleasure of attending a one-hour continuing education class this past week on Valuation Process and Adjustment Methodologies. It may sound a little dry, but when the market is shifting, as is the case now, we all turn to metrics and statistics to make sense of it. The class was hosted by Deschutes Title and presented by Donnie Montagner. The former name is that of Central Oregon’s last locally owned title company..and the latter name should be familiar to anyone who watches the Central Oregon real estate market closely. Donnie Montagner heads up Beacon Appraisal services, and his “Beacon Report” is often cited as an independent gold standard in reporting the local market trends.
The class was well-attended by real estate brokers and appraisers alike. We quickly went over some cost, income, and sales approach strategies and then dove into the deeper weeds of paired analysis, ratio studies, binomial regressions and the like. Appraisers have the challenge of turning what brokers do as an informed guess into a distinct science. As one appraiser mentioned in the audience, “Houses come in red, yellow, brown and blue…but banks want us to turn it into black-and-white…and they don’t like gray.” (I should have gotten his name, because I’ll probably use his words throughout the rest of my career.)
Throughout the class, one theme that kept reemerging was the market’s rapid change. A fact that Donnie reflected on with a sense of glee. When what you do for a living is mostly measuring a trend, it is somewhat exciting when it switches direction. Many of the real estate brokers’ questions centered around what could be divined from the appraisers’ data, and the appraisers’ answers reminded the brokers that we are all working with the same data. And in the appraisers’ case, they are more interested in what happened than what’s coming.
The market is changing, and that is exactly what interest rate hikes were supposed to accomplish. Now how much the market has changed is just now coming into focus, and where it will go next is anyone’s guess. Many real estate brokers talk as if the world is shifting under their feet, and sometimes that itself can have an effect on consumers’ confidence. But we all must remember that real estate brokers were building their companies over the last two years to handle the onslaught of transactions that no one predicted coming out of the COVID-19 response. Any return to a more normal market is going to create a some slack in those systems, and may feel like a more dramatic shift than it really is.
I’ll borrow some of Donnie’s data to illustrate the point. One of the sentiments you hear from brokers recently is how rising interest rates have decimated the number of real estate buyers in the local market. Below are monthly sales numbers for the Bend single-family house market from Donnie’s Beacon Report. I’ve overlayed the average weekly rates for a 30-year mortgage.
Did you spot the decimation? Neither did I.
Do I believe the market is changing? Absolutely. But the magnitude does match up with the mourning. Not to say that a market can’t turn quickly. We certainly saw that in 2008, and I’m not convinced that it can’t happen again. We continue to watch everything very closely. If you have any questions about the market, statistics, or how your home value might be affected, please don’t hesitate to reach out.