Bend homes may cost more

Experts agree interest rates to rise

By Joseph Ditzler / The Bulletin

Published Jan 19, 2014 at 12:01AM

The cost to buy a home in Bend and the surrounding area will probably climb this year, according to experts and recent data surveys.

For instance, local experts say a 30-year, fixed-rate mortgage could reach 5.5 percent or 6 percent. Home prices will probably continue to climb, as well. Inventory is not what it was a year ago, and that “shadow inventory” of properties — homes whose owners have stopped making mortgage payments — has yet to find its way onto the market.

Finding consensus among real estate professionals can be tough. One thing most agree on: Mortgage interest rates will rise.

The 10-year Treasury note is the benchmark for mortgage rates. Bill Smith, an investment counselor in Bend, expects the yield on 10-year T-bills to climb as the consequence of the Federal Reserve Board’s decision in December to taper off its “quantitative easing,” or bond purchases meant to hold down inflation.

The yield on 10-year Treasuries closed Thursday at 2.84 percent. Add another 1.5 percentage points, roughly, to arrive at the 30-year rate.

“We’re working within a framework (the 10-year Treasury bond) might be at 3.5 percent over the next six months and as high as 4 percent by the end of the year,” Smith said recently.

Chip Reeves, chief banking officer at Bend-based Bank of the Cascades, agreed the market is driving up the 10-year yield. Consequently, the 30-year fixed could go to 5.5 percent.

Reeves said homebuyers have a window on reasonable mortgage rates, but bargains in home prices are drying up. In his estimation, the so-called “shadow inventory,” or homes in foreclosure limbo, is just that, a shadow.

“I would say for the most part we’ve worked our way through the majority of the foreclosure issues, and at Bank of the Cascades we have basically zero inventory in regards to foreclosure residential properties,” Reeves said.

However, David Ambrose, CEO at Total Property Resources, said the shadow inventory is real. As evidence, he noted the number of judicial foreclosures filed in Deschutes County dropped dramatically beginning in September. The cause, he wrote in an email, may be the mandatory mediation requirement imposed on judicial foreclosures last year by the Legislature.

“So, I would venture to guess that the so-called ‘shadow inventory,’ which I would define as those loans in material default, as to which no formal foreclosure action has yet begun, is still substantial,” Ambrose wrote.

In Bend, demand stoked a continuing rise in median-home prices, from $166,000 in November 2011 to $298,000 in September, before dropping back to $267,000 last month, according to the Bratton Report, a monthly overview of Central Oregon real estate trends by the Bratton Appraisal Group. Sellers often fielded multiple offers and sold above asking price, according to Cheri Smith, a real estate broker with Total Property Resources who writes a blog about the local real estate market

“This is largely responsible for the rapid increase in home values and can be attributed to the low inventory in Bend,” she wrote at buyinbend.word

That may change if, as Ambrose said, the number of qualifying homebuyers shrinks due to changes to lending practices that took effect Jan. 10. Other experts, Reeves included, said the new rules imposed by the federal government should have little effect on the real estate market.

A buyer’s market, or at least a more balanced market, may return to Bend, Smith wrote in an email.

Plus, investors who snapped up lower-priced homes in Bend for cash will find few properties listed for sale below $200,000, Smith wrote.

“With fewer investors in the picture, many homebuyers that got frustrated and took a break might re-enter the market as they feel they might have a shot now at submitting an offer that gets accepted,” she wrote in an email.

Editor’s note: This report has been corrected to reflect David Ambrose’s title. The Bulletin regrets the error.

— Reporter: 541-617-7815,