Housing-related economic pinch is bruising Sisters

As the slowing economy begins to affect Central Oregon, the housing slump is setting up the area for some belt tightening.

Home sales in Sisters are off approximately 40 percent from the high market, according to the latest MLS figures.

The first to feel the pinch are those who are connected to the housing market, be they realtors, property managers, mortgage brokers, contractors or developers. Housing inventory is still on the rise, and length to sale times continue to increase in the Sisters area.

Even the Black Butte Ranch market, long thought to be immune to the slump, is beginning to tout price reductions. Across the Sisters area, advertised real estate prices have been dropping in increments of $10,000 to $20,000.

Available rentals are also at an all time high in the area, and even the formerly stable Sisters rental prices are beginning to soften. Rents in one Sisters neighborhood went from $1,250 to $1,050 for a single-family home.

The problem had its origins in real estate speculation, which drove prices in the area to unsustainable highs. With the collapse of the sub-prime mortgage market, the effects spread quickly to other areas, most notably the jumbo loan market, which encompasses loans that are made in excess of $417,000 and are a substantial portion of the local Sisters' market.

There does not seem to be much relief on the horizon.

"As a mortgage loan officer in Sisters, Redmond and Prineville, I can only say that the inventory is going to continue to grow as long as sellers maintain speculatively high prices. That is a real problem because prices are too high to begin with," said Bill Mintiens, chairman of the Sisters Economic Council and former loan officer with US Bank.

Also a problem is the decreasing availability of loans for buyers, which has thrown an additional wet blanket on the housing market. "We were supposed to close on the 25th (of August)," said James Brummond, formerly of Sisters. "When all the stuff started happening with the lenders, we lost our loan which was all approved. So then we had to go back to work to try and find different lenders. I am happy with what (the loan) we finally got and are excited to move in, but I heard that a lot of people were not able to get new loans when the ones they had fell through."

The rental market is beginning to affect speculators, as well. Many homes were purchased with the belief that they could be rented to subsidize mortgage payments, allowing investors to ride the tide of increasing home prices. However, with the rental market also suffering, many speculators are now beginning to feel the pinch which in turn is contributing to the decline in prices of both home sales and rentals.

"We have quite a bit of (rental) inventory compared to last year. Quite a few of them (rentals) are sitting vacant and have been sitting vacant through the whole summer. The market really comes to a stop by the end of September. The homes that are empty by the first of October are likely to stay empty through the winter," said Debbie Dyer of Ponderosa Properties, the area's largest property management company.

The rental slowdown came with the general malaise in the housing market.

"It seemed to slow down around the same time as the real estate market slowed way down. When July and August came along, we really just stopped renting houses. We have rented a few here and there, but August is always our biggest month with people getting ready for school, and we were really slow. We rented a little less than half as many as we did last year," said Dyer.

The first effects of the slowdown are being felt in the secondary tier of economic impact. The Sisters School District failed to meet its 2007-08 student enrollment projections. In fact, district wide enrollment is down by approximately 50 students and kindergarten enrollment has dropped by almost 50 percent (see "Enrollment down in Sisters schools," The Nugget, October 3, 2007, page 1).

Housing is a factor in the fall of enrollment.

"The elementary school population is dropping in Sisters because prices are just too high for young families, many of whom are leaving the area. It is one thing to have a good inventory of homes, but if no one can afford them it is not going to get any better," said Mintiens.

The only possibility for short-term relief on the horizon will occur when prices are reduced enough to begin to remove inventory from both the "for sale" and rental markets.