In this paper, we modify dynamic occupancy models developed for detection-nondetection data to allow for the dependence of local vital rates on neighborhood occupancy, where neighborhood is defined very flexibly. Such dependence of occupancy dynamics on the status of a relevant neighborhood is pervasive, yet frequently ignored. Our framework permits joint inference about the importance of neighborhood effects and habitat covariates in determining colonization and extinction rates. Our specific motivation is the recent expansion of the Barred Owl (Strix varia) in western Oregon, USA, over the period 1990-2010. Because the focal period was one of dramatic range expansion and local population increase, the use of models that incorporate regional occupancy (sources of colonists) as determinants of dynamic rate parameters is especially appropriate. We began our analysis of 21 years of Barred Owl presence/nondetection data in the Tyee Density Study Area (TDSA) by testing a suite of six models that varied only in the covariates included in the modeling of detection probability. We then tested whether models that used regional occupancy as a covariate for colonization and extinction outperformed models with constant or year-specific colonization or extinction rates. Finally we tested whether habitat covariates improved the AIC of our models, focusing on which habitat covariates performed best, and whether the signs of habitat effects are consistent with a priori hypotheses. We conclude that all covariates used to model detection probability lead to improved AIC, that regional occupancy influences colonization and extinction rates, and that habitat plays an important role in determining extinction and colonization rates. As occupancy increases from low levels toward equilibrium, colonization increases and extinction decreases, presumably because there are more and more dispersing juveniles. While both rates are affected, colonization increases more than extinction decreases. Colonization is higher and extinction is lower in survey polygons with more riparian forest. The effects of riparian forest on extinction rates are greater than on colonization rates. Model results have implications for management of the invading Barred Owl, both through habitat alteration and removal.