Sunday, May 20, 2007

So there is one of those statistics in the Bulletin that just doesn't compute. Housing starts are down 55% for the first four full months of the year. If you were going to build in the prime building months of spring and early summer, this in when you'd be getting the permits. You'd think there would be some layoffs going on, but not a peep.

So I can make a few guesses. One, most obvious, that there was so much building already in the works that it will take a long time for it to be cleared away. Two, would be that the contractors and sub-contractors had so much on the plate, that even a 55% drop doesn't take up the slack. (Every story of a contractor not showing up or showing up really late is probably a symptom of "over-promising", because the construction folk don't want to be left without work.)

Three, hours are being cut across the board, but again, because there was so much overtime going on, it's still not cutting much into full-time. Fourth, that there might be a fair amount of under the table work that is being cut even as we speak. Fifth, some of the construction folk are moving into commercial building, which doesn't seem to have slowed down at all. Sixth, it's a lagging indicator and there are in fact layoffs happening. (Though I haven't heard of any.)

I have a contractor friend who is starting a new project. (I won't comment on the wisdom of that.) He said that he is actually getting calls from sub-contractors instead of having to chase them down.

People keep talking about a 'needed correction.' Well, to me, a correction is 10%, or maybe 20%, or conceivably 30%.

55% ? For four months? That a hard statistic to get around.

2 comments:

BENDBUST said...

Builder's, Developer's, Contractor's - The Big Money - Now We'll Discuss the Sub-Contractor's the Little People

Builder's, Developer's, Contractor's are the folks that have their life saving's at risk in Bend. There is good news, folks that specialize in remodeling have work, perhaps plenty of work. Like they say folks have to have a place to live, and there are lots of people in Central-Oregon that have money, that didn't get caught up in the get-rich-quick Real-Estate game. Folks that just want to have a nice kitchen are where the money is now, if you have a good name, risk will be low. You will keep your crew busy.

This report will deal with the working folk - the sub-contractors, and the Mexicans. Eventually I would like to do a whole report on the mexicans, in fact to be honest I think there should be a whole blog on Mexican Workers in Central Oregon. Before I begin let me just mention my favorite quote "When in Mexico they ask you how many children you have, When in the USA they ask what you do, what you drive, how much money do you have". Latin American people have a heart and their hard working folk. So if your trying to read bad stuff about these people you'll not hear it from me.

ISSUE-1 The Status of Sub- Contractor's in Bend

These are the working folk, the dry-wallers, finish-carpenters, electricians, ... the folks that work 6-7 days a week building. One common theme that I have found from all that I have talked with over the past few weeks, is that they're getting out of Central-Oregon as soon as they can sell their house. They still think that they can out of their house what they paid. They feel great pain for their bosses who have 'BLEEDING' of the worst kind sitting on million dollar homes on Awbrey now for over a year, everyone is waiting. I haven't seen any that concur that if you want to sell you must reduce your price. The common theme is that just one more article in "Outside Magazine", just one more "Inc." Best city in USA, will cause everyone to want to buy again. ASAP just keep those fluff articles talking about Bend and ALL our problems will be solved. If I can just get Oprah to plug my book I can get rich, ....

What I found MOST interesting with the SUB's is that their pain started last year. Most were averaging $45/hr until last summer, then it dropped to $25/hr, and now its ALL piece work. Many have told me that the piece work yields about $15/hr. This reminds of our computer business, where programmers have gone from 60/hr to 15/hr competing with Indians and Chinese in just a few years. The SUB's I talked with, and NOTE the great majority of folks I interviewed are the TOP SUB's at North-West Crossing's, these folks are already lining up Renovation work, they're good. This notion of leaving Central-Oregon is the MOST consistent theme I have heard. To date I have not found a single SUB or GENERAL that intends to stay here. I find this amazing, and note they average time these folks have been here is ten years, these are not folks that just go here in the last five years.

There isn't much anger about the drop in hourly pay, as they know the General's { I'll be referring to the developer/ builder as a general } are struggling with their bleeding on the SPEC house's they cannot sell.

Like I mentioned in the BUILDER's report earlier this week, sure everyone is busy-busy, but the SUBS are busy because they're having to work harder for less, and they have NO CHOICE. I did not find one that was willing to seriously reduce the value of their home to get out of here. The consistent plan is "I must sell my 2500 sqft mcMansion for $750K to get out enough cash to start anew in Hawaii, Seattle, ... anywhere but Central-Oregon"

The BLEEDING here is massive, as a hard-core ASSHOLE-BASTARD businessman the first maxim of Business is 'cut-your-losses, and let your profits run'. Future historians are going to look at this mess and think there was some kind of group insanity. It's one thing to lose your money, but when you keep putting money into a loser this is the definition of insanity.

Folks lost their life saving's on the DOT-NET/DOT-COM 2000 stock market crash, but here we have folks that are continually dumping thousands of dollars a month into a depreciating asset. THIS IS NOT A RATIONAL BUSINESS STRATEGY. Folks in Bend didn't buy their home for a place to live, its ALL speculation, and now they'll keep feeding the monster "bleeding" as they call it. This all reminds me of the other-guy has it worse phenomenon, the SUB's are bleeding a few thousand a month in mcMansion they don't need, and the General's are bleeding ten-thousand++ a month on Spec-Homes they cannot sell at last years high price. Thus the Sub's don't think they have it bad, because they know people that have it worse.

My mission here is not to wallow in the pain of my fellow man. My mission is find out what the hell is going on, and as you ALL know, your not going to find out on your local media, because 'FEEL-GOOD' is what our entire USA economy is about, and on TV and the Main Stream media your only going to hear things that make you feel-good. This is because of advertising, it is a psychological fact that good-news makes you shop at fred-meyer, and bad news makes you not shop, and freddy's is the biggest advertiser in Oregon, ergo good news for ALL. Shop until you drop, remember what dubya said after 911, "Go Shopping".

In every instance I feel for these guys, and MY advice is sell and get out, and don't keep bleeding. My MOST optimistic estimate for recovery is three years, and this is only if the building stops, and the inventory is absorbed. We all know that niether of these is even close to happening. My conservative estimate is ten years for Bend to reduce the inventory. Note, that Oregon has NOT had a serious correction since 1983, and that took three years to work out. The difference then was $80k homes went to $30k, now its $750k going to $250k. The scale is the same, but the debt obligation is horrendous, note that if you were honest in 1985, you could work off your loss in one working year, as some folks did make $40k/yr, today the obligation will be $500k, and that's ten years of income. This is a WHOLE new ballgame, working this one off could take a lifetime, also the PAIN may make 1/2 the population NEVER come back to Real-Estate for a generation. ... Study you history, we're going to need a BIG-WAR to pull ourselves out of this one.

The SUB's I talked with never dreamed that the Bend construction boom would stop, two years ago everyone at NorthWest Crossing had a brand-new BIG TRUCK, with toys in it - wave-runner in the summer, and dirt-bikes in the winter, sometime last year the toys disappeared "they sold them", and right now folks are trying to trade in their BIG trucks. Right now nobody is showing off their toys, they're long gone, everyone is to busy trying to pay their house payments so they can wait for the recovery. Again, the common feeling is just one more positive Outside Magazine ranking like the one last week about Bend being Better than Moab for mtn-biking. I'm a mtn-biker, I love bend and moab. All the restraurants in moab suck, and bend these days is only about yuppy food. I only eat at Bend Mexican places: long-board, rigobertos, and super-burrrito. Moab has way better trails and stuff outside of town, in town their is nothing to do, except drink 3% mormon beer. Bend is ONLY about shopping at the Old-MIll. Of course Outside-Magazine is ONLY about advertising and selling its advertisters products which can all be found in Bend. This is NOT going to save Bend, besides the kind of people that are need to rescue these folks is NOT the kind of people who will buy $750k homes when they move to Bend. The common thing I see now is if these folks could do it over they would have got a 1100 sqft house, NOT a 2600 sq-ft mcMansion. Everyone that made the greed move from 1,000-sqft to 3,000-sq-ft realizes they made a tragic mistake.

So there we have it our SUB's are waiting for 1,000's of folks that want to buy $750k home in Bend to move here, and the general's that hire them are waiting for folks to buy their one million dollar home's that have been sitting empty for over a year.

This is classic depression, I'm talking 1930's, it was the BIG homes that went empty, and nobody bought because of upkeep and burn-rate, the little homes are the homes of people and they held up well. Like I have been saying since I started this blog, the avg Bend income is $60k/yr, that means the avg home should be $240k, stay in that ballpark and you'll survive the storm.

What everybody in BEND did is buy a mcMansion with the idea that the 1/2 million home would go to one million, and that is why they want to sell for $750k, problem is there are NO buyers. Also Jumbo-Loans are pretty much dead now, a jumbo is over $350k, if you have 20% down, and buy a nice house low-ball in Bend for $280k, you can get financed, but if you try and by one of these 3,000 sqft $750k mcMansions with 5% down you'll get no-where. This is why the stuff ain't selling, and NOBODY has the cash.

In summary on this issue "cut your losses", your home is not a business, treat it as a business, BLEEDING 1,000's of dollars a month for years is NOT a business tactic. To lose your life-saving's is one thing, but to lose your future income is insane.

ISSUE-2 THE MEXICAN { Sincere apology latin brother, I know very few brown-skins are from Mexico ... Note, I consider myself white-trash amigo }

I have talked a lot about folks average white guys with NO education that came to Bend bought a little house, and SOLD it and then bought $750k home up on Awbrey, so WHO bought the little homes?? This is where our Mexican comes in ...

The mexican's in Central Oregon are our Sub-Prime Support system, they're buying the homes that our white trash has been selling. Thus they are the foundation or the leg's of the entire Central-Oregon Ponzi Scheme. For the past ten years groups of mexicans have been buying the under $300k homes in Madras, Redmond, Bend and this is what allowed the white-kids to get into the mc-mansions on the hill. What is very interesting is that if just for a moment that DUBYA actually enforced the ILLEGAL-STATUS they would in effect completely destroy central oregon real-estate as that is our foundation.

In the 70's large tracts exactly like nw-crossings were built in Tustin/Irvine in California, these were the upper middle class places, today they're all lived in by Mexicans. This is a good thing, otherwise the home would have been bulldozed. Basically what happened is that LARGE expensive homes got built, and then an area fell out of favor with the high-income economic group. This is exactly what has happened to Bend.

The Mexicans do the yards in Bend, they build the homes, the current USA statistic is 3% agriculture, 30% construction, and 65% service. If you eat out anywhere in Bend, the odd's are your mexican brother washes your dishes.

A few weeks ago I talked with some very prominent builders of the area, and they had an interesting theory. That the ENTIRE Bend boom would have never happened if it were NOT for the Mexicans, they bought the little dumps that white folk would NOT live in, and they fixed them up. Then the white folk that could-would NEVER have moved up decided they could play the rich mans game, so they bought a $500k 3,000sqft mcMansion, again this would NOT have happened if the Mexican had NOT bought their shack.

The point is that if Bend area actually did something hostile towards its Mexicans the AREA real-estate biz would fall like a house of cards. This politically is a VERY important point.

Gated community's like highlands at broken-top, will NOT allow mexicans entry in their cars, but they come in by the busload to do roofs and drywall, ditto for anything 'morrisette'

Like I said A WHOLE BLOG needs to be dedicated to the BEND Brown-Skin folk. I speak spanish, so in the coming months my desire is to start interviewing some Mexican home-owner's and sub's, one of the questions I'm interested in is are they moving are staying. Like I have said not a one white-sub or white-builder I have talked with plans to stay.

COMMENT: I came to Bend forty years ago because I loved the nature, there is NOT a single damn thing that white folk have brought to Bend in the last forty years that I couldn't do without. Note, I didn't come here to MAKE-MONEY, I came here to live, the life-style, but EVERY DAMN builder and SUB I have talked to clearly has stated they came to build and make a buck, and when the game was over to move-on. That said SHOULD we have crocodile tears for these folks? Given that inherently the VAST MAJORITY of folk that have moved to Bend since 1980's really only came here to play the gold-rush. Life is NOT fair, nobody is entitled to wealth. I have already written how to obtain wealth, and it doesn't happen quick. What everybody in Bend did was the same stupid thing, they started in a little mill-house, and then sold and bought up in the highlands, they weren't happy that there little $80k shack went to $300k, they had to have a $500k mcMansion go to a Million, now 1,000's and 1,000's and have 1,000's of SHEEP in Bend are stuck with the mcMansions.

What will come of it?? I'll tell you as I know exactly, they'll be bought and occupied by the Mexicans ten to a house, and they'll make them homes, and someday you'll drive through NW-Crossing and on sunday every garage door will be open and folks will selling tacos. This is what Irvine is like today, not thirty years ago it was the same game. White trash in orange-county sold their anaheim house, and bought in Irvine with the idea of becoming millionaires ALL these homes were sold on auction where you had to pay lottery just for the right to buy, and where are they today?? Its little mexico.


SUMMARY:

In the last article I covered the BUILDER, and this article the SUB, and then the SUB-SUB { mexican }

I don't know how many years our Builders, Subs, can continue bleeding. Given that in 6 months the ONLY construction will be remodeling there simply will NOT be enough work for all to stay, and thus there will be foreclosures, and most of these folks did the nothing-down game, and so they have NO wiggle room to reduce the price.

There seems to be a general feeling that "Juniper Ridge" is the savior if we could just get it going faster, then all the manufacturer's would come, and Bend could become a Gary-Indiana over night, and all would be good. It's quite amazing how growth for the sake of growth takes on, its quite like cancer. It would NOT take too much nasty manufacturing on Juniper Ridge to pollute everything to the North. Redmond and Madras will be Love-Canal, does anyone care? Not if it means I can sell my house for $750k and get the hell out of Central Oregon.

It seems to me as someone who had another twenty and plans to die in Bend, that the folks who are running the show aren't in here for the long-term. How in hell did this happen? Does anyone give a shit? Of course not the corporations have been doing this since the 1980's replacing pensions with IOU's just read the Bartlett&Steel book "American what went wrong" { 1986 } The USA corporate leaders have been buying haciendas in Spain and Italy, everybody plans on cashing out and retiring somewhere else. Thus everything is disposable, nothing is sacred, everything is temporal. Everything is NOW, I want it NOW.

My only comment is that perhaps like minded people can raise to the occasion and save that which has NOT already been destroyed in Bend.

Bend Economy Man said...

And notice that the 55% is off of a year (2006) that was pretty much the tail-end of the boom. I'd like to see the 2005-2007 comparison.

One of the things I tried to get at with my blog is what most people realize as a matter of common sense - these things are interrelated. You don't see it so much any more, but I had a lot of pro-RE posters who would say, basically, until they saw stats indicating major across-the-board drops in home sale prices, there's no crash. And as long as no crash has happened, there's a chance no crash WILL happen.

But here we definitely have one kind of crash, right? A 55% drop in housing starts shows something drastic. It's hard to paint that as a "return to normalcy," especially because the same people who are saying that "we're just going back to normal" are the same ones who say that the new "normal" for us is people and money constantly pouring in and a growth-based economy straining to keep up.

Over the last few years most all of us, myself included, have come to see construction sites, fast growth, gentrification, etc. as part of the regular landscape here in Bend. That 55% drop in housing starts is at least SOME evidence that maybe there's a new landscape we'll have to get used to - an overbuilt one.

So what does that mean? How many partially-built-out developments do we have in Bend? How long will they take to fill? How long will we have vacant weedlots in downtown? And if this is all happening while cranes are moving into place in developments like the Old Mill District, what happens to all that? Will the contractors and their financiers continue to pour resources into finishing big projects that won't be finished for over a year as profitability projections are constantly being revised downward?