It's hard to keep your eyes on the target sometime, when things happen slowly. I get the feeling that people are beginning to believe the housing bust isn't going to be that bad, or isn't going to affect most people, because nothing spectacular has happened, or because it hasn't affected them personally. But, we've just started, especially here in Bend. Just because you can't see it moving, doesn't mean it isn't happening.

Even Paul-doh seems to think housing prices, on the left side of the curve, are getting within shouting distance of what they ought to be worth. But give it time and they'll be way below what he thinks they ought to be worth. The bust won't stop at reasonable, it will drop to a steal. But the psychology will have changed by then, too, and no one will want to buy. Fewer will have any money or credit to buy. Bend won't look like the mecca to out of towners anymore.

Geez...I've always counted on Paul-doh being more alarmist than me -- I wonder if he's going soft on me. Huh, Paul? Tired of being negative?

msnbc.com has an article called "The New Money Pit" which simplifies it down to basics.

From 1989 - 1996 houses dropped 20% in "real" terms. That's a seven year process.

40% of the jobs created in the U.S between 2001 and 2005 are in the housing industry nationwide. I shudder to think what % that is in Bend.

There are 370 billion in Arm's resetting this year, 50 billion in October alone.

To buy a house -- any house -- you need a credit score of 700 and a downpayment of 15 to 20%, and that's if you buy a house below the jumbo limit of 417k. As one real estate agent is quoted, there are one third as many eligible buyers with five times more houses. Again, Bend is probably much, much worse.

This is going to affect every aspect of the economy, and especially in Bend.

In Bend, I think we'll have a double whammy, because we've apparently convinced ourselves that commercial building will bail us out. Downtown has two major buildings coming on the market soon, added to the unfilled Franklin Crossing, and Parking Garage, and more turnover in the rest of downtown than most people seem to be noticing.

The Bulletin once again printed an article that on the face of it is positive, but if you read between the lines is pretty alarming. It's a little too soon to saying that the "Region Weathering Credit Jitters" isn't it? And isn't all the evidence in so far, pretty much the opposite?

To say that only the mortgage shops are suffering is pretty silly because they are ground zero, the shock waves are going to hit the next ring out, then the next, then the next. Jumping from the once sturdy branch of housing to the next branch of commercial isn't going to keep that branch from breaking too. That 24% drop in lending is going to ripple out to everyone else, and then boomerang right back to the mortgage, which will ripple out.....and so on.

The most revealing fact in the Bulletin article to me was that project's like the Mercato in the Old Mill need a pre-leasing agreements on 20 to 50% of the building space, along with 25% of owner equity. I'm betting that most of these major projects have been leveraged to the hilt. 25% of equity, based on land that is only worth something IF you build on it, seems to be pretty shakey.It would require a bit of wink, wink, nudge, nudge, on the part of the lenders, and I don't think they're in the mood. And pre-leasing 50% of some of the types of locations before a single piece of earth has been turned, seems ludicrous. Why would anyone agree to that?

So, a prediction that the Mercato will never be built. I stand by my prediction that you will be able to get a very nice house in 2 years at about one third lower than now; and that many sub-divisions will be unfinished, and that there will be a huge amount of turnover in downtown Bend and the Old Mill, resulting in a few more years with long-term vacancies.

P.S. If I seem awfully negative, it's because I have a rule of thumb with bubbles which has never been wrong, whether it was sports cards, comics, pokemon, magic, pogs, beanie babies or whatever. However bad you think it will be, it will be much much worse.