Tuesday, November 13, 2007

Someday we'll look back and know exactly when the Housing Bubble popped.

The steep climb of prices and steep decline will seem to have happened fast, as least compared to all that happened before and all that happened after. Depending on where you start the curve, it will probably unwind at about the same severity as it increased.

But while it's happening, it's a bit like watching a bucket fill with water, one drip at a time. Rather hard to comment about.

Somehow it was easier to talk about the crazy out-of-control building, to speculate about the possible peak, especially when it seemed like most people were in denial, than it is to have a running commentary about the decline. It seems almost cruel, almost too much "I told you so...."

I thought there was a particularly good exchange of comments over on the Bendbubble2 site, that summed up things rather nicely, if I do say so myself. Since I know that some of you feel the comments over there can be too extreme, I thought I'd reproduce them in part here.

To wit:

Bend Economy Man said....

These builders are all just scared to know where the REAL market price is. There's over 2000 houses and almost 1000 empty lots for sale in Bend, and houses are selling at the rate of 100 per month. At David Foster's reported current median of about $350K, there's $750,000,000 worth of houses for sale in Bend right now. At Bend's average household size of 2.42 persons, we'd need about 5,000 new people, like a 7% population increase, to eat up that inventory (and that doesn't even include FSBO and builder-direct-marketed homes).

No sky-is-falling bullshit here -- that just sounds extremely unlikely and anyone not wearing blinders has got to know that $750M and 5K people are not just going to show up in Bend in time to save the day.

So I'll just leave it to those who are browsing this forum to draw their own conclusions on what WILL happen.

Duncan McGeary said....

Not to mention that even if we had 5000 people wanting to move here, they have to be able to sell their houses, and qualify for a loan. Then they have to be stupid enough not to wait for the price to drop.

Meanwhile, houses might start emptying out from hurting builders, sub-contractors and finance people.

And the Dark Matter that IHTBYB talks about. And the houses coming online.

It doesn't take much imagination to see a stock market fall, a terrorist attack, bad weather, any number of things aggravating the problem.

Bend Economy Man said....

Agreed, but I don't even think you need any "what-ifs" on the negative side. The series of miracles that would happen on the positive side pretty much make Bend RE a "Hail Mary Pass" play right now, at best.

Duncan McGeary said...

Too many houses.

All the rest is commentary.


IHateToBurstYourBubble said...

The total value of ALL listings (land & homes, etc) in Bend, Redmond, and Sisters is:


If you check this Realtor site, you see that this is more than the TOTAL ASSESSED VALUE of Bend in 1995-96.

Duncan McGeary said...

It seems as though, if anything, BEM understated the amount of money involved.

Having a high inventory in my store, I know that that it counts how was paid, how much is still owed, how badly it ages, and so on....

Anonymous said...

You guys are forgetting the tourists bring $498M/yr into the economy, and thus in four short years almost all this will be purchased.

Bend is the #1 tourist mecca on the west coast ( www.visitbend.com ).

[ Paid for by city of Bend ]

Anonymous said...

The incentive for insane building was SDC.

It's in this current edition of The Source, they printed the following.

"The City subsidized builders by charging less than 20% of actual SDC cost, and 100's of builders came to Bend. The City also spent Millions a year on promoting the mantra that Bend is the #1 resort in the west. You cannot have it both ways, an overbuilt gold-rush town lacking infrastructure, and a destination resort town."

The over-building was 100% created, and manufactured by the city. To this day they have exempted les schwab from any CCR's into perpetuity at Juniper Ridge, thus the entire premise of what Juniper Ridge was to become is now irrelevant. The entire cost of SDC for Les Schwab is to be paid for by the Bend taxpayer.

When Hummel quit a few months ago upon leaving he said "The city is going to be hitting the taxpayers with an astronomic bill".

Yes, Duncan too many homes were built, but why? The reason Sebastian left Wilsonville and came to Bend, is that in Wilsonville an SDC is $90k/home, and in Bend $12k/home, Sebastian and 100's of builders all over America came to Bend, because the equivalent of 'land-rush' was on, the City was basically giving away profit to builders, and they knew it.

It's one thing to build too many homes duncan, I think your looking at the result, and not the future, the future is that these bills have to be paid, now that most of our builders who got rich, will either move-on, or go bankrupt, there is still the problem that the party is over, and the bill is on the table.

A bill estimated to be $2 Billion dollars or more.

Forget about the fact that there are two billion or more assets that are unsold, that is a diversified problem, a bigger problem is this city is sitting on a $2 Billion liability. Money that was borrowed from the city to make Hollern, Sebastian,... Rich. They're still doing it, my estimate is $100 Million or more will be spent on the behalf of Borgman CEO of Les Schwab.

The secrecy in Bend has not ended. The bills keep piling up, and the city keeps letting the richest in Bend avoid paying for their own infrastructure.

The above will be the downfall legacy of Bend, not the simple fact of downtown covered with plywood and full of partially finished buildings. Like Orange County a few years ago, our city will simply go bankrupt. Given that ALL those who got rich off the generous welfare to the richest citizens of Bend, all have LLC's and Miller-Nash to protect their assets nobody need worry that any status-quo in Bend be harmed.

Anonymous said...

We know exactly when the bubble in Bend ended. It ended in Septemeber 2006, with the announcement of "The Shire".

The greatest boon-doggle in Real Estate History.

The whole world scratched its head.

That was fall of 2006, by spring of 2006 SMART conservative mutuals dumped their CACB. Thus you could average and say that the bend bubble was over summer of 2006.

This is why by winter of 2006 and spring of 2007 there was already good deals on RE, now of course there are even more deals.

We also know that the foreclosure glut will not end until 2011.

There is no mystery, regarding to the fact that most don't know what the hell is going on. All I can say is kill your TV, and your BULL.

Ray Kuratek said...

One last comment about the economy thing. The commercial REIT funds, the grand-daddy that kept Bend moving. Peaked in Feb 2007, and is now down 20%.

Normally commercial is out of sync with residential on a collapse. But it is assumed that areas like cali & florida will be hit hard, ergo Bend will be hit hard.

New REIT money has dried up, thus new BIG-BOX construction in Bend will soon plummet. Unfinished jobs, and builders walking away from projects is the rule these days.

Ray Kuratek said...

Regarding Duncan's standard manner of rhetorical questioning. Just read the following, you'll see exactly where the Bend Commercial Building Boom is going.

Indeed, as the SF president Janet Yellen put it last year there are plenty of new residential ghost towns in the West in places like Nevada, California, Arizona, etc. So why would anyone want to build new shopping strips/malls, hotels and offices in such ghost towns. If the towns are empty the stores and malls and offices will be empty too?

Thus, as suggested by formal research – such as that by McGraw Hill Construction – with a leg of a few quarters non-residential construction follows residential construction. Thus, you can expect in the next two quarters commercial real estate to follow the slump of housing and its rate of growth to fall from double digits close to zero.