Sunday, December 24, 2006

Lies, Damn Lies, and Bend Real Estate Stats

On the previous Bend Bubble Blog, BEM & other commenters waited monthly for one of the only level-headed commentaries from the Realtor trenches, David Fosters RE commentary. Then there surfaced other sources of RE stats, from Doug Farmer on Realty Times. While Davids stats had a calming, monotonic ever rising quality that many times seemed impossible given anecdotal evidence to the contrary, Doug Farmer published stats that fluctuated wildly month-to-month, with prices rising & dropping in huge percentage terms every month.

For Nov 2006, David Foster quotes:
"in November it [Avg Sale Price] increased again from $406,241 [in Oct 2006] to $406,889 [Nov 2006]..."

While Doug Farmer states an avg Oct 2006 sale price of $469,592, dropping to $422,980 for November. What's the deal here?

While impossible to state categorically, it seems David Fosters data is smoothed significantly by looking at long-term averages, probably 12 months. There are good reasons for this: RE fluctuates wildly month-to-month, and is seasonal throughout the year. But using moving averages also makes trend spotting difficult. 11/12ths of the data points are unchanged each month. A dropping 12 month moving average only tells you one thing: That this months data point is lower than the data point of 13 months ago that dropped off.

I wanted to give people a more "instantaneous" view of the data points, and have published a spreadsheet. It's here:

Some explanation: The data is from Doug Farmer, and (hopefully) is raw MLS data, and that raw data is highlighted in yellow. Doug states these stats are all Bend residences & residential subtypes, whatever that means. Cumulative Value is a 3 month moving avg of Sold Prices X ("times") the number of active listings ("Actives"). "Total $ Sold" is simply the total dollar volume sold, and "Commissions" is just 6% of this. Then there is a 3-month moving avg of commissions, and the final column is the (Cumulative Value/3 mo. MA commissions). That last column is just a general indication of what Realtors are pulling out of the cumulative value of all residential listings. In Nov 2006, Realtors made $.15 for every $100 listed on MLS (per these possibly erroneous calculations). Think of a retailer, they want to turn their inventory as quickly as possible: Realtor inventory turn has fallen quite substantially just from this Summer (although this could be seasonal).

I've highlighted what I think is the most interesting stat, the total dollar volume sold from Nov of last year, till this year has almost dropped in half, as have commissions, obviously. This cannot bode well for Realtor and other RE-related professionals income. Per capita incomes have to be even worse, since Realtor numbers are swelling.

The True Bubble Peak seems to have been in June 2006, with $131 million in total sold volume at a nosebleed average of almost $500,000! July and August fell off dramatically, but were still historically strong. Sept - Nov were the 3 worst months of this sample, $ volume-wise, with very poor YoY comparisons (for Nov, at least). Realtors don't spend the Average Sale Price, they spend commissions, and commissions are down near 50% from last year, again with per-capita number almost certainly far lower. Realtors are in the throes of the Bend Bubble Bursting. It is only a matter of time when their plummeting incomes pertebate throughout the Central Oregon Economy. You'd be hard pressed to argue that reducing the total incomes of the most lucrative economic sector of our economy from $7 million/mo. to half that is "healthy". I would have some words for my Boss if he wanted to cut my pay in half, becasue he thought it would be "healthy" for me.


Anonymous said...

PD, an excellent spreadsheet. Thank you!
I assume that the total value of residential mortgages issued corresponds directly to the total value of property sold. So the total residential mortgage market has almost halved.
Playing with the numbers a bit on the total $sold column, I estimate that Q4 this year will be roughly $168m. This compares to a rough estimate of Q$ last year of $332m, and Q3 this year of $294m.
So when compared to either YoY, or to prior quarter, the Q4 residential mortgage market will see a big drop off.
But the recent estimates by analysts forecast that CACB Q4 loan origination volume will actually go UP when compared to Q3.

Does anyone REALLY believe that CACB won't miss their numbers this quarter? The MARKET has basically fallen in half. It would take a huge gain in market share to offset that. It will never happen.
Time to triple-up on my short.
Day of reckoning is January 11, when Q4 earnings are reported.

How about you bloggers, what do you think I should do:
1. Double my bet again
2. Chicken out now and close my position. I'm breakeven today.
3. Hold my current position and see what happens.

What would you do with your money? You have clear evidence that the market has halved in the past few months. The analysts have forecasts for CACB's Q4 numbers which do NOT reflect this. Will CACB pull off a miracle and make their numbers? Will they go down big time? Is this the big sure-fire way to make big money on Bend RE? YOU decide. I could be wrong!!!

-CACB Shorter (CACB Short Hair)

Jack Russell said...

"Realtors made $.15 for every $100 listed on MLS..."

Paul, did you really mean to say this or should that be $1.50 per $100? At a 6% commission, split 4 ways a selling (but not listing) realtor would gross 1.5%, true?

Anonymous said...

Short Hair,

Leave your position on and double it on the news, weather good or bad, it will be a great spot to add to your existing position, but let the short work for you, if it trades higher, you know you can average your shares and sell more higher, if it falls, you can still sell below todays prices and have less risk after the news event, because the titanic won't stop sinking in one quarter.

Anonymous said...

I stand corrected on something from my previous post.
Analysts forecast CACB new loan volume to fall ~30% from Q3 to Q4 this year, but still above the prior year level (prior to the F&N acquisition).
Still seems optimistic to me.
-CACB Shorter

Anonymous said...

Another good article in the Idaho Statesman on the plummeting property market there:

Their journalist does not pull any punches. The market there is down 44% November YoY. New building permits are down over 60%, so the outlook is bleak. Values have fallen 7%. (And this was supposed to be the new growth market for CACB? Oops.)
-CACB Shorter

timmytoes said...

CACB, I sold today. 5 weeks. 4% gain.

Not a lot, but a lot for 5 weeks. It's all yours now.

Paul-doh! said...

From the Idaho Statesman:

"About 90 percent of the families living in the Treasure Valley earn less than $40,000," he said. "Where are the buyers going to come from for these expensive homes?"

"Canyon County has managed to hold its median price at $164,950..."

"The median price of an Ada County home has now fallen 7 $231,000..."

Poor things! The horrors of having a median home price under $165,000! How do they survive? $40K/yr sounds pretty good, if I can go from paying $450K for a house, clear down to $165K.

That .15% is Cumulative Value / 3 Mo Avg of commissions, and it is $.15 per $100 ($1.50 per $100 would be 1.5%). When the cumulative value of what's on MLS goes up vs commissions, this number goes up. I think of MLS value as "inventory", and commissions as profit Realtors make on this inventory, I guess it's the profit margin on their inventory(?)

I saw 5-6 homes in my neighborhood get sold in the last 2 weeks, Took a 25% price cut to get'er done though. That's after 6 mo w/o a sale.

As for CACB - even if there were no housing "bubble" problems here... there are an awful lot of banks here now. Deschutes County & Bend have obviously hit the population growth & size parameters looked at by many big box retailers, financial institutions, and others... all at once. Banks are flooding the place. And right at a time when the easy money is gone...

Anyone have any idea how many Realtors Deschutes County has? I talked to a Realtor who said "2,500" off the cuff, and I seem to remember 1,600-1,700 last year. Couple that with an almost 50% cut in commissions, and I think the developer at the Shire would say that "feels like too little butter spread over too much bread".

Paul-doh! said...

Duncan McGeary was mentioned in a Bulletin article today:

Duncan McGeary, owner of downtown Bend's Pegasus Books, said he doesn't generally put his merchandise on sale because much of it is "one of a kind" and he doesn't have extra stock to sell off.

"I know I'm in the minority," McGeary said. "But I don't really know that it helps (drive sales)."

Even without the discounts this year, Pegasus substantially beat last year's holiday sales, McGeary said, which he attributes to store additions like the used-book section. But he also spent a lot of money on expanding his merchandise this year, he added, making him come out about even.

I'm a big fan of Duncan's blog; he posts quite a bit of material, it's usually interesting, and God bless him, he seems to be getting media play out of the thing and hopefully store traffic. Good job Dunc!

But I think it bears repeating that in this piece where the Bulletin paints a picture of a banner year for Pegasus, Duncan states flat out he's put quite a bit of money into the store, making his results "even". Think of a store like a savings account: Having a "record year" is a simple matter of putting in more money (at steady rates of return) or reinvesting your money. Warren Buffett has a long discourse on this topic, and why absolute dollars are rarely relevant in discussing real economic results; Return on Invested Capital is.

And taking Duncan at his face value evaluation of "break even" over last year, it does seem that he is also correct that Bend lease rates downtown are disconnecting from reality. I think we're actually already there, and that his statement that $2.50/ft plus CAM charges is not sustainable downtown. There has been ever rising economic activity in this town for some years, but a busted RE market is going to soon ripple through to every corner. Commercial property has so far resisted the residential bust that has taken hold here, but commercial is not far behind...