Tuesday, March 6, 2007

Bend Home Prices About To Go NEGATIVE

The Office of Federal Housing Enterprise Oversight report showing that Bend was the highest appreciating metro area in the country has been getting a lot of play recently. Kind of funny since it's March, but it's clear why: Every Realtor with two brain cells to rub together knows full well that Bend median and average home prices are about to go negative.

The situation today is a 180 degree opposite of last year. Inventory is up over 200% than this time last year. Unit sales are off 20%. Median prices are already 4% below last years overall average. Last year at this time we had a scant 2.5 months of inventory on the market, today it's 10.5 months. The Bend housing market isn't falling apart, it fell apart months ago. Last months sold volume is the lowest since Doug Farmers publicly available monthly figures started in November 2005. Housing may look weak, but the Realtor game has crashed and burned BIG.

Continue to look for Realtors to flog every scrap of good news out there for all it's worth. Because they know full well the news is about to get very, very bad. March, April, and May will see home prices in Bend go into the red, and they will go steeply into the red. By Summer, expect to see double digit losses over last year. And this all assumes prices stabilize here. If the oft-awaited Spring Fling inventory explosion materializes, we could see things get very ugly.

Once people begin to see the $400K homes they bought last year only worth $300K or less, and the job market further deteriorates (which it will, mark my words), things will get desperate here. We're seeing the last gasp of frantic Realtor attempts to salvage what they can from an increasingly hopeless situation.

Look for a Spring explosion in inventory... there is nary a seller who couldn't sell last Fall who isn't gussying up the homestead for a sale this Spring. Look for Realtors to finally swallow the red pill, and insist on lowering list prices. We will see what looks like a Buyers Strike. But it's not a buyers strike, it's a return to normalcy. Unfortunately "normalcy" is going to wreck the finances of thousands of people here who have come to count on their home as an ATM. The marginal loan game is over, and when mortgage bankers actually have the gall to insist on you having income to support payments on the loan you so desperately need to get another 2008 H2, a lot of people are going to have problems.

The Real Estate ATM in Central Oregon is CLOSED. Not CLOSING, CLOSED. And have no doubt, this ATM produced BILLIONS in SPENT income that will not come again. We're in for exceedingly hard times. Every time you read a mass media piece about how good is WAS, realize that's because if they talked about how it IS, it would scare the hell out of you.

14 comments:

Anonymous said...

The marginal loan game is over, and when mortgage bankers actually have the gall to insist on you having income to support payments on the loan you so desperately need to get another 2008 H2

I'm going to miss getting run down by rude Californians more than anything!

Eye-gore said...

By Summer, expect to see double digit losses over last year.

Go to David Fosters website, and look at properties on acreage: The average price ($588,700) is already down 21% from last years overall average ($741,800).

I think acreage property will go down the farthest. In 2003, from $351K avg, to $741K in 2006? Tell me that ain't going to end badly.

Anonymous said...

Unfortunately "normalcy" is going to wreck the finances of thousands of people here who have come to count on their home as an ATM.

I guess this explains why my truck is 9 years old, while everyone I know is driving 2-3 brand new trucks. Living within your means might actually come back into style!

marky-Bee said...

Check out this statement from a local business for sale:

"From 2001 to 2005 overall real estate valuation for Deschutes county increased from $1.1 Billion to $21 Billion."

That's only 100% compounded yearly. Nope, nothing to see... no bubble here folks.

Obviously we didn't appreciate at that rate, so a huge amount of that is new building. I think someone said they saw a funny plaque at Arnie Swarens Sisters office to the effect, "God please don't let me waste the next real estate bubble." I think it's clear that by endlessly building and building in response to appreciating prices instead of building up a decent payroll base, that we have in fact wasted our chance.

IHateToBurstYourBubble said...

we have in fact wasted our chance.

Yeah, dead on. We should have plowed money into Juniper Ridge, expanding our living wage payroll base and gave big tax incentives to a couple of "anchor tenant" employers to locate big offices here.

Instead, we tried to fill Bachelors already overfull ski lifts, and further bloat the RE bubble to an unsustainable level.

But RE Boss Hog types run this penny-ante backwater, and their short-sighted stupidity is now going to come home to roost. Another prediction: Look for them to blame anyone but themselves.

IHateToBurstYourBubble said...

From a local blog, I found a link to this:
America’s 50 Most Affordable Housing Markets

OREGON

City: Salem
Type: Single Family home
Price: $309,900
Beds: 4
Baths: 2
Listing agent: Coldwell Banker Mountain West Real Estate
MLS #: 558552

Most Affordable market: Salem
2006 Average Sales Price: $304,000

Most Expensive market: Bend
2006 Average Sales Price: $482,750

Variance: $178,750


No surprise that Bend is the most expensive place in Oregon. Salems the cheapest (this obviously left out small towns like Burns). But what's perhaps the most surprising, is that given the horrendous navigation of this article (a framed out horizontal row of thumbnails w/o any indication of what state was represented), I managed to pick Oregon right out, first try! YEAH FOR ME! Funny, cuz I just looked for what looks the most like an overcrowded McMansion Bend neighborhood, and NAILED IT.

Take the challenge: Go here, and see if you can't pick a Bend neighborhood right out. Wow... what a crappy navigational scheme!

Bend Economy Man said...

I got it on the second try. Truly weird.

I think your call of just-about-to-go-negative is a good one. And then, I suppose, we'll see what happens next.

Anonymous said...

The sky is falling, the sky is falling!

What would please me is if they assess my property at a lower value, then my taxes will go down. I've calculated that at normal Bend appreciation rates, the house is worth now in 2007 what I paid for it in 2004.

Anonymous said...

Add to that the fact that vacation homes are oversold, and you have a double problem. Yet West Coast Bank is expanding in Bend. You know what that tells me? Here in Silicon Valley, we have a saying: "A new building is the kiss of death." That's because by the time management realizes they need more space, and builds that space, the boom is over - so the building ends up for rent. Sometimes it kills the company. And yes, you should appeal your assessed valuation when the comps drop.

Anonymous said...

Look up other desirable cities all across the pacific west and you will see the same trend.
The markets have been in a downward trend for almost a year across the nation and the west coast was the last standing.

Many are claiming value return for areas of desirable living to increase again in 2008. This doesn't mean that the values will have yearly gains of 30% in the future but probably more closer to national averages which is a better balance when your facing developers coming in and over developing to grab those massive gains.

IHateToBurstYourBubble said...

The sky is falling, the sky is falling!

OK....

What would please me is if they assess my property at a lower value, then my taxes will go down. I've calculated that at normal Bend appreciation rates, the house is worth now in 2007 what I paid for it in 2004.

I'm not sure I understand what you're saying here. What are "normal Bend appreciation rates"? Are you saying that given a big run up in the interim and after the subsequent decline, that you're looking at (say) 4%/yr appreciation since 2004?

If so, great. But hoping for a fall in your homes value to get a tax cut seems drastic. That's like wishing you were 80 years old so you can get a Senior citizen discount at the movies. I don't think it's worth the trade-off.

I've heard people say this who have this theoretical idea that They Are Never Selling Their House, and hence the terminal value makes them no nevermind. This is usually self delusion. You, for instance, bought in 2004, which gives you a single point stat of 3 years of ownership for your current residence. I don't know your ownership history, but hoping your house declines in value to save property tax payments is usually short-sighted.

IHateToBurstYourBubble said...

I think your call of just-about-to-go-negative is a good one. And then, I suppose, we'll see what happens next.

Not a real big leap-of-faith or profound insight. Pretty much a given from the price action last year, at least what I could divine from it. David's site seemed to indicate that there was a huge rampup in prices to the Summer, then they fell back to around the midpoint of the runup, which seemed why medians and avg's were almost unchanged by the end of the year.

My own prediction is that the Sunny Side will be exposed for all to see: Increased Choice, Affordability, Etc, Etc. Bend Media will be unable to explore the dark side of people dropping $10K/mo in home values. Its all Puppies, Kittens, and Baby Deer in Bend, even if a neutron bomb goes off.

I also wonder about inventory: What do you do when you have plans to relist, but the cat is out of the bag? Do you say "To hell with it" and keep waiting? Becuase there is going to be a realization that a lot of the bubble-priced stuff of 2004-2006 isn't going to fetch what people paid. I'm seeeing that now. So far the reaction is "Screw it, I'm listing this bugger like All Is Well, and I deserve to make my 20%/year!"

Don't know how this plays out en masse. I can't believe an entire city population would simply list their home at prices 20-30% above comps. But I guess Davids site shows that closed deals are already 20% (or so) below listed inventory.

Anonymous said...

I'm not sure I understand what you're saying here. What are "normal Bend appreciation rates"? Are you saying that given a big run up in the interim and after the subsequent decline, that you're looking at (say) 4%/yr appreciation since 2004?


I'm assuming my house was overpriced by the amount above normal appreciation that had already occurred when I bought it, and have calculated that at normal appreciation it would have reached that price in 2007. Not sure if that is accurate, but seems more or less reasonable.

My house has already been assessed at more than 60K more than I paid for it in less than three years, so yes, I wouldn't mind if if the price dropped back to a more reasonable level. I think lower prices would be better for everyone. High prices keep out some of the most creative people.

Lisa said...

"This ATM produced BILLIONS in SPENT income that will not come again."

The income won't come again, but the debt will be around for years.