If you've followed the US auto industry for any time at all, you should recognize an oft repeated pattern: Horrible financial times, interspersed with brief, but very lucrative upturns. We're in the former now, Ford having lost around $12 billion last year while GM lost over $10 billion in 2005. making cars is an extremely cyclical business. To mitigate the downturns, carmakers have turned to incentive programs heavily. Who can forget 0% financing, Employee pricing, free upgrades, etc.
I was reminded of the US automakers when reading a CBN article, "Home Builders Offer Buyer Incentives", which describes the myriad number of incentives that local homebuilders are providing to move inventory. Everyone knows about Renaissance Homes free go-kart with every home. We can actually figure out that Renaissance had 4 suckers... err, tree-hugger.... err, buyers go for these go-karts, out of a total of 10 for the month of February, a figure Renaissance was 300% higher than normal (Which made me wonder "What's Normal" for these guys? Were they even here a year ago? Another thing Renaissance: Don't run condescending ads the year before you invade a town with these weird medieval castle looking houses highlighted. Dumb. Plus leave your smug bicep-flexing founder, Randy Sebastian, out. Man, what a turd. Maybe you're starting to realize this, as he was not once mentioned in the CBN article. This smug little weasel is marketing kryptonite.).
"We knew Bend was what I would call green and we were right," he said. "We sold four homes in Bend where the car was given to the buyers. We had 10 sales for the month in Bend, which is a very big month for us over there. So we know that by this program, with that being the primary focus of our advertising for the month, we had a 300 percent increase in the amount of traffic that we normally have."
Other builders are going for the esoteric: iPod docking stations from Woodhill, and even iPod's to go with it. They're also prewiring homes for solar.
Palmer is doing special financing & 3% allocated to upgrades. This is an offer that actually makes some sense. The others are presumptuous.
But this whole trend sort of "rhymes" with the profitless prosperity incentive programs that have really dogged American auto makers for decades. When times are good, automaking like homebuilding seems like a financial bonanza that makes those involved feel like geniuses. Then reality hits, and the true unattractive nature of high cyclicality sets in, and they sit around scratching their heads wondering what happened while practically giving away their product and losing everything they made on the last upturn and more.
And it is interesting that none that I've read about are simply lowering their prices, and publishing that fact. They are doing all in their power to keep "stated prices" as high as possible. Homebuilders should take a note from those that have truly prospered in the auto World over the long haul, Toyota & Honda: Simply produce high quality product and price it for nominal profits, and don't ramp up for temporary volume spikes in the good times. Will it help? Who knows, but Toyota & Honda make money year after year, while Ford & GM periodically have their asses handed to them & damn near go broke. Believe me, you are going to pay for feeding the bubble.
I think local Bend builders do not realize that the Bubble is busted, and keeping prices artificially high will simply kill sales. They are like car dealers who refuse to sell for anything less than fully-loaded pimp-mobile prices. What would you think of a dealer that refused to sell you a Hummer with anything less than iPod's, docking stations, spinning hubcaps, gold chrome inside & out, hi-def TV and freakin sweet velour seat covers? These guys shouldn't pimp these homes, they should cut price, cuz someone forcibly trying to pimp my ride just makes me say No.
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CORRECTION:
I stated last post that Andy Anderson was Pamela H Andrews husband, when Andy Andrews is her husband.
Oy... I hope I don't screw that one up again! It does explain why she was willing to go after Anderson though. Going after the husband in the local business rag isn't good for the home life.
I agree with Palmers idea: offer some percentage incentive & let homeowners upgrade what they want, and then maybe give back to them any unspent $. The go-karts & iPods are a sign of not just desperation, but stupidity. There's room for a no-BS builder that comes in and builds no-frills, low-priced stuff. Mountain Homes & Adair seem to have been left in the dust by the McMansion craze, but could do well going forward.
Some have been lowering prices. The Bluffs, for instance. Remember when their signs said "Starting in the 500s" and then changed to "Starting in the 400s"? I think some of them are in the 300s now.
But yeah, it's not like they take ads out and say, "Prices are diving!" maybe they see that as dangerous.
And I forgot to add this little nugget:
Dana Bratton, owner and president of Bratton Appraisal Group, said 2004-2006 was a "perfect storm" for the residential market that will likely never be seen again. He said the price of Bend homes rose steadily in early 2006 and then dropped dramatically. He is predicting that the median price will stabilize at $350,000 to $380,000 in 2007.
"We're on the bounce back and it feels like we're where we ought to be on prices," he said. Bratton said first-time homebuyers and investors have been priced out of the market at this time, but the good news is the inventory that is waiting for buyers again. "You won't see homebuilders drop their prices in subdivisions, but rather add incentive packages and upgrades like kitchen appliances or slate flooring and tile countertops in the bathrooms to attract buyers," he said.
So, 2004-2006 was a perfect storm, never to be seen again in our lifetimes.... but we should see the absolute top median ever recorded in Bend history ($380K) sometime later this year? Huh.
And first-time home buyers have been totally priced out of the market, but "we're where we ought to be on prices". Nice. I wish everything was like that.
"the good news is the inventory that is waiting for buyers again". Right. Realtors love a good inventory overhang. They should get a lot happier soon.
Some have been lowering prices. The Bluffs, for instance.
I think The Bluffs were the epitome of overpricing in the Bend Bubble. I drove up there once when it was in the "$500's", and I was confused if I was actually looking at the right units. And they were TOWNHOMES. And the location is just weird.
They must pay a fortune for AdWords though... they are #1 position anytime I check my gmail, which is full of the words "Bend Oregon" and the like. And they have a terrible landing page (the home page). Looks nice, but I bet they have not sold a unit because of it. Well... maybe one, but they've paid dearly.
I also wonder if The Bluffs is actually lowering prices, or building cheaper units across the street (or both)? Anyone know?
I saw Brattons piece too, and felt the same "undercurrent" of contempt for the "first time buyer", which is code for "The Poor". RE pros want prices to stay high and keep the rabble out of The New Bend.
Someday, it will dawn on them that with no one to flip patties, sell shoes, stock shelves and wait tables, that the only people left in Bend are those willing only to engage in $500K+ brokered deals and not sully their hands with manual labor. They'll get hungry quick.
Keeping RE Prices High = Shrinking Bend. It is simple economics. Vale, Aspen, Jackson will always be small because economics dictates it. We're going to get hollowed out if prices stay high. And these thousands of white elephants we've built will go begging.
From a Bend-area blog:
Bend Building Permits Betray the Boom
Tuesday's issue of The Bulletin includes a graphic revealing that February building permits declined 63% in Bend. The Bulletin, however, didn't think this statistic important enough to warrant an actual news story.
Building permits are a leading indicator for the real estate market and certainly for building-related jobs. With 63% fewer houses being built this season, where will all the contractors find work? With 63% fewer houses beign built, what will all the realtors sell? What will appraisers appraise, etc., etc.?
Thus begins a vicious cycle. The opposite, in fact, of the virtuous cycle that helped propel the local real estate market so far so fast over the past few years. The real estate slowdown will force people to look for work elsewhere. They will put their homes on the market adding to the already burgeoning supply. The additional supply will further weaken prices causing an even more dramatic decline for real estate-related industry and so on and so forth.
Rather than being, "a bit insulated... because of our construction and our boom and our growth," as politician Oran Teater would have us believe, Bend will be uniquely hard hit. And I have no doubt that the old axiom will hold true: "it used to be that when the state caught a cold, Bend caught pneumonia."
Tuesday's issue of The Bulletin includes a graphic revealing that February building permits declined 63% in Bend. The Bulletin, however, didn't think this statistic important enough to warrant an actual news story.
Makes you wonder if UP 63% would have warranted a story? Maybe? Perish the thought! That would be horribly slanted reporting, and The Bulletin rises above such nonsense.
February building permits declined 63% in Bend.
That's fantastic news! That means this terrible inventory glut that has plagued us for lo these many minutes and hours is FINALLY OVER! The Bulletin should be all over this.
Of course, I guess there is the small matter of a 63% decrease in the number of guys out there building. And when unemployment goes up, there's a lot less income circulating. And then every other business starts to suffer; so they lay off people. And things spiral down from there.
Well, we can forget all that. This, like all other news regarding Real Estate in Central Oregon is FABULOUS!
I stated last post that Andy Anderson was Pamela H Andrews husband, when Andy Andrews is her husband.
Don't feel bad dude, I have been mixing up Papa Johns and Papa Murphys for years!
I just heard that Columbia is "furloughing" 160 workers. The usual heavy dose of Kool-Aid is in order, convincingly served up in Big Gulp fashion.
DON'T BELIEVE A WORD
They say it's for "retooling". This is complete bullshit. This is a company in serious, SERIOUS trouble. This is "WE CAN'T MAKE PAYROLL" time. They canned Bing Lantis & brought in a CHIEF RESTRUCTURING OFFICER? Right. You need to fire Lantis to RETOOL. Lying scumbags.
You read it here just 2 short posts ago:
Coming to a town near you: UNEMPLOYMENT.
Sounded like a load. Just 2 weeks later, one of the areas biggest employers is in scramble mode. Folks THIS IS BAD. This town is starting to unravel. I saw a poll on KTVZ that 30% (!) of the people here are "pack their bags" pissed about the direction this town is going. 30% WANT OUT!
I will post on this later. Watch for BIG layoff notices throughout this Central Oregon... SOON.
Mark my words.
Geez. It's not 160 workers getting furloughed. It's 185!
Stupid multi-tasking brain... no good... for think... stuff
An article in today's Bulletin makes it clear (of course, since it's The Bulletin, you have to read between the lines) that Columbia Aircraft's controlling shareholder, none other than the Malaysian Ministry of Finance, is kicking out the Bendite CEO and sending in its own guy from Malaysia to protect their investment from whatever perceived shenanigans were going on under the outgoing management.
So technically, it's the government of Malaysia who's laying off all these Bendites. People were saying that the Asian governments would be owning our ass when this housing bubble bursts, but I didn't think it'd happen like this!
My wife and I are just about "pack up our bags" status.
We want to buy a house, but the prices aren't coming down fast enough. Just months and months of inventory with no one apparently interested in a actually selling their houses.
The jobs suck. They pay LESS than other places we're looking at living, and he houses cost twice as much here!
Bend is a great city, but there are other great cities out there I like just as much with much better economics.
I think that big watch Randy Sebastian wears is giving off high levels of radiation. Maybe that's the problem...
I'll bet he's compensating for something.
The Bend RE Boom was nothing more or less than a speculative bubble, altho the official propaganda was that it was happening because "everybody wants to live here."
Which was, and is, bullshit. Half the people in the country did not wake up one morning and decide they wanted to live in Bend, Ory-gun.
This place isn't even all that desirable, IMHO. For one thing, the climate sucks -- you freeze your tuchus off 10 months out of the year.
The other day, around 7 pm, I noticed that our outdoor thermometer read 68 degrees and bet my wife that at that moment it was warmer in Fairbanks, Alaska than in Bend.
Sure enough, according to the Weather Channel site the temp in Fairbanks was 81.
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