Wednesday, April 18, 2007

FORECLOSURE: Bends' next growth industry

I saw a piece on Marketwatch, "Foreclosures reported up 47% in past year", that gave some individual state stats on foreclosure rates. Excerpts:

Foreclosure filings -- including default notices, auction sale notices and bank repossessions -- increased about 7% from February's levels, to 149,150, and were up 47% compared with March 2006...

There was one foreclosure filing for every 775 households in America during March.

...half of the March filings were in just five states -- California, Florida, Texas, Michigan and Ohio

In California, last month's foreclosures were up by 36% from February and by 184% compared with March 2006. The foreclosure rate in California was one in 389 households. Of the 10 cities with the highest foreclosure rates in March, six were in California: Stockton, Vallejo, Modesto, Sacramento, Riverside and Bakersfield.

Nevada scored the highest foreclosure rate at one in every 183 households, with almost all the foreclosures in Las Vegas, the heart of speculative buying.

The states with the highest foreclosure rates were Nevada, Colorado, California, Georgia, Arizona, Michigan, Florida, Ohio, Indiana and Illinois. Among the other cities with the highest foreclosure rates were Greeley, Colo., as well as Detroit and Denver.

And I remembered seeing a foreclosure rate for Deschutes County, and found it in a Feb 18, 2007 Bulletin article, "Deschutes bucks foreclosure spike". Excerpts:

the county's annual default rate stands at about 7.9 for every 1,000 mortgages, less than a third of the typical national rate.

It costs the typical bank $40,000 to $50,000 to take a mortgage through full foreclosure to the sale of the house, said Daren Blomquist

On Friday, 33 bank-owned homes were for sale in Deschutes County, according to RealtyTrac.

The main point of interest is the rates themselves. The Deschutes stats are for ALL of 2006. The Marketwatch story seems to be quoting monthly figures. But that doesn't seem to make sense, as NV's rate of 1:183 monthly foreclosures, would make for about 1 in 15 homes in foreclosure in Nevada per year at that rate. That seems impossible. But then the Bulletin piece says we are 7.9 foreclosures per 1,000, "1/3rd" the national average (which is 23.7 per 1,000, or 2.3% nationally). So you look at 1/183, and that NV foreclosure rate is .546%, which MUST be a monthly number, because that would be one of the lowest rates in the US, and NV is THE HIGHEST foreclosure rate state. So it seems that 1 in 15 homes in NV (virtually all in Vegas) are going to get foreclosed on this year. Wow.

And Bend's biggest feeder market, CA has seen an almost TRIPLING in it's YoY foreclosure rate. That is not good. In fact that is a disaster. The earthquake has happened, but the tsunami has not yet killed anyone.

I wrote on an earlier post that "real revenue" will win the day when it comes to RE prices. The Vegas "balance sheet" will probably be OK (in the long run) because the Income Statement seems impenetrable. Conversely, Detroit is getting pounded, even though it never really participated in the US housing bubble. It's simply in a degrading economic situation, what I call The Ghost Town Effect. In the macro sense, the balance sheet is falling apart, because the income statement stinks. This is what will happen to Bend.

Everyone feels great now, because we've had the run-up of a lifetime on the Asset side of our balance sheet. Didn't have to worry about Liabilities, because when assets are running up 25-30% year, it actually makes sense to borrow as much as humanly possible, and buy, Buy, BUY. We never had to worry about the Deschutes County income statement, because the Asset side of the balance sheet was ballooning, and as luck would have it, lenders would loan like crazy on asset values, to hell with income (and Liabilities). And this formula is GOLD, as long as it works. When it stops working... well, then you got problems.

Bend has squandered the bubble. We never made serious attempts to lure big-wage, anchor tenant employers to hold up our Ponzi scheme. As a matter of fact, Boss Hog grabbed our local media by their hairy beanbags, and told 'em to run pump-N-dump stories 24/7, so that prices would run-up even more, which actually has had the effect of scaring away anchor tenant employers. It is extremely cost inefficient to run an industrial enterprise in Bend nowdays (barring advantageous decade old cost structures).

So here we are. I feel like we are one of those dirt bike riders that can pull a full 360 flip in mid-air, except the bike has got away from us and we are at the zenith of the jump. We are hanging suspended, with the virtually positive foreknowledge that we are about crushed into the dust. We have absolutely no way to keep Bend RE from crashing, even though it seems just seconds ago we launched perfectly, and even now, nothing of ill consequence has happened to anyone.

In fact, when asked, Bends RE experts look backwards and say, "Man! Did you see that takeoff! I must have got 50 feet of air on that baby!". I, for one, also look back: "Holy Crap, we got 50 feet of air on that badboy. Too bad the bike is wayyy over there, and we're going to hit right in that hard-packed section. Could someone kiss my ass goodbye?". Mark my words: Bend will soon have one of the highest foreclosure rates in the US.

We are about to be crushed. You can defy gravity for a second or two, but unless you've made plenty of plans, gravity has a way of extracting revenge that is multiples of whatever short-lived benefit you may have received. We didn't plan ahead, so there's no airbag or netting. Just hard dirt, and we are about to get pounded into it.

"That, Mr Anderson, is the sound of inevitability."

12 comments:

Anonymous said...

The Cali money train has broken down, and that was the basic source of Bends bubble money. Without that, we'd be at half where we are.

MarkyBark said...

That Nevada foreclosure rate is unbelievable. According to my math, it's over 8X Deschutes counties 2006 rate.

Adhor said...

Any post quoting The Matrix has gotta be good! The EXACT quote is this:

You hear that Mr. Anderson?... That is the sound of inevitability... It is the sound of your death... Goodbye, Mr. Anderson...

Anonymous said...

I went to the realtytrac.com website, and punched up Bend, and there were 44 foreclosure listings.

IHateToBurstYourBubble said...

I thought the "mix" of high foreclosure towns was interesting. A mix of bubble towns (Vegas, Sacramento) and the economically depressed (Detroit). It also seems there are the "ordinary" towns that got caught up in the housing bubble: Greeley, Bakersfield. These are just dead boring towns without some basic core economic engine to keep them going.

Also interesting was the foreclosure rate for Deschutes County was so much lower than the rest of the country. Those with their eyes firmly affixed to the rear-view mirror will say, "SEE! We'll be OK forever, and ever! No problems!". I have Zero Doubt that Deschutes County is on the cusp of a huge runup in foreclosures. Huge. And the 7.9 per thousand is for 2006, a relatively good time in Cent OR RE. We really have had an easy time of it, so far.

Anonymous said...

I don't think foreclosure rate will be as high as you say because a large percentage of people who bought houses in Bend above the 300K mark have come from outside with lots of extra money.

Bend Economy Man said...

Paul,

You're wrong about Bakersfield having no "basic core economic engine." Anyone who's been there knows, though it is kind of a shithole with miserable summers, in particular, economically (outside of housing) it does OK because of oil: Bakersfield represents 1% of world oil production, which is a huge amount when you think of Saudi Arabia, Venezuela, the North Sea and what have you just pumping away every day.

Sean said...

"And Bend's biggest feeder market, CA has seen an almost TRIPLING in it's YoY foreclosure rate."

What I can't quite get my mind around is what keeps happening in L.A. county though. Median prices are holding and the county's YOY is up 6%. Most of the people moving here are coming from established markets, not bubble zones like Modesto and Bakersfield...

Bend Economy Man said...

>> Most of the people moving here are coming from established markets

Where you gettin' your info? I think it's more the myth than the reality that our Californians are cream-of-the-crop former Marin County and Malibu residents. Nah. When local Californians tell me where they're from, I hear a lot of non-elite areas - Petaluma, Fresno, Irvine, Ventura County.

It's just that when you ask a Californian from a non-glamorous area where s/he's from, s/he'll say "Bay Area" or "Southern California" rather than "Fairfield" or "Riverside."

Just take a look at the Californian father-son hit-and-run killers. Son's last address is El Cajon, a distant inland suburb of San Diego (the father's last address), which is bubble central, so its distant inland suburbs are even worse.

Bend Bear said...

Paul - I've been doing a little research on this lately and noticed pre-foreclosure as well as bank owned properties popping up in some unusual places. The Parks, Broken Top, NW Crossing, Rivers Edge to name a few. Most in the last three months. Also interesting to note that these people owe far more than what was originally borrowed (in one case over $100K) and the note rates had adjusted to close to 9% at the time of foreclosure. From this, one can assume that these were probably stated income, option ARM loans then subsequently slapped on a line of credit to buy a trip to Hawaii, a Hummer, and some jet skiis. Also probably used the HELOC to make the payments until everything was maxed out. No real point to this, other than I do believe this is a foreshadowing of bigger things to come since they were not picked up by a realtor and the bank is still sitting on them.

Also - on an unrelated note, in one of your previous topics you hypothesized about the possible new owners of Broken Top's identity. The list included several famous, wealthy individuals from the Seattle area. Well, apparently the cat is out of the bag and the owners are two girls, aged 11 and 13. This thing just keeps getting more freakin' weird by the day...

IHateToBurstYourBubble said...

BEM: That stat takes 2nd place in my newly compiled "Weirdest Things Ever" list. First, of course, being that LaPine is MORE expensive that Redmond. That still freaks me out. From your link:

Kern County plays a critical role in satisfying the nation’s energy needs.

* Kern County produces 77percent of California’s crude oil, approximately 570,000 barrels of oil per day, and 82 percent of the state’s onshore production. This represents ten percent of the nation’s oil production and one percent of the total world’s production.
* 33,000 of California’s 43,000 oil-producing wells are located in Kern County.
* The sale of the federal government’s 78 percent interest in the Elk Hills Naval Petroleum Reserve to Occidental Petroleum Corp. for $3.65 billion in 1998 is the largest private acquisition of federal property.
* About 2,500 wells were drilled in Kern County in 2000, more than in any county in the nation.
* Recent development in the East Lost Hills, Semitropic and North Shafter areas, signify the potential for deep oil and gas discoveries and an economic benefit for Kern County.
* Five of California’s 22 refineries are located in Kern County.


Pretty amazing. Oil in Bakersfield? Who knew? And 33,000 wells. Man, that does sound like a paradise.

Bend Bear: Who does own the Broken Top Carnival? Man, I look forward to taking my kids there: the bumper cars, the ferris wheel, the cotton candy, the meth-huffing carnies... oh right, and looking into the living room windows of all the happy BT residents. It's a proven fact that carnivals increase property values, too.

Freddie said...

"I don't think foreclosure rate will be as high as you say because a large percentage of people who bought houses in Bend above the 300K mark have come from outside with lots of extra money."

Unfortunately, those aren't the people in danger of foreclosure. I was stumped by this in the beginning, but then a friend opened my eyes by explain her situation. They bought a house in Redmond in late 2004 for $158k. When the bubble shot up, they refinanced for $268k. They did some minor remodeling, bought new cars, spent several weeks in Hawaii, consolidated a few credit cards, you get the picture. Now they want to sell a mediocre subdivision house in Redmond for $270k, when comparable houses in Bend are sitting stagnant on the market at $245k. Until I heard this tale direct from the horses mouth, it never even occured to me that anyone would go this route. I just assumed that everyone who had purchased their houses under $150k were sitting back happy as clams that their mortgage payments were under $800/mo. I had no idea that people would SPEND the inflated equity caused by such a freakish bubble and then have nothing to show for it but a huge mortgage payment and a house they can't sell. Now I understand why prices are not coming down on these little 15-yr-old subdivision houses. Sure, some of it is those who missed the boat but still want last years top dollar, but I'd bet dollars to donuts that most of it is people trapped in a huge mortgage trying not to sell at a loss. Trapped by their own stupidity, but trapped none the less. THOSE are the ones who are gonna be in foreclosure over the next couple of years. How do you sell a house that's really worth $225k when you owe $268k?? Throw in a few corporate closings and lay-offs and I think you've got the perfect recipe for a mass foreclosure market in Central Oregon.