Wednesday, April 11, 2007

Q1 2007 Numbers

Well, I've often said that the best proof a town is in a bubble is when any real-estate related numbers released are swarmed by the media. Q1 in Bend is certainly some highly-awaited news here, and the swarming began on cue.

First, the Bulletin began coverage:

Messages mixed in housing numbers
Median home price and inventory vary by district, city


The bland, non-committal adjectives describing this towns only "real" industry reached new lows. I mean, "Wow"... medians vary by district and city. Woof, they're really willing to go out on the edge with that. I smell All The Presidents Men II, with titles like that.

There's also the acknowledgment that Bend is 75% overvalued... BUT, there's also floated the idea that What Applies To The Rest Of The Country Does Not Apply To Bend. This is my Gods Chosen People thesis, an attitude reflected in Jonestown before they all killed themselves by pounding down a little Kool-Aid with an arsenic chaser.

But aside from fairly obligatory watered-down reporting, there's good stuff. First the graph of homes for sale by school district:

This is a great graph just for outlining the school districts. But it also shows you where inventory is piling up (the West), and where you can still get a relatively good deal (Ensworth, 95% of homes are below the median).

This report was destined to be a yawner: Due to the price action of 2006, we pretty much knew that Q1 2007 and Q1 2006 prices would be similar. This will not happen in Q2 and Q3. Prices will be down Year over Year. Q2 & Q3 of last year were the stratospheric blow off top that characterizes many bubble tops. Average sale prices in Bend almost hit $500,000 last Summer. Medians were over $380,000.

I for one won't drink the Kool-Aid. I don't think We Are Exempt From Economics Because We Are Gods Chosen People. I think the 75% overvaluation WILL BE CORRECTED over time. That means down 43%. Some are wondering whether that means down from $380K (the absolute top), or from $350K (the years overall median), and I really have to ask: Does It Matter? One takes medians to $216K, the other to $199K. Suffice to say both are WAY down from here.

One thing I want to address is the fairly strange and seemingly contradictory idea that prices are much unchanged, but volumes have imploded from last year. This and much of the past few years are best analyzed by fundamental supply and demand.

I think it's safe to say that in the years leading up to last Summers mega-top, that prices and unit volumes climbed consistently. On a Supply-Demand graph, this is the result of demand moving outward. As a refresher, on this graph, prices are along the X-axis, units on the Y-axis, the demand curve slopes down to the right (as prices go up, demand goes down), and supply slopes up (as prices go up, supply goes up). For units sold and prices to go up, the demand curve simply moves to the right. That means at every price, more units are demanded.

In the past year though, prices have largely remained unchanged, while volumes are down. Just imagine that the upward supply curve, and the downward demand curve need to move in such a way as to intersect at a point halfway below where they are now. How? Just move the demand curve leftward until it hits that new dot, and also move supply rightward until it hits that dot.

Demand has fallen, and supply has fallen also. At any given price level, there is less demand and supply. It seems builders may be keeping their word. But it also seems there are fewer people interested in the Bend Dream. The Bend Growth Story is BS. But so is the overbuilding story. For now, for this YoY quarter.

Next quarter will bring the lower volume, lower price scenario. At that point there can be made the argument that demand is falling and supply is increasing. There is much to be desired in the consistency of Bends reporting of monthly medians and averages, so "we" are many times constrained to these sorts of analyses where the time periods are chosen for us.

If things remain relatively steady-state, volumes will stay low YoY and prices will go down. This is pretty much a given. The larger question is How Does This Affect the general perception that Bend Is Immune from the RE Plague? I'm not sure. My sense is that there is a large number who buy the Gods Chosen People thesis, and will not lower their price come hell or high water. That's one component of supply, the other is builders. They, I think, are in the business of selling homes and will do what it takes to stay in business. I think new homes will sell because builders need to get $ in the bank, but people clinging to the dreams of yesteryear will not.

The bad news is demand, which I think has peaked and will continue to decline. The NASDAQ peak was swarmed with neophyte, "Big Mo" investors: Momentum was their only indicator. And I think when Bend loses Big Mo next quarter, we'll lose that demand component. And I should say Big Mo buyers aren't just flippers, it's people who value a certain "hustle and bustle" lifestyle. It's Blackberry toting soccer moms, and the like. It's mobile types who feel best "on the run", and moving from hotspot to hotspot. Bend will be "so 2005" to these people, and they just won't come here.

David Foster says Bend is "normalizing", and I agree. But "normal" in my book is a return to "nominal, historical, income-sustainable" levels, and that's DOWN over 40% from here. I doubt that's what David means by "normal". I think we'll lurch lower over many years. We'll see empty white elephants such as Franklin Crossing, and rows of vacant subdiv homes whose For Sale signs actually take root and grow into trees. Supply will continue to blow higher by way of the Destination Resort Shuffle and the Prop 37 Blighting of Central OR farmland. We'll look back on "Bend 2007 RE" the same way we look at big combs in our back pockets, tube-tops, gigantic moosed bangs, and cockle shelled belts.

"What The Hell Were We Thinking?"

21 comments:

Anonymous said...

They couldn't even bother to come up with a silver-lining headline for this news. It'll be interesting to see how they report increased foreclosures in Central Oregon once that stat starts going up, if it hasn't already.

What's really interesting about that article is that it includes all these graphs, stats, neighborhood breakdowns, etc. that you'd think the average Joe wouldn't give a shit about. I guess The Bulletin knows its audience: a town full of builders, real estate agents, HELOC debtors and "investors."

Why's Redmond the first to go down in median price? I think it's because the hunger to buy property in Central Oregon is waning. The second-best choice suffers first. LaPine, hell, who can explain that?

Anyway, great post. It's amazing that once this bubble started to burst, the negative RE developments have snowballed like a juggernaut of bad news. It's happening really fast. I fully expect that in 2009, if you were to say to your friends and relatives that you're buying a second home and you expect it to double as a retirement nest-egg, they'll look at you like you're a total idiot.

And eventually, not too long from now, people will hate residential RE as an investment. At that point, the people with cash (because at that point you won't get a mortgage without the accounting equivalent of a pelvic exam) will be smart to buy property.

IHateToBurstYourBubble said...

NEWSFLASH!

I just read an article:

Realtors see home prices falling in 2007

The real shocker: David Lereah, the National Association of Realtors head economist, has LOWERED his forecast! OH NO! My GOD! We're DOOMED!

Oh, wait a tick. David Lereah has lowered his forecast every 10 minutes for the past 3 years. Whew.

Lereah's new forecast:

* Existing home sales down 2.2% to 6.338 million in 2007 from 6.478 million in 2006. A month ago, Lereah was forecasting a 0.9% decline. Sales fell 8.5% in 2006.
* New-home sales down 14.1% to 904,000 in 2007 from 1.053 million in 2006. A month ago, Lereah was forecasting a 10.4% decline. Sales fell 17.9% in 2006.
* Housing starts down 18.4% to 1.47 million in 2007 from 1.80 million in 2006. A month ago, Lereah was forecasting a 16.7% decline. Starts fell 12.9% in 2006.
* Spending on residential construction down 13.6% to $503 billion from $582 billion in 2006. A month ago, Lereah was forecasting a 12.8% decline. Spending fell 4.2% in 2006.


There's a certain loss of credibility when you're supposedly the top expert in the country on a topic and your estimates are TOO HIGH each and every month. When they're distributed around 0%, you can generally be considered unbiased. When you have to revise lower EVERY SINGLE MONTH, you are plain delusional.

It is clear NAR does NOT want an economist, they want a cheerleader that can mislead people. If you can't trust the organization, can you trust it's members?

Anonymous said...

i read that thread on bendbb where he calls you out for lying about prices going down. i don't agree with your doomsday predictions, but i thought you were right on principal, and bendbb was wrong.

its not the moderators job to beat up on commenters, and they should hold themselves to a higher standard. i can see him questioning your data, but after seeing that he was wrong and you were right, he still insisted that you were lying, engaging in bullshit math, and generally saying that you make irrelevant comments. that was just lame. it was him engaging in stupid math and just denying the obvious, and even then insisting that you apologize. lame.

my first reaction was to comment less, and do it anon. thats wrong. when the moderator starts to go on a witchhunt after the commentors individually, somethings really wrong.

i hope you continue commenting there. i don't agree with a lot of your stuff, but it's ususaly interesting and funny as hell.

Anonymous said...

Got your Jonestown trivia wrong, dude. Not arsenic, but Valium and cyanide.

Thomas Ware said...

The Kool Aid reference is actually about twenty years older than Jonestown - big barrels :-)

Get Back On The Bus.

IHateToBurstYourBubble said...

Got your Jonestown trivia wrong, dude. Not arsenic, but Valium and cyanide.

They had valium? Really? Wow... that Jim Jones bastard really did care.

my first reaction was to comment less, and do it anon.

Me too. I was a little disappointed. It was like if my wife filed for divorce for leaving the toilet seat up. A "mild" over-reaction in my mind.

IHateToBurstYourBubble said...

Anyone know when CACB financials come out? The stock continues to stairstep lower. They had an 8% dip in deposits last quarter, and I am very curious how "Bend's Bank" does now that the slowdown is really underway...

Anonymous said...

>>Anyone know when CACB financials come out?

I assume the second week of June.

Anonymous said...

Earnings announcement tomorrow.

bendbb said...

> Anonymous said...
> i read that thread on bendbb
> where he calls you out for lying
> about prices going down.

Paul-doh!'s assertion was "Now July 2006 was the top, with medians falling since", and the words I used to describe that were "wrong" and "not accurate". I never said Paul-doh! was lying -- after all a man can be telling the truth *as he believes it* and still be wrong.

By the way, the Bend residential median for March 2007 was $357,750 (per David Foster) which is virtually the same as the median for July 2006 (per the graph in the Bulletin). Have medians been falling since July 2006? You decide.

-- bendbb

Anonymous said...

It's not median prices that have been falling. It's asking prices that have been falling. Medians will come later.

Anonymous said...

>>"Have medians been falling since July 2006? You decide."

What do you mean, "You decide"? It either is or it isn't.

That isn't the point BendBB. The point is you have an obvious ax to grind here, and you hold yourself to a different standard. Neither of you has spot-on data, but he gets crucified, while you don't. You say he's "wrong", can you PROVE it? NO.

You're the moderator, and going off on a rant on an easy mistake, calling the guy a liar, and then making PLENTY of mistakes yourself, and then calling him a liar AGAIN is going to scare off the audience.

I for one am already hesitant to comment there OR here except anon, cuz I don't want to get attacked there by the moderator for making a little mistake. You went way over the line. If you don't understand THAT IS THE POINT, then you'll never get it.

Anonymous said...

I don't want to get attacked

Same here.

Its the moderators job to stop crappy threads and flames, not start them. Saying that the guys a liar (step up man, saying someones wrong, is calling them a liar) and that his posts are irrelevant? Lame dude, lame. That's just character assassinations on your commenters.

You drag down the quality with bullshit like that. Do us a favor, stop rationalizing and telling us why we're wrong. That just tells me you're a stubborn ass, and that BendBB is run by an ass.

IHateToBurstYourBubble said...

By the way, the Bend residential median for March 2007 was $357,750 (per David Foster) which is virtually the same as the median for July 2006 (per the graph in the Bulletin).

I looked and cannot find the number "357,750" or anything close on his page.

IHateToBurstYourBubble said...

Geez, this idiotic stupid thread won't DIE!

Now I know how Don Imus feels...

IHateToBurstYourBubble said...

Wow, CACB is just getting killed today. And I'm finding all sorts of headlines that the financials are out, and they missed.

Cascade Bancorp Q1 EPS Rises 22.6%, Yet Misses Estimate - Quick Facts

Thursday, April 12, 2007; Posted: 09:09 AM


(RTTNews) - Cascade Bancorp Inc. (CACB | charts | news | PowerRating) reported that its first quarter earnings per share grew 22.6% to $0.33, from $0.27 reported in the same quarter last year. Net income for the quarter increased 60.6% to $9.5 million, from $5.9 million in the same quarter prior year.

Net interest income rose 57% to $26.55 million, from $16.91 million in the year ago quarter. Non-interest income for the quarter increased 72% to $5.55 million, from $3.23 million in the same quarter previous year.

Analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.35 per share on revenues of $32.68 million for the first quarter.


He doesn't need my help, but I'd cover CACB Shorts on this bad news...

bendbb said...

> What do you mean, "You decide"?
> It either is or it isn't.

Clearly, Bend residential medians haven't fallen from July 2006 to March 2007.

> You say he's "wrong", can you
> PROVE it? NO.

Yes, I proved it by posting the March 2007 median.

> You're the moderator, and going
> off on a rant on an easy mistake,
> calling the guy a liar, ....

You're wrong, I didn't call him a liar.

> I for one am already hesitant to
> comment there OR here except
> anon, cuz I don't want to get
> attacked there by the moderator
> for making a little mistake.

The Bend economy bulletin board welcomes all participants. Posts that are obviously inaccurate may be corrected. People who run blogs and forums that rake the Bend media over the coals for inaccuracies should strive to ensure the accuracy of information posted in their blogs/forums.

> Saying that the guys a liar (step
> up man, saying someones wrong, is
> calling them a liar) ....

Wrong ;-)

> I looked and cannot find the
> number "357,750" or anything
> close on his page.

That number isn't posted on his website, it's from a private email message I received from David after I asked him what the March 2007 median price was.

> Now I know how Don Imus feels...

Why, did someone fire you today? :-)

-- bendbb

BendBust said...

The one thing to compare bendBB with this blog, is that bendBB has banned just about everyone by IP. Yet this blog allow anonymous posters,

That shows you who is afraid,

The person who used to do bendbubble has a reference to bendBB, but thats a joke, if you tell the truth you get blocked.

BendBubble2 should be the replacement for BendBubble1, and NOT bendBB,

Bend Economy Man said...

I think BendBB is a fine member of the Bend blogging community. However, Bendbust is right about one thing. My redirect should go to Paul's blog. I changed it.

Anonymous said...

I got blocked from that New Bend Economy Board, or whatever its called.
Thats pretty annoying, I must say.
-CACB Shorter

bendbb said...

CACB Shorter:

I've been using IP blocking to prevent spam. It's the only thing that works for a bulletin board that allows anonymous posting. In general most of the IP addresses I've blocked have been from overseas, but it's not an exact science and I might have blocked yours by accident. If you can somehow let me know your IP address I'll unblock it.

-- bendbb