Tuesday, May 29, 2007

High Home Prices = LAYOFFS

Maybe I've beat this point into the ground, but the idea that high home prices will result in loss of jobs and a generally withering of Central Oregon economic vitality has actually made it into "print". The Bulletin is running two stories today:

Food, health, housing drive Bend costs up
Bend plant to close; 30 to lose jobs

The crux of these stories are exactly the same. Costs are rising at an alarming rate in Bend. Companies that pay "living wages" are closing in Bend. Flip side of the same coin.

Forget Bend, and the "mental baggage" so many seem to have about high living costs here. Would you buy from a company that sells door jams for $100, or another company that sells the exact same product for $25? Before you go on an uneducated rant about "supporting the common man", "buying local" and such, realize that sort of soft-headed thinking will close you down. You don't eat. Look at Oregon Woodworking: Buyers voted with their feet, and now OW is closing.

High costs equal Non-Competitiveness. Non-Competitiveness equals declining sales, which equals economic contraction & malaise. Oregon Woodworking, Seaswirl, Columbia Air, Brightwood... these aren't coincidences. These are symptoms of Central Oregons growing inability to compete in any way on this countries economic stage, much less the Worlds.

The ONLY scenario that high costs are tolerable is when a market is impervious to "long-distance" competition. Look at housing: Doesn't it seem like it's impervious to Chinese competition? Nope. Ask Oregon Woodworking. The Chinese can't disintermediate the actual on-site construction, but they are killing "factory components" industry. They are starting to build more and more of the value added for US homes. I'll bet in 10 years that TWICE the revenue from homes constructed in Bend will go to China.

What happens when huge chunks of pre-built home "parts" are shipped here and the trades value added for each home shrivels away to nothing. Don't think it won't happen. It's happening more and more everyday, in all industries. Chinese and Indian doctors reading CAT scans? Who ever thought that would be possible?

But that is the way of the World economy. The US innovates, the third-World reverse engineers our innovations, and in just a few years they destroy manufacturing base that we had built only a few years prior. So what do we do? We innovate again, and the cycle starts again.

This is the model for a high-cost competitor: Innovate FAST or die. The US remains the Worlds dominant economy SOLELY because of this. We innovate very quickly, and obsolesce our own products. The US is VERY HIGH COST. And the economic solution for any competitor that is high-cost is to innovate, and innovate quickly. The higher your costs, the FASTER you must innovate, or it's all over.

Central Oregon costs have risen at such an astounding rate, that our companies are totally unable to adapt. Look at what is happening. Big manufacturers are simply closing their doors. Any Cent OR company that competes on the Worlds economic stage to any real extent is downsizing.

Bend's cost-of-living index was 116.4, up from 107 the last time the annual index was compiled in the second quarter of 2006. The index, which does not measure inflation, rates cities against an index base of 100. More than 100 is considered a higher-than-average cost of living.

The index shows Bend is trending in the "wrong direction," said Bend Chamber President and CEO Mike Schmidt.

"This is quite startling," Schmidt said.

"This tells us we're losing a competitive edge with companies thinking of coming here because it's so expensive to live here."

In Bend, the most drastic index increases were in housing costs and the price of groceries. Housing increased from 109.9 to 130.4, and groceries rose from 102 to 122.3.

From 107 to 116.4, or about 9% in one year. I'll say that's "startling". And then there's the admission that an economies competitive edge is linked to prices. Wow. Readers of this blog have probably read that same line here so often they want to throw up. High prices means less competitive, and the only real way to keep a high cost economy alive is to have barriers to trade. Bend doesn't have any. We CAN'T be an affluent, small resort town like Aspen or Jackson. What happens to the thousands of homes we've built? Do we burn them down?

So what happens? If prices remain high, places like Oregon Woodworking and others will continue to downsize to the Zero Point. We will start shrinking. Is downtown & The Old Mill the only areas that survive? I don't think so. There is very little barrier to supply. There is land available, and developers are starting to build Up. But as I've stated before, RE is NOT a leading business indicator, it is a result. But we are closing down Bends large employers.

I've said 100X, we need anchor tenant employers. Big Ones, now, and we should pay for them. Tax incentives, or whatever, just get them here. We will have to bite the bullet and absorb a LOT of their costs to get them here. If we keep going down the Build RE & Screw the Rest road, we will have an economic A-bomb go off in Bend. Oregon Woodworking, Seaswirl, Columbia Air will turn into closing Safeways, McDonalds, and Wendys which will then turn into Mondo Pizza, Super Burrito, and God help us, Pegasus Books. There will be no one who can work these jobs, because homes cost 3X what anyone can afford.

I personally think the Bend-as-Aspen thesis is untenable. Can't happen. We're too big. We're also not pursuing big employers. This all points to a decimation of housing prices in Bend. Which will have a domino effect of killing per capita incomes. But in the wreckage lies the cure: Lower costs will have the effect of restoring some measure of competitiveness. But it's probably 40% lower than here... and THOUSANDS of jobs and years away.

Wednesday, May 23, 2007

Unbiased Sisters Citizen Explains Away Affordability Problem.

In the May 16 CBN, we find an opinion piece penned by one Eric Dolson of Sisters. The title, "Affordability: Does It Exist?" The title should be enough to warn you that something strange is happening. And you'd be right.

"Hey now! This is just a concerned and unbiased citizen trying to clarify a murky issue!". Well, OK. If you consider the fact that Dolson is editor of The Nugget, the Sisters newspaper, and he is published without reference to this fact in CBN.

I debated whether to go with "Whithering Attack On Sisters Moron", or a kinder and gentler, "Logic Errors, How You Can Avoid Them And Not Look Like An Idiot". I've decided to go with the latter, just because sometimes you have to mix it up a little.

First, Dolson states:

I am not sure how to address the "affordability" problem. It may not exist as such. It may be a problem we have defined into existence.... My point is by naming something, we sometimes think we have explained it, when actually all we have done is give it a name, or defined it into existence.

I know. Even cursory brain cells unneeded for day to day life can be used to skewer this little piece of nuttiness. We have somehow OBSERVED high home prices into existence. Funny that despite much observation in previous decades, Bend didn't suffer from this problem. It gets worse.

Let's pretend for a moment that instead of addressing the "affordability" issue, we should turn it inside out, like a reversible jacket. Let's say we are addressing the "wealth" issue.
So now you say that too many people in Central Oregon have too much money. Because of this, they are bidding up the price of land and houses, which makes it too difficult for too many of the rest of us to live here in the way we would like to, or the way that we used to before all these wealthy people moved here from San Francisco or Seattle and started spending all this money. We need to make sure that no one who moves here will spend more than $150,000 for a home.
See how easy it is to define a problem into existence?

It really is comical! I have a first grader who I think could see the almost idiotic logic errors that abound in these few short sentences. First, "too many people in Central Oregon have too much money", then all of a sudden nobody has any money, except people from San Fran & Seattle. That's how to really discredit an argument, make up assumptions that you immediately violate. Moving on:

Or perhaps instead of an "affordability" issue, we have a "wage" issue. perhaps we need to pay more for each job category. So instead of charging us $2.25 for a latte, Starbucks needs to charge $2.75 and put the other $.50 into wages so their employees can afford to live here.
By claiming they can't do that, that we have an affordability issue here in Central Oregon, you are actually asking me to subsidize Starbucks. Frankly, they can afford it more than I can.

See! Right when you're expecting yet another Straw Man attack, he mixes it up with an almost incomprehensible Red Herring. I just saw a Simpsons, where Homer just goes on a mindless bender, much like Dolson:

Homer: Look Marge, you don't know what it's like - I'm the one out there every day putting his ass on the line. And I'm not out of order! You're out of order! The whole freaking system is out of order! You want the truth? You want the truth? You can't handle the truth! 'Cause when you reach over and put your hand into a pile of goo that was your best friend's face, you'll know what to do!! Forget it Marge, it's Chinatown!!!

Welp, there's more, but let's end the Dolson whomping, where he basically digs his own grave with every person from Topeka or St Louis. He basically starts out saying that comparing a Chevy & a BMW, is like comparing Topeka and Bend. Then he says that if both autos were similarly priced, we'd all be destroyed, so obviously the same is true for the towns:

The demand would always outstrip the supply, which will also remove a constraint to growth. That's when solutions to "affordability" become an agenda for uncontrolled growth, an agenda that will result in a host of other problems that are related, such as building schools, roads, finding adequate water supply, pollution, and eventually we all should have stayed in Topeka.

I looked in my book, The Art And Science of Logic, but found no entry for Just Plain Dumb. I actually had to re-read this paragraph several times. The words don't make sense. Solving the affordability.... (Ooops.... almost forgot the quotes! Otherwise it could be REAL!), I mean "affordability" issue means you have an AGENDA. And only people like Hitler, Moussolini, and George Bush have an AGENDA. Dolson seems to equate building schools and roads with genocide and racial cleansing.

This is just a plain weird diatribe, by someone who has more than a little interest in the subject. Pamela Hulse Andrews isn't exactly bound by law to disclose that Dolson runs the only paper in Sisters, but it seems like she should have. It sounds like a "civvy" is saying All Is Well there. When really Dolson's main revenue stream is Realtor advertising, something that cannot be all that healthy given the fact that aggregate dollar volume sold in Sisters has almost been cut in half from last year.

This is just another variation on the Bend Media Sleeze-O-Thon. Hulse Andrews runs a paper, Dolson runs a paper, so how's about "we team up, and shovel more crap down readers throats?". And so we must endure Dolson's weak-ass attempts to cram bullshit down our throats. His final thoughts?

In fact, a lack of "affordability" might actually just be a symptom, not the disease. Just like a runny nose can be hay fever or the flu, you have to be careful in how you treat it. Or recognize that the body is taking care of itself, and there is really nothing to do.

So "Affordability" is the sympom, not The Disease? OK, so what's the disease?

Is it AIDS?
Is the disease AIDS?
Is it fuckin' AIDS!
Oh shit, it's AIDS!

Oh shit, I moved to Bend, bought a house, and got the FUCKIN' AIDS!

OK, I'm better now.

Well, I just know if I got the freakin AIDS, that I ain't gonna do nothin'. I'm glad Dolson ain't my Doctor. Or Realtor. Or gay lover in charge of giving me my Gat Dang AIDS medicine. I will so give him The AIDS if he doesn't watch his mouth....

So, there we have it: Publisher subterfuge as yet another method for reporting on the RE bubble.
Our Media Heads Conclusions on "Affordability"?

  • We only have it, because we've observed & acknowledged it.
  • We all have too much money, wait... we don't have any money.
  • Stop committing hate crimes Hitler, you have an AGENDA.
  • Do nothing.
  • If you don't shut the hell up about the affordability problem Central Oregon, I will be forced to give Eric Dolson The AIDS.

Monday, May 14, 2007

This post is FULL OF LIES

Warning: If you have a low tolerance for Realtor, Developer or Bend Media Bullshit, this post is laced with enough Bend Media Kool-Aid such that your brain and genitals may be rendered withered and useless after receiving such a large shot of meth-esque RE dopamine.

You've been warned!

Well, what do we have here: A piece by the Bulletin, "Filling in the Old Mill District - Transition to commercial, residential area nearing completion". This is your basic Bulletin pump-N-dump piece, nothing surprising there.

What is surprising is the sheer scale of the BS we are expected to swallow here, as well as the bald-faced lies. Read this piece at your own peril, it is so full of crap you'll need toilet paper for your eyes when done.

It starts off with "Steven Trono's 200,000-square-foot Mercato" project, which "promise to transform their neighborhoods with innovative shops, high-end condos and expensive offices." I love that! "Expensive offices".

Q: "Steve, are these offices affordable?"

You need go no further to find out the almost fully demented mindset of Bend area developers. Do businesses want affordable offices? Hell no! Are you crazy? They LOVE to pay developers for EXPENSIVE OFFICES. Good offices? Nope, EXPENSIVE. Try to not let your eyes roll too far back into your head: They can get stuck. Here's more on this monster:

The largest development in the Old Mill's pipeline - the Mercato - is expected to begin construction by late summer or early fall, Trono said. It will bring 45,000 square feet of retail space to the market, along with 52 high-end condos and a smaller slice of midstory office space.

The Mercato will have a total of 200,000 square feet, roughly equal to the Old Mill's current 225,000 sq/ft. But filling it will be no problem:

He expects no problems with filling it, even though it will add almost 17 percent to the district's existing retail and restaurant space.

Right. This one project will double the amount of total square feet in the Old Mill, and all should go well, without a supply problem in sight. Steve Trono must have gotten advice on filling up his space doubling, price-is-no-object development ideas from someone. Who? Well, if you read closely, you see that one possible answer is Becky Breeze.

Ahhh yes, Becky's overwhelmingly successful, and inspiringly named, "The Plaza". Things seem to be going swimmingly at The Plaza, with units practically flying off the shelf:

So far, 14 of the building's 42 units are under contract. Prices average around $650,000 to $700,000 for units in the all-residential building, but the most expensive unit so far - a top-floor penthouse with views of the river, The Shops at The Old Mill District and the Cascades, went under contract for $1.999 million at Christmas.

Wow! A third already sold! Yes, sold! Oh... wait. She did say under contract, pardon me. So as of today that's 14 "under contract". If you go back to Feb 25, just under 3 months ago, you see:

A few blocks away above the Old Mill’s retail district, The Plaza, a purely residential condominium project, has moved 12 of its 42 units so far, owner and Realtor Becky Breeze said, at prices ranging from around $600,000 to nearly $2 million...

Whoa, so things really are MOVING at The Plaza! 2 units in 3 months! Pretty damn good I'd say. "Hey now, do I detect a hint of sarcasm?". Not at all. Because Gentle Reader, MOVING 12 units, or putting 14 units under contract REALLY is a move in the right direction. Because if you go way, WAY back to Oct 23, 2005, and read the piece, "Condo-mania", you find that buyers were so glop-slobbering hot to buy, they were like Cujo slamming head long into Breezes' office door to buy, yes BUY, units at The Plaza. Let us recount those days with a bit of fact checking, courtesy of the Bend Bulletin:

Local real estate agent Becky Breeze and her husband are building a 42-unit condominium project in the Old Mill District. Breeze already has sold most of her units. She said buyers know what they want and they don't balk at prices.

"They want to live in a custom home," Breeze said. "And they don't want to sacrifice quality. They want to be close to walking trails and the mountains. They're really mobile and they have a lot of money," she said.

So, this is where you might become confused, Gentle Reader. Because it seems that if you go back a year and a half, Becky had "sold most of her units".


So a year and a half ago, MOST were SOLD. In February, 12 had MOVED. And today, 14 are UNDER CONTRACT.

Interesting. I will let you make of that what you will.

But it does bring us back to Steve Trono and his money-is-no-object marketing message. Breeze, who seems to be a little mixed up on what MOST, MOVED, and UNDER CONTRACT seem to mean, must have told Trono regarding the BUYERS of MOST of her units way back in Feb 2005 the following tidbit:

"they have a lot of money"

Huh. Straightforward & easy to remember. Then a bone in Tronos' head must have aligned, and he thought:


"Yes. YES! That's it! I'll avoid building AFFORDABLE OFFICES, and build EXPENSIVE OFFICES." Folks, this is why you and I ain't rich. We are unable to piece together the vast complexity of the Bend Real Estate Puzzle. Trono & Breeze have figured it out. Breeze gleaned this little gem back when those condos were SOLD:

"they don't balk at prices"

Again people, I say that we have been given yet another insightful nugget FROM A REALTOR, that most "normals" were unable to capitalize on. "THEY" do NOT balk at PRICES. We can only assume that THEY are hyper-wealthy illegal imimigrants, blacks, or Californians - depending on whether you're talking to liberals, mental patients, or Realtors, or in the case of Breeze & Trono, all three.

Now, I will put forth what a small contingent of jaded edge case freaks have tried to assert: This piece, like virtually all before it, is meant for the sole purpose of putting lipstick on the pig that is Bend Real Estate. So packed full of lies, it's impossible to figure out if any of it is true. These malcontents point to such quotes as:

"Looking further out to next year and beyond, the 199-unit, five-building 500 Bond project will crown the hill above the Old Mill site with four- to five-star hotel-condo rooms, capped with a top-story restaurant that will drink in the view."


Is this news or flagrant marketing by a bought-and-paid-for WHOREHOUSE owned by BOSS HOG & ENIS? I say again: You must CONSCIOUSLY STOP YOUR EYES FROM ROLLING BACK.

Woof. Anyway, there's more. Seems Aaron Lafky is plotzing out some condos as well:

At the Mill Quarter - Aaron Lafky's brick-and-concrete, live-work townhome project on the district's northern edge - 21 units have already sold at prices ranging from $700,000 to $1.295 million, Lafky said.

Well, Lafky says they're "sold", so we can only look to the past editorial standards of the Bulletin, and assume he is telling the truth. But unlike Breeze & Tronos' GIMMEE MONEY marketing tack, Lafky has gone with what I call The Sally Fields Geezer-thon On The Go marketing angle:

"It's all about a simplified lifestyle," Lafky said. "If they want to drop everything and travel, they lock the door and they're gone," he said. "They don't have to worry about the lawn or the sprinklers, or anything else."

See, Lafky has seen Sally Fields hocking Boniva to geezers losing bone mass who just don't have time to SLOW DOWN once a week and take a pill. See, Boniva SOLVES THAT PROBLEM cuz you only take it once a month. As Sally Fields as pointed out, our elderly cannot swallow pills and take a crap at the same time, and every second is precious. "THIS APPLIES TO CONDOS", thought Lafky. Rich geezers do not have a second to spare when they are jetting off to Paris, Rome, or Wal-Mart. These people don't have time to water the plants, feed the dog, or even lock the door as they are rushing around in their time-crushed retirement.

Grama: Honey, we need some Boniva. I've just broke my hip.
Grampa: Get in the car! NOW! Boniva OR DEATH!
Grama: Should we lock the doors?
Grampa: NO! My God, life is too short! Just burn the house down! We'll rebuild later! PRICE IS NO OBJECT!
Grama: Do you have the car keys?
Grampa: HELL NO! We'll just HOTWIRE the car!
Grama: OK, let me open the garage door...
Grampa: FORGET IT! Crash through the door! We're burning down the house anyway! We're taking the Hummer so we can crash into the pharmacy, so just bring my gun! We can't wait in line even a single second!

See folks, you and I DO NOT understand the keen marketing insights that these mental giants do. I will let you fully explore the supply glut destined for The Old Mill outlined in this piece . Rest assured there is No Problem.

"I don't know if we are overbuilding," Compass Commercial's Mollencop said. "I think we are trying to keep up with the demand. It runs in cycles, of course. There is going to be a lot coming onto the market, and it may take some time to fill, but overall I think it's very strong and healthy."

I have been supplied with Realtor-Bullshit to English translation dictionary.

"I don't know if we are overbuilding."
Translation: We are overbuilding like crazy.

"It runs in cycles, of course."
Translation: "We are tied to the tracks, and a train is coming. We're dead meat."

There is going to be a lot coming onto the market, and it may take some time to fill
Translation: "Wow, the feeling of being decapitated by this train has just been transmitted from my neck to my brain. It's less pleasant than I thought it'd be."

"overall I think it's very strong and healthy"
Translation: "Please, don't eat my corpse."

And if that isn't enough, we can be assured by the genius of Norma "I Just SOLD OUT Franklin Crossing... AGAIN!" DuBois:

Afterall, this is Bend, Oregon and people want to live here.

You're right Norma.


This IS Bend Oregon. It's not the molten core of a volcano, outer space, the surface of Uranus, or even a dictionary factory. It IS Bend, Oregon. Afterall the years I've live here, I had forgotten. There you go people. Bend Oregon means people want to live here. We can stop worrying. The worry about the terrible competition from people moving to Antarctica or Haiti. "People want to live here". Doesn't that say it ALL, Afterall?

Monday, May 7, 2007

Measure 37 spawns 1,000 Year Reich

Quite a bit to cover, so here we go.

First, the Columbia Air "premonitions" I've had in the past 6 weeks came true. The 6 week cutoff for the "4-6 week temporary" layoffs came & went last week. I sent a gentle reminder to the Bulletin early in the week, and lo & behold they actually followed up with a short piece, "Decision due on Columbia staff" (subscription req'd.). Some sort of status report from the company officials is supposedly due Monday, May 7. I adhere to the adage, "Fool me once, shame on you. Fool me twice, shame on me!". Don't hold your breath if you think you'll be back on the line Monday morning. Or next week... or the week or month after. "Temporary" layoffs have a weird way of becoming permanent.

On Apr 29 the Bulletin ran a story, "Job growth or tough times ahead?". There are several items of interest in this piece, which essentially is a state mandated report written to figure out how much land Bend will need in the coming decades to accommodate growth. The bottom line is we'll need a square about 1.5 miles on a side. This is ridiculous! We need many times that much! We need many times that TODAY! In 20 years, we will probably need a mile wide strip running all the way to Redmond, half way to LaPine, out to Tumalo and halfway to Brothers.

The assumptions made in the report are custom taylored to retaining Bend as a Big-Fish-In-Small-Pond Boss Hogdom, with real estate and leisure holding sway over our economy. For them, if Bend grows (they perceive) their industries will die. Of course this is short-sighted idiocy. They want Bend to be Aspen II -- a tiny postage stamp of a town with outrageously priced RE inhabited by the Super-Wealthy. "Big Bend" would make this impossible in their eyes.

Surprisingly, EDCO chief Roger Lee seems to understand this:

Bend already has waited so long to create new, usable industrial land that soaring land prices - fueled by the shortage - and physical constraints are putting a crimp on growth, Roger Lee, executive director of Economic Development for Central Oregon, said Thursday.

The problem has reached the point where a significant number of existing industrial businesses - everything from cabinetmakers to tarp manufacturers - either are looking to other cities in Central Oregon for expansion or they are moving out of the area altogether, Lee said.

The city has said it wants to attract a collection of clean, high-paying industries, according to the Leland report, including more information technology companies, aerospace and aviation manufacturers, renewable energy companies, higher education and health care.

But if current trends in the city's existing industrial base continue to slide long enough, Lee said, it could give recruiters another potential handicap to go along with the city's relatively high land prices and high housing prices - a shortage of basic suppliers to do everything from industrial-grade recycling to cleaning uniforms to keeping the pop machines filled.

In other words, the city, from Lee's perspective, is "at a crossroads."

"I wouldn't say we are looking at a mass migration," Lee said, "but I would say you are going to see more and more of that in the making - a growing wave of companies that physically can't find a place to be. And, cost-wise, it doesn't really make sense to them to stay."

I would agree, we're at a "crossroads", but I disagree with the mass "out" migration. I think we are on the cusp of a mass exodus of our industrial base. And retail. And much else. Mr Lee seems to understand that high prices are a "deal killer" for Bends industrial base, but in a recent talk to Women Realtors, "EDCO chief shares rosy outlook for area growth", he "bets the audience" $10 that Bend RE prices will not decline appreciably.

This is a sort of strange conviction. Knowing that high land prices & shortages are going to kill this place economically, yet stating in front of whose livelihood is directly linked to the RE industry that he doesn't think it will go down. He's the executive director of Economic Development for Cent OR, and he's betting that the primary force retarding growth here will continue... and sort of making a "symbolic gesture" that he hopes growth WILL NOT HAPPEN. Not good.

Next, I've always disliked how the CentralOregonRealtors.com quarterly PDF summarizing the Cent OR RE prices & volumes gave cumulative YTD stats. It is possible to "back out" the quarterly data, and I had some time, so I did. It's here:


Points of interest: The absolute top AVG price was $416,733 in Q3 -2006. The most homes sold in a quarter was 830 in Q3 - 2005. The highest dollar volume sold was $285.3MM in Q3 - 2005, Q1 - 2007 was $162MM. The highest YoY growth in AVG prices was 30.92% in Q1 - 2006, while the highest YoY growth in total dollar volume sold was 67.63% in Q2 - 2005, and much of the surrounding time periods were close to this. The highest quarterly YoY gain in AVG prices was 10.01% in Q2 - 2004.

It is impossible to tease out the medians, but dividing the quarterly AVG prices by the cumulative MED's yields a AVG-to-MED premium of about 19.7% for the Q2/2002 - Q1/2007 time period. Like many RE stats, this one fluctuates fairly significantly, but it does exhibit a generic falling trend over the past 5 years. What does this mean? Well, it's only really fair to say that "big deals" were relatively more prevalent with respect to the "Average Joe" deal 5 years ago. Maybe you could say the big guys bought in back then, or that the average buyer plowed into lower priced properties recently... who knows. Stats like this can back many political leanings, something I'll leave to the reader.

Finally, I posted about the almost comical supply situation coming online in Crook county. With all the subdiv's and stealth subdiv's (ie: Destination Resorts) coming online in Prineville, I calculated a 75 year absorption period. I and others find this sort of pie-in-the-sky buildout to be slightly comical. But apparently Prop 37 knows no bounds in inflicting delusions of grandeur on otherwise normal people. The Prineville Crapfest ranks about a "4" on the schitzoid-embolism scale, while Hitlers 1,000 year Reich probably ranks a perfect 10.

"Big plans for tiny Ashwood" shows that taking leave of your senses is not a disorder limited to us Big City Whackos! There is a family with about 10 square miles of land practically surrounding the micro-town of Ashwood, OR., population 120. They are filing a Prop 37 claim to build a few homes, 5,500 to be exact. Now the math on this is pretty straighforward, and even optimistic forecasts show this urbanizing of Ashwood might take awhile.

The previously mentioned report for projecting Bends UGB shows a state forecast of about 2.2% for Bend, which is a 40% premium for the state at large. This boils down to about 1.6%, but let's assume the vast & fine amenities of Ashwood, such as dirt & oxygen, push this up 20% to about 1.9%. Further assuming that Ashwood is a fine middling city of families with husband, wife, and 2.2 kids gives a current home count of 28.6, which we'll round up to 30.

Now for the pesky business of ramping up Ashwood from a wide spot with 30 homes, to a decent sized town with 5,500 more homes at a decent clip that is 20% above the state average. The math on this gives a time-to-absorption of:


So we do have a new winner in the Prop 37 Schzoid-Embolism Megalomaniac Delusion of Grandeur Bake-Off! I won't give names, but they are available in the Bulletin piece. I believe that Adolf Hitler may well stay at the top of the All-Time standings, whose "1,000 Year Reich" happened to crumble in about 1% of his estimate date to total absorption, but luckily lawyers have drafted a solid land-use compensation law that we all voted for. Is there anything lawyers can't do? They really are heros. They can even draft proposals that make ordinary ranchers believe that they can finish a real estate buildout that, if it were started in the year 1740 (I do not believe we were a "country" at the time, so it is possible that the King of England would have had to pass such a law), would just be finishing up today! Good job state lawmakers!

P.S. Ashwood DOES hit it's 1,000 year goal at a 0.5% yearly growth rate, which may well be closer to reality. So when people ask you where the next Hitleresque-nutcase might come from, you can proudly say, "OREGON!"

Thursday, May 3, 2007

Worst Investment Ever? Bend Housing.

On an earlier post, I stated that I thought probably the best investment idea for Bend residents is to Rent And Invest The Difference. I mainly used data from Robert Schillers long term analysis of the US housing market, which show that contrary to popular opinion, homes are TERRIBLE investments, yielding real returns very close to 0%.

I ran across an article on MSN today, "Why rent? To get richer" which reiterates this point from the perspective of a financial journalist who actually is enacting this investment thesis. I'll say right now, this article is EXCELLENT! If you own a home, or are renting, it underlines what I have hammered away at on this blog: US housing in general is a BAD WAY TO INCREASE WEALTH, Stocks are a GREAT WAY TO INCREASE WEALTH. Here are a few excerpts, but I suggest a FULL READ of this great article.

  • The average real return for houses over long periods might surprise you: It's virtually zero.
  • Shares return 7% a year after inflation because that's how fast companies tend to increase their profits. Houses have their own version of profits: rents. Tenant-occupied houses generate actual rents, while owner-occupied houses generate ones that are implied but no less real: the rents their owners don't have to pay each year.
  • House prices and rents have been closely linked throughout history, with both increasing at the rate of inflation, or about 3% a year since 1900. A house, after all, is an ordinary good. It can't think up ways to drive profits like a company's managers can. Absent artificial boosts to demand, house prices will increase over long periods at the rate of inflation, for a real return of zero.
  • Robert Shiller, a Yale economist and the author of "Irrational Exuberance," which predicted the stock-price collapse in 2000, has recently turned his eye to house prices. Between 1890 and 2004, he says, real house returns would've been zero if not for two brief periods: one immediately after World War II and another since about 2000.
  • Even if we include these periods, houses returned just 0.4% a year, he says.
  • I suspect real returns will turn negative over most of the next two decades...

There's more, and the entire article is quotable, and stuffed full of great stats. The author points out traditionally high-priced locales like Manhattan, and says"the ratio of condo prices per square foot to apartment rents per square foot is 22", one of the highs in this country. I can tell you that the brand spanking new home I live in right here in Bend is at 26.5X, with a nationwide average of 19-20X.

I will say, yet again, that buying a home is a bad investment idea. Take out 2 very brief periods; right after WWII and the past 5 years, and homes are like owning T-bills, they will essentially maintain purchasing power, NOT build it. Stocks build wealth, homes DO NOT.

I would further state that Bend and Central Oregon housing markets are in the midst of a wealth-crushing "decline". Real returns will probably be subpar for the entire US over the next 20 years, but the Bend area almost certainly will bode far, far worse. It would not surprise me in the least if Bend home owners suffer a 50% decline in purchasing power of the capital invested in their homes. Does that mean homes will be cut in half? No, just that inflation will climb along while Bend homes do not keep up.

I think this will start to dawn on people over the years. And when it does, it will "rub people the wrong way". Despite the poor returns from buying a home, I and many others WANT TO OWN ONE. Many people will be torn between this fundamental desire, and the financial realities that Bend housing is wildly overpriced given local economic fundamentals.

"I want Bend, but I can't afford Bend" will become the mantra of our population, and people will leave. This is one of those statements that some people probably find more incredulous than the idea of Bend housing dropping 20-30%. Bend actually shrinking seems beyond belief.

Read the recent Bulletin article, "Job growth or tough times ahead?". You see the "meteoric" rise in population from 69K now to 119K in 2030. Sounds great right? Well, back out the yearly growth and you see it's a pathetic 2.2%/year. This is WELL BELOW recent growth rates. Read the article, and you see they even baked in a 40% growth premium for Bend over Oregon as a whole. All it's going to take is some heavy duty employers to go bust, and we'll lose enough critical mass that new immigrants & companies will STOP COMING HERE. And believe me, this conveyor belt income is what keeps this place alive. We could easily do the average of 1.7%, which would essentially amount to a depression. I would assert that long-term growth below 4% in Bend is akin to a severe local recession.

Even EDCO chief, Roger "I want to have my cake and eat it too" Lee acknowledges that high prices are killing future growth:

Bend already has waited so long to create new, usable industrial land that soaring land prices - fueled by the shortage - and physical constraints are putting a crimp on growth, Roger Lee, executive director of Economic Development for Central Oregon, said Thursday.

The problem has reached the point where a significant number of existing industrial businesses - everything from cabinetmakers to tarp manufacturers - either are looking to other cities in Central Oregon for expansion or they are moving out of the area altogether, Lee said.

Surprise, surprise, I and others made such heretical claims in the heat of the RE boom. Inflation is like water, it seeps through everything. Inflation also KILLS DEMAND. Kills housing demand, kills product demand, kills everything. Look at Mexico for the past 30 years, or Brazil. Periods of inflation coincide almost exactly with these countries bleakest economic times.

I could go on and on (and scroll down and you'll see I have), but the fundamental question is, "What do I do?". I can't state strongly enough: RENT AND INVEST THE DIFFERENCE. Bend homes are like the hollowed out dot-com shells being hocked to idiots at the NASDAQ top.

"But a house is something of tangible value, right?"
Yes, but you can get that same utility for less than half by renting.

"But they're not expanding the UGB! There's a land shortage in Bend!"
Listen to EDCO chief Lee: That shortage is probably a reason NOT TO BUY. Bend planners basically are suffocating one Siamese twin and thinking the other will be fine. Restrict UGB growth and you restrict business growth. Companies are NOT coming, and many are leaving because of it. A restricted UGB is a BAD REASON to buy a home here, probably the worst.

Again, I have often said, the best cure for what will ail Bend is plunging prices. Expand the UGB beyond the CRAPTACULAR 1,000 acres you're thinking of Bend City Planners. We need 10X that much. If you look at the report I cite earlier, you see that the consultants start with a low Oregon overall average, and bake in the 40% "Bend premium", and this yields a mere 1,000 acres that need be added to the UGB in the next few decades.

"...the city will need at least 510 new acres of commercially zoned space and nearly all of the projected 494 acres of industrial land on the city-owned Juniper Ridge site to make room for its potential job growth over the next 20 years."

This is a square about 1.5 miles on a side. Do you think the 20 year industrial growth of this town can be accompanied in a space that size? Of course not. Yet another study fueled by Boss Hog, and his desire to be a giant life-sucking fish in an oxygen deprived puddle full of dead and dying lemmings.

Bottom Line: Bend is killing itself economically. We'll be the Tijuana of Oregon soon, no growth, buttloads of alcohol & meth, and brain-dead industries, and row upon row of empty homes. Rent, and invest the difference -- while you can. It's easier to pick up & leave when you've lost your job as a renter, than it is if you own.

P.S. Exactly 6 weeks ago tomorrow marks the "temporary layoffs" at Columbia Air, "Columbia Aircraft replaces four managers, temporarily lays off 185". I stated I thought there would be a little fudging on this, and that there would ultimately be a large number of these people blown out. Prime example of how businesses use the Bulletin as their personal BS PR source. Look for what happens: Will Columbia hire everyone back tomorrow? Maybe. If not, do you think you'll see a hard-nosed, full length follow-up story about Columbia Air managers bullshitting about the "temporary" nature of the layoffs? You be the judge.

If the layoffs become slightly permanent and the Bulletin says nothing, just realize that 6 weeks ago you were, YET AGAIN, given a little taste of Kool-Aid coma-fication. Companies in Bend don't FIRE people... they're just given relaxing time off, while managers work diligently to upgrade the facilities for ever higher growth and happiness! Uh huh. Ask these 185 people what they think of these "temporary layoffs". Will the Bulletin give them equal time? Again, you be the judge.