Want Lower Quality of Life? Choose Bend Oregon!

David Fosters analysis for for May is out, and it is the source for some strange and sometimes contradictory conclusions about where Bend and the RE market here, are heading.

The Real Story is inventory. David's own count of homes in Bend hit a new record, 1,511, versus the old mark of 1,454 set in Aug 2006. I think everyone knew new records would be broken from the probably slightly flawed, but timely figures from Realtor.com. These figures went up day by day, and were finally reflected in Davids' data with inventory jumping from last months level of 1,373, and up 86% from last year at this time. And a fact of novel interest also came to pass this past month: Given Realtor.com's inventory figures and listing averages, Bend pushed into the billion dollar area of homes for sale.

So the question asked last Fall has been answered: Everyone knew everyone else would be listing this Spring. If we all knew that we all knew this, would listings be held back? The answer is clearly, "No". Personally, I began to buy into the "We're ALL discretionary sellers" idea: No one REALLY needed to sell, but were still fishing for the occasional Bucket-Box moron from California to pay 50-100% over comps. And when EVERYONE knew full well the folly of this, that many would decide not to entertain their Gold Rush dreams. Not true. I don't think the "Bend is 100% Discretionary Sellers" philosophy is one bit true.

So there is clearly an inventory overhand in Bend. But, it is Spring/Summer, and the buying ALWAYS picks up in May, right? Wrong. While April to May 2006 sales jumped from 188 to 244, or up 30%, April to May for 2007 was a distinct downer, dropping from 147 to 121, or down 18%. All this combined to push months of inventory to 12.5 months, a new record. May 2006 was at 3.33 months, and the previous record was last October at 11.8 months. Record levels of months of inventory are SUPPOSED to happen in the last quarter, not at the beginning of Bends' Big Summer Push. Over a year of inventory in May? Don't let anyone tell you that isn't Really Bad News for the Summer.

Finally, we get to price, and on this front there was good news for sellers, at least on the face of things. Preliminary figures from Doug Farmer showed unexpectedly large jumps in averages during May to $485K, up from $424K last month, or +14%. I can tell you that flew in the face of what I expected which was slightly lower prices, and slightly higher volume. And that $484K is a hairs breath from the all-time record for Dougs' data of $491K set last June.

And then Davids data came out, and the average increased at a fairly significant pace, although because it is YTD form, it's not nearly as break-neck an increase as Dougs. Averages went from $408K to $427K, a very sharp increase given that 4/5ths of the data set remain unchanged. Increasing averages 4.6% for the month means that May data had to do quite a bit of pulling to get that increase.

I was pretty confounded by this, to tell the truth. Far fewer sales at higher prices. Given what I knew was a pretty good uptick in inventory, I figured there would have to be pressure on sellers to lower price. And if they did lower price, I thought it was reasonable that we would see something similar to the 30% increase in unit volume over April. Maybe a little lower, but surely May would be higher, right?

Nope. But, yes... sort of. See, if you look at Davids data closely, you see medians going from $349,250 last month to $351,900, a jump of only 0.75%. It is hard to get medians to move given "outlying" data, in a nominal bell-curve distribution. So medians really didn't move much, which indicates that there may have been some high priced deals go through in May. The answer came from "The Wizard" over on BendBB:

"The big reason for the rise in median and average, is that there were 11 homes sold in May in the 1M - 3M range."

I am fairly sure that The Wizard is a Realtor, as (s)he provides quite a bit of data to BendBB that can only come from MLS. I also wrote a short example showing that just a few (even 1!) large scale purchase can significantly skew monthly results:

" I wrote on another thread that there are 2 Pinelyn park homes @$4.5MM/ea. And if you sell 30 homes @ $333,333, and just one $4.5MM property, it pushes the AVG up to $468K, up 40%. Even ONE big transaction can really impact monthly results."

So here is May explained: Months of Inventory is at almost catastrophic levels, over a year. This is, without a doubt, The Single Most Important Data Point In Bend Real Estate. Absolute levels of homes for sale is totally useless, without knowing how many are being absorbed in any given time period. What if someone tells you that some anonymous town has 10,000 homes for sale. Is that a glut? A shortage? Who knows, until you know how many sales are happening per month to absorb that number. If there are 4,000 sales/mo., it's a shortage, if it's 800/mo., it's a huge glut. This statistic is applicable across almost ALL real estate markets.

We're going to hear about how well prices held up in May. This is to some extent, true. But there were relatively small number of high-priced closes that skewed averages much higher. Medians on the other hand, barely budged. I'm not sure how much 11 individual transactions should be counted toward gauging the health of Bends housing market... they DID occur, they skewed results, and maybe as Tim said, the high-end might be firming up a little after many moribund months.

So how to characterize this market? May, unfortunately, did little to give a completely unambiguous descriptor. Volume was, without a doubt, a disaster. Realtors ARE suffering, dollar volume is down 30% (Dougs data) from May 2006. From the professional perspective of what the vast Bend RE machine is grossing, this market is collapsing. You'll hear the term "normalizing", but this is a matter of perspective. If you buy a stock at $10, it rushes up to $200, and then falls back to $75, it's called "normalizing". If you bought at $200, it is collapsing. Yet another illustration of this industries sense of Indigenous Amnesia towards Bends' Current Residents and it's Grass Is Always Greener perspective on Inbound Migrants. If you already bought & lost at the Bend RE game, to hell with you, we'll backdate the options (ie homes) until everything is all blistering growth and Rose Colored Goggles. It's called normalizing.

And a comment from Bend Econo-Rocket:

The current generation of 20-30-something Bendites (who grew up in Bend) is different from the previous ones because they are at their career-building years in the height of the Bend boom.
Previously, you had the choice of going into the mills or the woods, or some other trade, or leaving to go to college and then either staying away or trying to find gainful employment in Bend with a degree. The top-dog positions of big landowner or big millowner or big newspaper publisher or whatever were sinecures handed down within families.


But if you graduated from a Bend high school in, say, 1995, you could make more money staying in Bend and working in construction / development / RE sales than you could going off to college getting a degree and coming back. I don't want to think of what happens to a lot of these folks as things slow down in those businesses.


Bend is one of those USA towns where you cannot complete a full life cycle of childhood-school-college-career. It loses people to attrition normally (it barely increased in population from the '50s through the '70s) so this inflow of outsiders isn't just for RE, it's for the town's viability, period.


I think that is one thing that has changed here in the past 10 years or so. People used to LEAVE Bend to live, because it was economically untenable to stay here for many, especially if you aspired to something beyond blue-collar labor. But now, people are COMING here to live... and WORK.

I've talked ad nauseum about who I think will win the epic battle between old-school, indigenous low productivity Bend Boss Hog dominated industries, and our current Escalade driving, 160IQ, tanned and wonderful immigrants. Let's say, I think they'll be leaving at some point, tail planted firmly between legs.

And we hear nothing except the wonders of Bend from Outdoor-Lifestyle magazines of every stripe, something flogged endlessly in the Bulletin. But all this demand has sparked something that even the Powers That Be are finding unpleasant: INFLATION. Scan BEM's old archives, and I wrote that the onslaught of general price inflation in Central OR was an inevitable result of RE inflation. It's simple: Real estate is a basic input to virtually all businesses, like a phone, or utilities. And if you picture the gross revenue of a business as a pie graph, all these costs take up some percent of sales. Real estate is usually quite a large chunk, and I'd bet that if some of the income statements for downtown businesses I've seen are representative, it's somewhere around 20-30%.

Sometimes this is a tolerable percentage, especially if location is acting as a marketing "proxy". You may not have to advertise at all if your location is good enough. But sometimes it's not, witness the large number of retail outlets closing in Bend since steep price hikes were instituted, largely in reaction to inflated prices paid in the past 2-3 years for downtown commercial buildings. The pie-graph is being taken over by RE costs for many downtown.

What is the result? In a strangely ironic twist, one downtown Japanese restaurant, Kuishinbo Kitchen is closing, while deep a significantly higher-priced Japanese restaurant is opening. This is indicative of something I think will happen all over Bend: Outlets offering lower-moderate priced items will be shuttered and replaced by "amenity-laden" outlets offering similar, but far higher priced goods. In other words: INFLATION.

And inflation without any accompanying wage inflation means one thing: LOWER STANDARDS OF LIVING. And according to a recent Bulletin article, "Food, health, housing drive Bend costs up", there has been staggering increases in the price of groceries (+20%), and home prices (+19%) in Bend in the past year. The overall cost of living in Bend increased 9% in the past year. If this happened nationwide, let's just say it would be interpreted as an economic catastrophe. NINE PERCENT INFLATION! Last time that happened was in the 70's, and the subsequent recession was the worst since The Great Depression.

"So what!", you say. "I bought pre-bubble, I'm doing just fine, thanks. I make great money, and am basically immune to any downturn around here. All this bubble talk doesn't affect me!" If you are one of these lucky few, good for you. But an ever-larger majority are coming here to live & work, and the labor treadmill is tilting up just a bit each month... and we're not getting anything extra for our efforts. No more 40 hour weeks like 5 years ago, we need to work 55 hours just to stay even. Have to work just a little longer for that Sushi, because the old cheaper sushi place is gone, because her rent went up, because her building got sold for many, many millions and the buyer must pay his bills...

Pretty soon people will have to face a choice: Work ever more hours just to keep their nose above water... or downsize. Laminate, not marble. Cheap carpet, not wood. 2,200sf, not 3,000. McDonalds, not Merenda. Fuqua, not Renaissance. Hyundai, not Honda. Work, not hiking, biking, or anything else. Inflation lowers your enjoyment of life. Not abstractly, but in real terms. And Bend is lowering its residents enjoyment of life by about 10%/year, at least those coming here and trying to live & work.

Maybe soon, many Bendites will think, "Des Moines, not Bend". I know I am.

And a comment (from Wikipedia) on a town we're all familiar with:

This historic character of the city has been challenged in recent decades by skyrocketing property values and the proliferation of second homes, increasingly shutting low- and middle-income workers out of the city and creating a large pool of commuters from nearby bedroom communities ... At the same time, in stark contrast to its historic character, the city has emerged into international fame as a glitzy playground of the wealthy and famous. The downtown has been largely transformed into an upscale shopping district that includes high-end restaurants, salons, and boutiques. The booming real estate market has forced the city to struggle between permitting growth and restricting it. The city today remains a mix of high-end luxury homes and condos intermixed with legacy residences and mobile home parks populated by an old guard of... residents struggling to maintain the unique character of the city.... is the destination of choice for tourists from all over the world.

Bend, right? Perfect description. But no, this is Aspen. "So... we really CAN be the Next Aspen, right? Hell, we practically sound exactly like it right now!" Well, maybe, if we're willing to make a little tiny sacrifice, that sacrifice being YOU. Read a little further, and you see that Aspens population in 2006 was 5,804. Bend was 75,290. We're going to need to cull the ranks a bit, shucking off 12 people for each one we keep. "Well, why can't we be Jackson, WY?" We could, but 9 of your friends & co-workers will need to go. How about Whistler, BC? Kiss 8 friends bye-bye.

I've maintained that we will not be the Next Aspen, probably to the chagrin of Bends Powers That Be. We're Way Too Big. But it could happen. It happened to Aspen. You see in 1890 the Sherman Silver Purchase Act was passed which doubled the US Government purchases of silver. By 1893, Aspen had boomed to 12,000 residents, mostly silver miners. Unfortunately for Aspen, Grover Cleveland repealed the act, and Aspen began a long, slow, grinding descent, until in 1930 it was a mere skeleton of its former self, with only 705 residents.

So next time someone asks you, "Can Bend be the Next Aspen?", answer in an ever ebullient and positive tone: "YES WE CAN! There's only one thing standing in our way... YOU!"

Now.... GET OUT.