Monday, July 30, 2007

Super Burrito, We Hardly Knew Ye

I usually have the crux of these posts boiling over in my head the previous week. I was going to write about the Big Signs I see at vast empty swaths of platted subdivs, several signs of desperation, comparisons of Bends bubble imploding with Bubbles past, I even got a great string (my opinion) of spreadsheets on Google, that have some pretty good stats (data courtesy of my friendly nemesis, BendBB)... and I still plan on writing about this stuff.

But I am starting to get a real sense of forbidding doom about Bend. I wrote in my May 29 post:

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.

And so it went, Super Burrito is closing down.

You can read at the top of this blog, it's "mission statement":

Debating the Bend Oregon Real Estate bubble, its implications for Bend residents, businesses, and the economic outlook for this area.

It is just with a real sense of sadness and mourning... and even hopelessness, that I saw that Super Burrito is no more. Sounds sort of stupid talking about the loss of such a small place going under, and if you saw me, you'd probably think that I could use less Super Burrito and the like in my life. Probably true.

But Super Burrito and other small businesses like it epitomize the sort of "pioneering spirit" that seemed to exist in Bend just a few short years ago. When I got here, I found it pretty amazing the number of very small (1-5 employees) businesses around here. From a purely financial standpoint, it was really "suboptimal": Tons of tiny businesses run in some of the most off the wall ways you can think of, just grinding out a day to day existence. I talked to & met so many small businesses that had no computerized bookkeeping software, and never would! I still don't understand how they are surviving.

And that's what's leaving: People and their lives with odd, quirky, strange-ass businesses doing business on their own terms, living life how they want, and to hell with financial & otherwise technological advancement & optimization. I mean, there's a freakin' "Rock Garden" between here and Redmond! Tell me you didn't laugh when you saw that Petersen Rock Garden sign for the first time!

It's strange little things like this that I thought were so great, when I first got here. Some really kooky types, doing some pretty damn kooky stuff to get by. It was great!

But the Central Oregon RE bubble has changed all that. Much of the character this place had is being irretrievable lost, soley because the kooky, low ROI businesses that inhabit this area are overwhelmed by a once-in-a-lifetime shot at the RE jackpot-lottery that has hit. They can make 20-30-50X what they paid for plots 20 years ago. There's no way they can ignore that sort of payday.

Probably far more prevalent, are small businesses, like Super Burrito, that lease premises. The commercial land rush that has ensued is simply making these places financially untenable. Super Burrito, DID NOT suffer from chronically low volume. Super Burrito is simply an unworkable business model in The New Bend. No amount of $5 widgets, be they burrito's, or whatever, can sustain a $3/sq ft lease.

Super Burrito, Mondo's, and other quirky little places were a big reason I decided to come to Bend & live. You can walk in, and typically the owner will be there, and they might be nice, or they might be the Worlds biggest asshole, but there was some variety & substance, that gave the experience "texture", for lack of a better term. I LIKE nice owners, I LIKE assholes... I like variety.

What I HATE is generic corporatized, shelacked-over, canned-bullshit, "It's a great day at Red Robin, I'll be your server, can I recommend the buffalo wings for you today?" personality-in-a-box CRAP! I hate that. I mean compared to that, I LOVE the looks of contempt & loathing with no words and the implied, "Why don't you hurry up & order Whitey?", that you'll get at any decent Mexican shack. I love the restrooms so filthy I wouldn't dream of letting my kids use them, next to the checksheet hanging on the back of the restroom door use see at Corporate Central.

Bend, The Bubble has produced Bend, Inc. Bend, Inc., is generic, boring, repetitive, monotonous, too clean, too nice, life-in-a-box, everyone is a Wal-Mart greeter. Bend, Inc. sucks ass. Bend, Inc. offers a life barely worth living.

I think I sort of knew Super Burrito probably could not survive it's lease re-up... but I had hope. After all, they do a great business, and I thought, "If there is a small local place that can survive downtown, it's them". Wrong. And there is little indication of the trend abating.

A lot can survive at $.50/sf ft. All sorts of weird stuff. There is a thin variety that can make it at $3 sq ft. That's why Vail, CO is just one big shopping mall catering to out-of-towners. It's sort of interesting for a day or two. But after that, Vail is just awful. I had a girlfriend there back in the day, and there was literally nothing to do there. If you wanted to hike or bike, it was great. But even avid hike/bike types do not live by that alone, and if you wanted some "variety" you had to get on the highway and go like 100 miles. She took me to Aspen, and after a long day of walking around, I just thought, "We could have stayed in Vail & done this".

Well, sorry to indulge in so much melancholy. But Super Burrito closing just seems like the beginning of some "Loss Of Innocence". Bend IS changing, and it is changing for good, and there seems to be no going back. I latched onto the idea that if there were some sort of RE implosion, that we could revert back to some sort of pre-2003 normalcy, and much of the character of Central OR's "characters" would be preserved. I'm not sure that's possible anymore. If there were a local success story that could survive around here, it was Super Burrito. That place just epitomized so much of what made Bend great: That just a small number of people could stake a claim & make it here. Didn't need a Kings Ransom, connections, or even Mensa-level IQ. Normal people doing normal stuff on their own terms, and Making It.

Bend, Inc., is a Bend where the individual is being "squeezed" out... you DO need a Kings Ransom, you need connections. And worse, there seems to be this preference for this to happen with the Powers That Be. I mean, there was to be an affordable apt building put downtown, and before ground even broke, it has partially converted to unaffordable condos, with not just the blessing but FULL BLOWN APPROVAL of Bend's City Councilors. It will not be too long before this "Affordable Apartment" building is 100% converted to ridiculous condos. All the while, Bend taxpayers funded the boondoggle with a partial giveaway of the land on which it'll sit. The City WANTS the Little Guy the hell out of here.

So, I will stay in Bend... for now. But I have to admit, my thoughts are turning to leaving. I'm going to Baker City soon, and I actually will turn an eye towards moving there, maybe. Bend, Inc., is not my bag. And Bend, Inc. consumed in what I believe will be the most catastrophic economic implosions of it's existence, is even less appealing. Have no doubt, Bend, in 10 years, will be mired in economic malaise. That, in itself, would be tolerable. But, bland-ass, monotonous, sterile, checkbox living surrounded by mindless automatons, is not.

Monday, July 23, 2007

Buy or Rent: Of course it's better to buy...

ADDENDUM: Super Burrito forced out.

Apparently Super Burrito will not be downtown anymore. This town is officially Not Worth Saving ANYMORE.

I was reading a piece on MSN this week, "It's still better to buy a home", which has a fairly involved cost analysis of renting vs buying. And I will admit proudly that I am in 100% agreement with the article that it is FAR better to buy.

Yes, it is better to buy than rent. There, I said it.

Well, now that the ugliness is out of the way, let's take a closer look at that piece. Here is a snippet:

I thought about that as I read reader responses to a recent column taking a long-term consumption-smoothing approach to the purchase of a pricey San Diego house. The exercise showed that buying such a house could be beneficial even if real-estate values fell -- provided the buyer lived in the house for a very long time.

So we're going to see a nice, fair analysis of buying vs renting in San Diego, right? Well, read on:

Suppose, for example, that you are a young family thinking about buying a house in Lewisville, Texas, a suburb of Dallas. There, you can find relatively new houses of about 2,000 square feet with three or four bedrooms, two baths and a two-car garage for about $150,000. If you bought such a house with a 20% down payment and a 30-year mortgage at 6%, it would cost $8,634 a year for the mortgage and about $7,500 a year for taxes, insurance and upkeep (based on 5% of market value). The total out-of-pocket cost would be $16,134 a year.

Long term, this would put you way ahead of a renter, even though the same house could probably be rented for about $15,000 a year, or $1,250 a month.

Ah yes, there we are. Ye Olde San Diego McMansion selling for $150K. Oh, how they line the lush boulevards of San Diego... mile after mile of $150K homes. Errr wait. It's Lewisville, TX, outside Dallas, one of the lowest, most undervalued housing markets in the U.S.

This sort of bait-N-switch sort of irks me. This is a pretty handpicked market to do a rent vs buy analysis. And there are plently more like this, where buying is still so ridiculously cheap, that buying as a financial strategy swamps renting in some cases. And if you look at the figures used by the author, you can see that even in this handpicked scenario, that buying is not THAT great:

Even if the value of the house doesn't rise, it will compete very well with the return a renter could get on the down payment. The homeowner will pay the mortgage off in 30 years, bringing his equity to $150,000, even with zero appreciation. For the renter, the down payment would have to return 4.22%, after taxes, to accumulate to the $150,000 value of the home after 30 years with zero appreciation.

The renter avoids the 20% down payment incurred by buyers, and has to make 4.22% on that investment to beat owning a house. Robert Schiller has shown that extremely long term returns on stocks are closer to 7%.

So let me restate: Buying IS a great deal, if you happen to buy in one of the most depressed housing markets in the country AND you are an absolutely TERRIBLE investor. For a reality check, let's look at Bend

If you use a $350K home for the 6% mortgage assumptions (no downpayment), and a steady $7,500 maintenance cost per year, and also $1,250/mo rent payment, you come out with a slightly different advantage to renters.

Your year one cost is the $25,181 mortgage payment, plus $7,500 maintenance, or $32,681. The renter pays $15,000. Now the rent & maintenance are assumed to increase with inflation, and hence hold steady in this "real dollar" analysis. But the present value of the mortgage falls by 3%/yr, and has hence fallen to $24,426 by year 2.

By year 10, the owner has spent $295,397, while the renter is out $150K. The renter advantage is a fairly significant $145,397. The situation for the buyer never improves because while the mortgage payments after inflation dip below the $15K the renter is paying (real terms) by year 19, the $7,500 maintenance continues. The PV of the mortgage has to fall, in real terms, below $7,500 before the buyer is ahead. This actually never happens till year 30 when the mortage is paid off.

At that time, the buyer is out $727,775 on a cumulative basis, and the renter is out $450K, with a net advantage of $277,775. But that is as good as it gets for the renter. At that time, since the mortgage is wiped out, all that's left is that pesky $7,500 maintenance payment, while the renter continues paying $15K/year in real terms. So when does the buyer actually move ahead of the renter? 40 years? 50 years? 60 years?

In year 68 the owner actually has a cumulative cost that beats renting by $1,634. Somewhere late in that 67th year of owning, does a buyer well & truly move ahead of our lowly renter.

So I reiterate: If you live in one of the absolute lowest cost housing markets in the country AND you have the investing skills of a chimp, you should probably think about buying. Otherwise, Rent & Invest The Difference. It's as close to a Sure Thing as I've ever seen, especially in Bend.

(An addendum: I should note that I and the author of this story ignore any sort of resale proceeds by owners. The author is attempting to compare the downpayment on a house to the monthly savings a renter accrues and invests. My own comparison is an attempt to see, given zero upfront payments on a realistic Bend home, what are the yearly benefits to renting vs buying, ignoring some fairly substantial costs & benefits such as property taxes and interest write-offs. Think of the cumulative benefit to renting as the amount a renter has to invest to beat out the equity appreciation of a home owner.)

NOW... to shift gears:

I took some whomping over my D-Mark burning pic in last weeks entry. Howls of "IHTBYB thinks we're entering HYPER INFLATION!". Of course, I do not. It was a pure illustration. Hyper inflation typically leads to endless money printing when a sovereign government has kicked your butt. That has not happened here, in Bend at least. No, RE "hyper-inflation" typically leads to the exact opposite, deflation. It goes from money chasing too few goods, to vice versa.

I read an intersting piece on WHAT I DO THINK will happen here in Bend, albeit to a lesser extent, "A Cautionary Housing Tale from Japan". The author, Michael Nystrom, moved to Japan in 1990, almost exactly when the twin RE & stock market bubbles began to deflate.
An excerpt:

My uncle is a salary man (sarariman), on the young side of middle age at the time, married and with two kids. In many ways he was an average Japanese enjoying the fruits of a booming economy. Japan was on the rise. Between 1955 and 1990, land prices in Japan appreciated by 70 times while stocks increased 100 fold! You might remember when it was claimed that the land under the Imperial Palace in Tokyo was worth all of Manhattan, and that the land in Tokyo alone was worth more than all the US.

In spite of the booming economy, my uncle, like many Americans today, was shut out of the housing market. Prices always seemed too high, but a pullback never materialized, so he waited until the right time to buy. While he waited, prices spiraled up and away until at last they were hopelessly out of reach. By the time I arrived in 1990, his family was living in a government-owned, rent controlled flat that was, by any standards, small: Two rooms that were each about 12 feet square, a small kitchen and a tiny bath to serve three adults (including his mother) and his two kids.

And now to the meat of the story that I've found myself telling with increasing frequency of late: My uncle thought that he would never ever be able to afford a house in Japan, and that he would live out his dying days in that little rented flat. In his experience, housing prices went only in one direction: up. But by 1992, two years after the Nikkei peaked, something strange began to happen - housing prices started drifting down. Of course my uncle didn't know that the Nikkei had just put in its all time high, and would ultimately fall by 80% over the next 13 years. Anyone paying attention to the stock market most certainly thought that it was just taking a necessary and well-deserved breather, and that new highs were just around the corner.

By 1994, housing prices continued to drift lower until some units started to become, with considerable stretching and creative financing, affordable. So that year, by taking out a two generation, 60-year mortgage -- with his 16-year old son on the hook for the remaining years that he might not be able to pay -- my uncle bought his first home. The family had to scrimp, and both he and my aunt had to work more hours, but they were finally, proud homeowners. And it was a nice house - larger than their old house (but not much), in a nicer neighborhood, and on a higher floor with a view of the treetops. I even helped them move in. It was a happy day. I don't recall the exact price he paid, but I remember thinking that it sure was a lot! Somewhere north of half a million dollars. Those were the kinds of details were lost on me at that age.

I left Japan in 1994, and didn't return again for a visit until late 1998. In the intervening 4 years, housing prices had continued to fall, and fall, and fall to the point where my uncle's house was worth only half of what he had paid for it four years earlier: A couple hundred thousand, up in smoke, just as Japan's economy was mired in a 13-year slump. But he stuck with his loan, hoping the value will come back. And one day, it just might. So he makes his payments each month faithfully, and when he can no longer make them, his son will take over and pay off the remaining balance. And sometime, in the remaining 48 years on the mortgage, the house may once again be worth more than what is owed on it.

More copy & paste that I intended, but you get the gist. The crux of the rent vs buy example is that with no appreciation over inflation, buying is fairly dicey, financially. Even in low priced markets, the cumulative breakeven is well over a decade. In times of deflation, such as what has been happening in Tokyo for the better part of 17 years, you borrow money to buy assets that are actually worth well below what the liabilities are on them.

This is why Japan has interests rates at almost 0%. Why on Earth would you borrow to buy something that'll be worth less than what you pay? No one does, and hence Japan is mired in a decade + long quasi-recession. Lowering rates to spur demand is the proverbial "pushing on a string".

"Well, IHTBYB, that is Japan, and this is the U.S. That sort of excess doesn't happen here!"

Hmmm... reading some of the reader comments to this article suggests it does:


My brother bought a great condo in 1986 in Jersey City. Great view of the stature of liberty and all. The price was somewhere over 160K.

Then came 1987. By early 1988 when my brother had to move due to a job change, his still great condo was worth 60K.

In just over a year, it had lost 100K of its value, 66+% of its value!!!!

He sold it in 2001 for about 110K. 15 years latter, 13 years of renting it at about a break even mark not including his time and effort, and it colored his whole life from late twenties to early forties. This anchor always in the back of his financial mind.

Now some would say had he held it another three years, he would have made money! My first comment is that a million dollars would not have made up for the anguish he lived with for those 13 years. My second comment is that even with the amazing run-up in prices of the last 5 years, he still would have lost money, if you just take standard CPI inflation into account and a lot more if you take real inflation into account.


My wife and I bought a Victorian in need of much work in Boston in 1980 for $52,500. In 1989 it was appraised for $330,000. In 1993, when we wanted to refinance, it was appraised for $160,000. Ouch. So I won’t be surprised if there’s another deep decline in prices.


I wish I could convince my wife that purchasing housing can be a bad deal. She is absolutely convinced that house prices won’t come down. One of our neighbors bought a house for $208k and after the bank kicked them out it sold for $180k. A neighbor across the street lost a bundle on their house too.

This one is pretty eerie:

Not only is what he is saying correct, but the problem goes much further. I am writing this from the West Coast of Florida. Many of the units that were built down here in the last 3-4 years are literal junk. The builders built on any land they could find, suitable or not. Bad drainage, bad neighborhoods, you name it. Even worse, qualified labor was largely unavailable so anyone who happened along was hired. You had unqualified masons, carpenters, plumbers, electricians, roofers etc. As building material costs went up, the builders and their people frequently scrimped. There have been doubts about whether some of these buildings even have the proper number of nails. But wait, you say, weren’t these buildings inspected? Apparently not all of them. A year or so ago a group of disgruntled condo owners sued Pinellas County for its lax inspections. The court dismissed the suit saying that inspections were “optional”. Draw your own conclusions about that. Many of the houses and condos around here may not out last the mortgage. So if you are tempted by falling prices demand, as a condition of sale, a soup to nuts inspection by a qualified consulting engineer whom YOU hire. If you think inspections are expensive, wait until you see the repair estimates for these doozies.

Sound familiar? Read on, and you hear people talking about the horrors of houses listed for ~gasp~ SIX WHOLE MONTHS!

The market here is swamped with houses for sale. They’ve more than tripled in the last 12 months, and many now go begging. The neighborhood we rent in now has a house that has been up for sale for 6 months. 6 months!

Wow, 6 months... how do they survive?

There have been localized busts far & wide in this country. They are usually very localized and a short-term, well-contained collapse happens immediately after... you guessed it, a speculative bubble of building implodes. That's what will happen in Bend, NOT Hyper Inflation.

Japan is an entire country paying off RE loans, where the money is dramatically more valuable than the good which it is paying for. An entire country saddled with bubble-fueled debt, and the near inability to buy anything else because so much of their income has to go to servicing debt. THIS is the aftermath of RE bubbles: Catastrophic wealth loss. Endless crushing debt loads that quash the ability to buy anything else. In essence, mortgage slavery. And the best news?

It all goes on for the rest of your life.

Wednesday, July 18, 2007

Same $hit, Different Day.

"The Sun will come out, ________________, bet your bottom dollar that _______________, there'll be Sun!"

The Bulletin's article (Home sales continue decline) about the second quarter came out, and you can see right away that they are scraping the bottom of the barrel to find their "Resident Optimists" on the Central Oregon RE market. They turned to Darrin Kelleher, a Bend developer and "self-described optimist". Kelleher says he thinks,

"the region will shake off its excess inventory by spring 2009, opening the gates again - the gates, not the floodgates - to new growth."

On the other hand, the market numbers are bad enough right now that even an optimistic developer has to concede that the pessimists might be right about a longer downturn.

The first statement should immediately induce some sort of gin & catatonic coma, as it is the familiar refrain of Annie and such. This dreaded inventory will clear out Tomorrow. We will return to bubble days of yore Tomorrow. OK, the Sun WILL COME OUT TOMORROW, DAMMIT.

I think there is some sort of subliminal encoded message that throws the average Bendite into a catatonic fit when this mantra is uttered in any form. Last year we heard that this Summer would be the time the horrors of inventorious glutonomious would be cleared out. The crux of my last frothy-mouthed rant was that We Are Here... and so is the inventory, in spades. With a vengeance.

Just a friendly reminder: We've heard this before, and by God, we'll hear it again. We WILL wipe out that massive inventory glut... TOMORROW. Uh huh. Despite the fact that we continue to be "discovered":

In Central Oregon, in-migration apparently continues. United Van Lines brought 290 new clients to Deschutes County alone in the first five months of this year, according to figures reported by Economic Development for Central Oregon. The bulk came from California, Arizona, Washington state and Texas. Only 155 moved out in United's trucks.

So all the tenets of "Paradise Bend" are still here and getting discovered, BUT inventory continues ever higher ANYWAY:

an inventory level that could take 10.9 months to sell if the average monthly sales rates of the first six months of 2007 continue to hold.

Maybe I've pounded this idea into the ground, but: Bend as Paradise is still being realized by some, as RE pro's said it would, BUT inventory has STILL exploded, nevertheless. I'm starting to wonder if we will even have an "echo" of the inventory respite that we had this past Winter. "The Sun will come out tomorrow?". I don't think so. I wonder if the high inventory of today, will be the even higher inventory of this Winter?

Take a closer look at The Bulletin's resident "optimist": Ah yes, from last April 2006, when no pain was unbearable for the sake of building yet another subdiv. From Bulletin article, "Behind the boom":

Darrin Kelleher, the developer who will subdivide new lots at Juniper Hills, said he would support some kind of government-mandated monetary transfer between park owners and their evicted tenants because the cost could be factored into the price of any land deal. But the economics that are driving developers to buy parks likely won’t subside as long as developable Bend land is as scarce as it is, he said, and the parks that have been bought for closure likely won’t be the last.

“You’ve got to feel for these people,” Kelleher said. “We bought the piece because it came up for sale. It’s not one of our proud moments.”

Ah yes, Kelleher is one of the mobile-home busters:

There was Dan Hayward, a computer technician, and his wife, Rebekah, carrying the youngest of their five children, 8-month-old Brooke.

They have two weeks to stay in their double-wide mobile home before they’re evicted from the land to make way for new housing.

There was Patty Allen, a home health care worker. She and her disabled boyfriend and her 14-year-old grandson have a little longer — a bit less than a year — before their home faces the same fate.

Kelleher bought Juniper Hills mobile home park, and promptly blasted it's residents out the exits, before:

...the handful of remaining residents, including the Haywards, have until May 1 to get out. In its place, work will start this summer on a new subdivision with 161 new $300,000 to $700,000 homes.

Hmmm... good luck selling those $700K monsters. I'm sure he'll have plenty of takers given the fact that FAR MORE desirable McMansions on the Westside are busting to the unpleasant side $600K en masse. Eastside homes at $700K? He'll have better luck selling them on the site of an Indian graveyard... in Burns.

After introducing Kelleher as their New Resident Optimist, there is a short snippet about us lowly sorts:

even an optimistic developer has to concede that the pessimists might be right about a longer downturn.

Ya hear that BEM, BendBB, BendBust? We... might be right! Cripes... it's like being brought a decapitated corpse, and the doctor says:

"I may have overstated the chances of recovery for the patient.."

I think that may be the full extent of the recognition of pessimists on Bend RE can expect. We "might be right". Wow. Thanks. The entire thesis of Bend RE experiencing a permanent mega-boom hasn't come to pass, and we "might be right". Wow, I'm overwhelmed. Also real nice is the fact that Kelleher is an "optimist". Bill Valentine was a "contrarian". But the lowly "pessimist" must remain a disembodied ghost, a phantom, an apparition. Why? Hmmmm... my guess, is the Ghost is afraid of drive-by's, unprompted firings, dropped accounts, and the like.

So WHAT will save Bend RE now?

Fueled largely by immigrants and their native-born children, the number of American households is expected to grow by 12.6 million by 2015, according to the Harvard study - about 2 million households more than the nation added between 1995 and 2005.

Well, there you go BendBust... you're beloved illegal immigrants are going to bring their vast horde of wealth, get landscaping , cook, housekeeping and other jobs of stature, and prop Bend RE right up.

So Cali-spankers are not being held up as our Saviors, but by God we can count on the influx of "immigrants" to save us, and:

That, combined with an "enormous growth in household wealth" over the last 20 years, "will help propel residential spending to new heights, the study concluded. But the nation's housing markets will continue to be dogged by price weakness and sluggish sales as long as affordability remains an issue and until current inventory levels, fueled by the speculative frenzy of 2004 to early 2006, dissipate. When that will occur, the Harvard study did not guess.

So, they don't know WHEN it'll happen, but the money we've made since 1987 will, at some point, be funneled into homes, and by God, then we'll be OK.

OK, can I get a job like that? Writing reports with conclusions like:

"Hey, like money we've made in the past 20 years will find it's way into home purchases, at some point."

Woof. Went out on a ledge with that.

So here are our messiah's:

1) Mobile home busting developers
2) Illegal immigrants arriving in their pimped out Escalades, working as housekeepers
3) Money we made in 1987

Now, we also get the first peek at a developer, Brooks, actually "rejecting" this thesis (Why, one can only wonder. Seems solid.):

Kirk Schueler, president of Central Oregon's largest developer, Brooks Resources Corp., said he and the Brooks board of directors don't expect local housing prices and sales to stabilize, at this point, possibly until 2009. Brooks opted to pull the plug on a high-end riverfront townhome project in Bend earlier this year, partly because the company expects weakness to continue in that market for at least another year, Schueler said.

"I'd say it's going to be a good buyers' market for most of the next six to 12 months," Schueler said. "From July 2008 to July 2009, the market will get back to predictability."

Funny, that Schueler is basically saying, "We ain't buying anymore, and it won't be good for a year... but next year... THE SUN WILL COME OUT..."

Seems that subliminal mantra is hard to beat, even once you've decided things have gone into the crapper. From "Riverfront project aborted" (subscription req'd), we found that Brooks bagged their plans for riverside condos and sold the project to Portland developers who have not figured out that Bend has gone to hell. From Duncans awesome blog:

Brooks Resources backs out of a project to build million dollar townhouses on riverfront project. This is the first really clear sign I've seen that some developers are having second thoughts. That it is Brooks Resources, a local group with long ties to the community and presumably closer in touch with Bend's economic realities, makes it even more significant. (As is pawning it off on a Portland developer....)

This is a variant of my "forced liquidation" prediction, possibly in it's Penultimate Form. Developers are starting to bail on their own dreams. When you got SUV's, you sell SUV's to keep your home. When you got jewelry, you sell that. When you got undeveloped condo-subdiv land... welp, you sell that. Man, when the developers are selling their inventory to each other... it's getting damn bad.

Now aside from the 26-42% drop in sales in the area, there was some "decent" news:

Wages in Deschutes County rose 5.8 percent from 2005 through 2006, according to the Oregon Employment Department, reaching an average of $16.02 per hour, or $33,329 a year per wage earner.

In Bend, the median price of single-family homes without acreage sold in the first six months of the year stood at $349,250, or 1.54 percent above the first six months of 2006, according to the Central Oregon Multiple Listing Service.

So, in some measure things improved a little: Wages outpaced home prices a little. Of course, in the context of what's happened over the past 5 years, we're WAY behind. Folks arriving in Bend today will find their dollars go nowhere in the housing market here. But then you can see that much of that tiny gain was illusory:

Throughout the country, the price of food rose 3.9 percent in April

I don't know about you, but food & gas and various other types of inflation have replaced home-price inflation. I suppose we should have seen it coming: I've written about the insidious creep of price inflation that would result from skyrocketing local RE price jumps. The rest of the U.S. had a 18 month headstart on Bend, so I suppose we are seeing a smaller scale version of what will happen here in the future: Price inflation on every front. As a short aside, here's a small snippet of what exactly hyperinflation does to economies:

Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry, and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc, and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914. In 1923, at the most fevered moment of the German hyperinflation, the exchange rate between the dollar and the Mark was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper. Most Germans were taken by surprise by the financial tornado.

"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread." The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin bank with the cook as beneficiary, the bank to administer and invest the dollar.

We don't have it so bad... from Wikipedia, to get a real good hyperinflation going usually takes a nice little genocidal conflagration:

  • Germany in the early 1920s when the rate of inflation hit 3.25 × 106 percent per month (prices double every 49 hours)
  • Greece during its occupation by German troops (1941-1944) with 8.55 × 109 percent per month (prices double every 28 hours).
  • The most severe known incident of inflation was in Hungary after the end of World War II at 4.19 × 1016 percent per month (prices double every 15 hours).
  • More recently, Yugoslavia suffered 5 × 1015 percent inflation per month (prices double every 16 hours) between 1 October 1993 and 24 January 1994.

This fine young woman has found that instead of going out & buying firewood, it's quicker & cheaper to burn her pile of money.

Pretty soon we'll all be doing our Crocodile Dundee impressions:

"That? That ain't no inflation! THIS. This here is INFLATION!"

I wonder what will happen to the Bend economic base once our hyper-inflated housing asset base ultimately deflates, and it will deflate.

I guess I don't want to dwell on this point now for too long, as the disastrous effects of excess inflation could make a post or two on their own.

But have no illusions, the Economics of Paradise are about to get Real Ugly. We borrowed our way to a short-lived prosperity, and the loans are coming due.

If you want to buy something cheap, start looking at SUV's, Porsche's, snowmobiles, and other toys. People are going to start selling this stuff to make their monthly payments. I don't know if anyone else has noticed, but I'm seeing a hell of a lot of upscale cars sitting on dusty corner lots For Sale.

Ah well. Maybe it's the 90 degree dehydration talkin', but Paul-doh starting to get a hint-O pensive introspection about Bend RE. I mean, it's mid-July, and the the Summer selling season is winding down... stuff going under contract today will close in Sept-Oct, which is pretty dang slow. So this is it. We had our Last Hurrah, Hail Mary, Swing For The Fences window of opportunity, and it is a Big Ass Bust. It Is Over.

It's sort of depressing. I'm seeing For Sale & For Rent signs that ain't coming down. The Bend Community College of Creating Perceived Shortages isn't exactly filling rooms. Look no farther than todays Bulletin piece on Q2 housing: Not a peep from Bill Berger, Becky "Price Is No Object" Breeze or Norma "What time is it? 2PM! I've Sold Out Franklin Crossing for the 7th time today!" DuBois, three pump-N-dump standard bearers (well, not so much Bill). No, we have been relegated down to bottom of the barrel scrape-age Mobile-Home Buster to get our Good News.

BEM ultimately shut down his blog when it seemed He Had Fought The Good Fight & Won, and while I'm not even thinking about that, there was one comment this past week about "stop flogging the bust" (Duh, we KNOW!) and talk about the ramifications on the broader economy. This might be something I delve into a bit more.

But, that doesn't mean BendBB doesn't owe me that Parilla burrito when Bend prices come in negative in Q3 for the first time in years, and hit the $200's for in-town residential medians by December.

Monday, July 9, 2007

Bend June 2007 -- Prelude To Disaster

By my mark, June 2007 will mark The Beginning of The End for Bend real estate.

Well, not really. It will actually mark the middle of the end. The true beginning of the end began in September 2006 with medians at $380,500. I don't believe we will hit this figure again in the lifetime of many Bendites.

But like most cults, the cult of Bend RE has various gradations of true believers. Hearken back to early 2006, and you would have found "real fringe nutjobs" like BEM & I raging against the machine on his original kickbutt blog. There were a few fence-sitters who listened to our ramblings about how "this cannot stand". But the VAST MAJORITY were of the Kool-Aid consuming ilk, and professed the idea that 30+% yearly gains were not only possible, but really the only realistic outcome in a Paradise like Bend. Through much of 2006, BEM and I were statistically challenged, and could show little validation for our thesis. Sure, inventory was going up, but that led to reassurance of "choice" and many other buyer friendly chants. The Bulls were well and truly in charge.

Then, round about October 2006, there was a distinct and rather surprising cool-down. Inventory came off the Summer highs, but sales fell off more so. Prices even fell off. There seemed to be rumblings of a crack in the market, which converted some of the true believers, but not many. The signals were still too "mixed".

From October until May of this year, there has been an almost Epic Waiting For Godot. "Have we bottomed out, and absorbed enough for a run at new highs?". "How will Spring go, should I list & will buyers show?". "How will rates, and easy financing affect sales, and is Bend immune?"

To be honest, there has been no clear cut trend. Inventory went ballistic, but the commensurate drop in prices never materialized. There was a huge drop in overall dollar volume -- near 50% -- but if you could sell, you weren't taking a beating on price. And so it's been with the Bend RE market for the past 3 quarters. To paraphrase Vivian Merciers' characterization of Waiting For Godot, Bend RE has been a play where “nothing happens, twice."

I think the confusion ends now. David Foster offers this as his first line in his June 2007 "Crystal Ball" section:

The June statistics offer few surprises, as the Bend market is continuing to adjust much as expected.

In some measure, he is right. Things seem to be just continuing a long trend of lessening the boil. There have been ups and downs, but the one thing that's stayed constant for 3 quarters has been the slowdown. No real catastrophe, no real booms to the old tops.

But there's the rub. Now, RIGHT NOW, was supposed to mark Our Ascendence To All Time Highs And 30%+ Gains For Life, was it not? June 2007, from the perspective of last November, was supposed to be characterized by dancing in the streets and all manner of Utopian real estate fueled splendor. But that is NOT the case. Sales volume has fallen off almost 50%. The Dream Is Over. We waited, and it is NOT HERE.

Here's a graph that roughly demonstrates where I think we are, using the NASDAQ as a parallel.

The True, mega, all-time top, I believe happened last September, with medians hitting $380,500. Since that time, there have been a series of peaks and valley's, with nothing really conclusive up or down. I think May gave a truly strange anomalous performance that just served to confuse many. The culprit was a small number of extremely expensive homes getting sold, in a particularly slow month. So May had this paradoxical nature of lousy volume, but seemingly firm prices. Not conclusive, at all.

But I think we are seeing something akin to the "right shoulder" that ushered in the catastrophic decline of the NASDAQ that started in the 2nd half of 2000. In less than 3 quarters the NASDAQ began a breathtaking plummet from the mid 4,000's, down to 1,600, an unparalleled drop never seen before by any major market in modern history. This is where I believe Bend real estate is today.

Obviously I do not think Bend RE will suffer a drop of similar proportions. That said, I didn't think the NASDAQ would get clocked from 5,050 down to almost 1,000. I don't think anyone did. But I do think we are entering a New Phase: The Next year or two will eradicate COMPLETELY the True Believers, and The Fence Sitters as having any hope whatsoever, that we will see prices that eclipse the old highs substantially & forever. I think we'll see price and volume action that clearly telegraph the message, IT IS OVER to all involved, much like it was telegraphed by the NASDAQ when it plunged towards 80% declines.


Look at June 2007 data. And remember this period in time is supposed to be The Savior of the temporary softness that started last Fall. From David Foster:

The average sales price dropped from $426,655 YTD in May to $418,229 YTD in June. The median YTD sale price also decreased from $351,900 to $349,250 in June and is now 1% less than at the first of the year. As compared to June 2006 (YOY), the average sales price has increased 5% and the median increased just 1%.

If you look at David's May summary, you see there were 691 sales at an average of $426,655 (median $351,900). From June, you see 850 sales at $418,229. These are both YTD figures, so backing out June only shows 159 sales at an average of $381,610. Here's a progression of David's YTD figures:

March: AVG $408,208 MEDIAN: $349,500
April: AVG $408,162 MEDIAN: $349,250
May: AVG $426,655 MEDIAN: $351,900
June: AVG $418,229 MEDIAN $349,250

Now, it may seem reasonable to say, "Hey, June is just correcting the weirdness of May. Look, we're still above April!". Hmmmm. True, but the start of the year was chugging along with averages and medians that were pretty darn stable in the $400's, and June has slumped to the low $380's. Now, I wouldn't think that's so big a deal, but there is no "Oomph" left in Bend RE. Nobody is buying ANYTHING! Dollar volume DOWN almost 50%? Talk to Realtors: These people eat dollar volume, NOT MEDIANS, and there is no volume in this market.

The Eastside sucks. But the Eastside is on fire compared to the Mega-Suckiness of the Westside! From mstucker on BendBB:

YTD June 30 2007 Median sales price, Bend Residential only, By quad.

NW $450,000
SW $395,000
NE $293,550
SE $325,000

Then from "The Wizard" (Realtor):

Paul-doh! said
I don't know what the monthly medians for Bend residential are


Now, look at that quadrant data, and the June medians below $330K. That tells me the West has died. That's a right shoulder, right there.

If there was to be a Happy Face on the RE market here, it was supposed to happen now. Big volume, new SUV's, busy closing's, and all that good stuff. We do not have that. We have a financial sector that is increasingly becoming terrified of exactly the instruments that got us here, subprime, CMO's, and the like. Now it's OK when Grama loses money on this stuff, but we got Big Boys getting their asses fired over billion dollar bets gone bad in the mortgage backed department. It's not as bad as BendBust (or whoever) says, in that we are about to lose 40X Global GDP... but it is not good.

CMO (Collateralized Mortgage Obligations) are basically mutual funds, backed by mortgages, but there's a twist: The payout of interest is chopped, sliced, and diced, so that that there can be "manufactured" obligations from very high quality/low yield, to high risk/reward investments. Like all things, risk has it's price, and the prospect of making 12% by buying the high risk tranche is pretty attractive. But what they're finding is the default rate on the lowest grade tranches has been underestimated: Yup, when you lend money to people with nothing in the pot themselves, they don't really give a rat's ass about defaulting. And they did.

This is all well & good, but that Cletus tranche sort of acted like an insurance policy against upper tranches getting their ratings beaten down. Cuz once Cletus defaults, they start taking interest payments away from us "normals", then all of a sudden Alt-A that was supposed to be insulated from EVER losing money, looks like BBB. Woof, and BBB is worth WAY LESS than the AA we thought we were getting.

And when Merrill tried to liqudate their "collateral", they got what many Bendite homeowners are now getting: Few bids they would even consider, but what's worse they got ZERO bids on some of their mortgage pools. NADA.

Now, I'm not sure where they are, but the Big Boys are essentially saying there are homes out there with ZERO capacity to produce ANY INCOME. They do not want them at any price. That is scary. And I don't think it'll happen overnight, or even in a straight line, but Bend is the Quintessential Mega Bubble Town Of All Time. We're like many of the craptacular NASDAQ bubble stocks: We have not nearly the income to substantiate our current asset prices (homes, and RE). We are MASSIVELY overbuilding on all fronts. The access to capital is being turned off, at least for a generation of buyers. And we are building just laughable, idiotic projects. Every possible avenue to waste our resources is being explored to the fullest. Water parks, Frodo-village, condos piled up in every corner, and lately, even developers threatening to purposefully build UNWANTED projects if they don't get their way! Thanks Mountain Gate...

So here we are. Doesn't seem like catastrophe is imminent. But look back in 3-4 years. You will be awed by the complacency, even your own. This IS IT. This is the right shoulder of a breathtaking plunge that will carry us into the $200's. There will be a MASSIVE asset liquidation tsunami coming. At first it'll be garage sales and big SUV's. That'll be the signal, the receding waters that perplex & confuse people. Then will come wave upon wave of forced liquidation. There is no escaping the singular fact that we are a real live town (not Aspen, not Jackson Hole) with the economics to support home prices far closer to $199K, than $399K.

MARK MY WORDS: Let the devastation begin. The 4 Horseman of the Bend RE Apocalypse are coming. There is NO OTHER OPTION. We have already witnessed medians fall from $380K to $330K, and few are even mildly worried. Complacency is always in tremendous abundance before The Plunge. It actually makes the plunge possible. The complacent Discretionary Seller, becomes the Panicked Sell-At-All-Costs seller we'll see at the bottom, after they lose their job. We will see medians in the $200's before year end.

Monday, July 2, 2007

Bend Bubble Bust Index v1.0: 94.9

Addendum July 9, 2007:

I'm waiting for stats on Q2 to come out before my next post, which usually comes out on Monday. I have updated my google spreadsheet w/ Doug Farmers data, which is here.
Some data of note: Months of inventory stands at 14.02 months, there were 545 new listings in June - second highest ever, and inventory sold was down 47.41% YoY, the largest decline in Dougs data set. It'll take a real Tammy Faye job to pretty up this pig, so I'll post as soon as Q2 comes out!

A few things this week. First Doug Farmer will soon be out with his data at Realty Times. The only good news in May was prices held firm, but volume imploded. Months of inventory was within 1% or so of it's all time high... in May! We should cycle between 5 and 8 on the months inventory, and May should be near the low end. For comparison, May 2006 had 814 active listings (Bend res), and 244 sales or 3.33 months inventory. May of this year had 1,511 actives, and only 121 sales, or 12.5 months inventory, or a 275% increase. Not good. In Sept 2005, we got as low as 1.23 months inventory!

I have also watched in stunned awe at the number of new listings & price "changes" (about 95+% are reductions) on BendBB. After awhile, it's like TV violence; you get so used to it, it doesn't seem like a big deal. But it IS a big deal, I guaran-damn-tee you that. put inventory at 2,594 for Bend at the end of the month. C.O.R. put Bend residential at 1,621, which should correspond very closely to what David Foster will report in a week or so. Homes with acreage were 288 vs 260 last month. Doesn't sound like much, but the average & median on acreage property is almost twice the price of homes in town. Acreage property is where I predict we'll see the worst beatings in prices over the next few years.

The Bulletin has been largely dead for a few weeks. But on Thursday, they put out a piece that really burns my ass, "Affordable condos downtown?". Apparently the City of Bend gave a Redmond developer, Housing Works, a sweetheart deal on the land next to the parking garage amounting to a half mill, for the sole & specific purpose of building affordable apartments. That's the sole reason they got a break on the price. In the boondoggle of the decade, they went to the City & basically said that instead of renting apartments at $435 to $590/mo., they are taking 1/4th of the units condo. Monthly cost? Probably about $1,800/mo., or more than a triple. Bend City Councilors would obviously be outraged at such a bait-and-switch ripoff, right? After all, they haven't even broken ground, and they're breaking the deal? Let's hear what scathing remarks Councilor Linda Johnson had for these unscrupulous scumbags:

“That’s one of the reasons that I’m really supportive of this project because there simply isn’t a supply of affordable condominiums,” Councilor Linda Johnson said at the urban renewal board’s meeting June 20. “The fact that it’s a change from the original concept doesn’t trouble me at all.”

A lot of people write comments along the lines of, ""Hey, you're making up this whole 'Boss Hog' concept, like there is this horribly incestuous relationship between Bend real estate and City decision makers, and no such thing really exists. I mean, Come On!". OK, next time you want validation, just re-read Johnsons little comment. We are coming perilously close to subsidizing LOW INCOME HOUSING. BEM noted that the city is considering low/no interest loans to "spark" the construction industry here. Right. There is NO old-boy network throwing kickbacks to RE? Right! It will not be long before the city is building & buying overpriced, shoddily built crap, for the purpose of renting it out at massive losses. Go to Cabrini Green in Chicago to see how that works out. Take the Dan Ryan South out of the City and you'll see mile upon mile of burnt out abandoned low-income highrises. This is what Bend can turn into when RE interests become inextricably intertwined with City policy makers. And we're well on our way.

OK, on to the meat of the act. After looking at that CNN-Money survey of the most over & under valued cities in the U.S., I got to thinking about some sort of way to rank the speculative nature of individual towns. It's fairly difficult, as the data is often incorrect and the time periods do not correspond. For instance, you might find Bends median home price or population for a specific time period, but not find it for another town. This makes it hard to come up with a reliable index for measuring just how overblown some markets are with respect to others. Plus the actual ratios of data, and how they're "compiled" has to be a pretty subjective exercise. Even the CNN-Money survey is itself, pretty damn subjective.

All those caveats aside, I still thought it would be a good idea, if only to get a rough feeling for where Bend stands in relation to other RE markets around the country. So I chose the following cities for comparison:

Bend, Wichita, Naples FL, Dayton, and Charlotte.

Bend and Naples are at the higher end of the speculative rainbow, while Wichita is less so. Dayton & Charlotte are just middle-of-the-road cities that I more or less pulled out of the air. First of all, the stats I'll be using:

2006 Population:
Bend: 75,290
Wichita: 354,900
Naples: ~26,250
Dayton OH: 162,844
Charlotte NC: 584,053

I found conflicting info regard Naples population, with Wikipedia stating it had about 21,000 people as of 2000, and several sources saying that it had grown 25% from 2000 to 2006, so the figure I use is extrapolated, but should be fairly accurate (I hope).

Next, the median home prices:
Bend: $351,978
Wichita: $99,100
Naples: $383,300
Dayton OH: $119,500
Charlotte NC: $153,000

Next, median family income:
Bend: $47,775
Wichita: $42,651
Naples: $72,300
Dayton OH: $41,550
Charlotte NC: $46,119

Next, Median Gross Rent:
Bend: $833
Wichita: $593
Naples: $940
Dayton OH: $585
Charlotte NC: $732

Next: total number of homes (and bare land) for sale, per
Bend: 2,597 (962)
Wichita: 2,477 (303)
Naples: 12,402 (2,609)
Dayton OH: 5,816 (255)
Charlotte NC: 10,799 (551)

That is the raw data, in all it's flawed glory. Again, I had to estimate some of the numbers to "adjust" forward or backward a year, but I adjusted all the data points by the same amount when it was necessary.

Now comes more subjective thinking: Just what metrics should make up a "Bubble Index"? A few that come to mind are a lot of homes for sale given the population, very high mortgage to rent ratios, high amounts of local income going to mortgage payments, unusually high appreciation. Here's a list for some metro areas on Percent of income required to make mortgage payment on median home, ratio of mortgage to rent payments, price to income, and price to rent. These sound reasonable, so I'll use these, and I'm also going to throw in a few of my own: Number of homes for sale per 1,000 people, average appreciation during the "bubble years", and also the percent of raw land for sale compared to homes. I won't weight that last one much, but it is my opinion that bubbles culminate in huge amounts of land going up for sale.

OK, so the mortgage payment on a median home @ 7%, 30 yr.:
Bend: $2,341.72
Wichita: $659.31
Naples: $2,550.10
Dayton OH: $795.04
Charlotte NC: $1,017.91

Here we get to the nitty gritty, and I'm going to "normalize" the end data in the following way: The highest data point will be normalized to 100, and the low to 0 by taking each data point, subtracting the low, and dividing by the range between the high data point and the low. This is just so that each measurement can be normalized in a way that makes sense with all the other disparate types of data. May sound complicated, but you'll see it's pretty simple (it all boils down to percentiles).

First, % of income required to make mortgage payments (Bubble Index weighting: 20%):
Bend: ($28,100/$47,775) - 58.8%
Wichita: ($7,911.72/$42,651) - 18.5%
Naples: ($30,601.20/$72,300) - 42.3%
Dayton OH: ($9,540.48/$41,550) - 23%
Charlotte NC: ($12214.92/$46,119) - 26.5%

According to percentiles, we have: Bend 100%, Naples 59%, Charlotte 20%, Dayton 11% Wichita 0%.

In this area Bend is a big loser, being less affordable than even Naples, which is saved by having an enormously affluent population, such as average per capita income for males over $100K, and more millionaires per capita than any city in the US.

Next, ratio of mortgage to rent payments (Bubble Index weighting: 20%)
Bend: ($2,341.72/$833) - 2.8
Wichita: ($659.31/$593) -1.1
Naples: ($2,550.10/$940) - 2.7
Dayton OH: ($795.04/$585) - 1.4
Charlotte NC: ($1,017.91/$732) - 1.4

Percentiles: Bend 100%, Naples 94%, Dayton 18%, Charlotte 18%, Wichita 0%.

Again, not surprising that Bend and Naples are very unaffordable when comparing buy vs rent.

Next, home prices to income (Bubble Index weighting: 20%)
Bend: ($351,978/$47,775) - 7.37
Wichita: ($99,100/$42,651) - 2.32
Naples: ($383,300/$72,300) - 5.3
Dayton OH: ($119,500/$41,550) - 2.9
Charlotte NC: ($153,000/$46,119) - 3.3

Percentiles: Bend 100%, Naples 59%, Charlotte 19%, Dayton 11%, Wichita 0%.

Again Bend ranks poorly when compared to area incomes.

Next, home prices to rent (Bubble Index weighting 15%)
Bend: ($351,978/$833) - 422.5 months
Wichita: ($99,100/$593) - 167.1 months
Naples: ($383,300/$940) - 407.8 months
Dayton OH: ($119,500/$585) - 204.3
Charlotte NC: ($153,000/$732) - 209.0 months

Percentiles: Bend 100%, Naples 94%, Charlotte 16%, Dayton 15%, Wichita 0%.

Again, no surprise to Bendites that renting is a screaming deal compared to buying.

Next, we'll look at number of homes for sale per 1,000 people (Bubble Index weighting 10%)
Bend: (2,597/75.29) - 34.5
Wichita (2,477/354.9) - 7
Naples: (12,402/26.25) - 472.5
Dayton OH: (5,816/162.844) - 35.7
Charlotte NC: (10,799/584.053) - 18.5

Percentiles: Naples 100%, Dayton 6%. Bend 6%, Charlotte 2%, Wichita 0%

The number of homes for sale in Naples is just incredible! Almost 1 house for sale for every 2 people!

Next, the average of the highest & lowest YoY price appreciation, measured by OFHEO - Q1 2004 thru Q4 2006 (Bubble Index weighting 10%)
Bend: (+6.47%, +36.39%) - +21.43%
Wichita: (+2.6%, +4.49%) - +3.55%
Naples: (+7.29%, +40.31%) - +23.8%
Dayton OH: (+1.17%, +4.41%) - +2.8%
Charlotte NC: (+2.15%, +8.86%) - +5.51%

Percentiles: Naples 100%, Bend 89%, Charlotte 13%, Wichita 4%, Dayton 0%.

Finally, we'll cap it off with the percentage of land for sale vs homes (Bubble Index weighting 5%)
Bend: (962/2,597) - 37%
Wichita: (303/2,477) - 12%
Naples: (2,609/12,402) - 21%
Dayton OH: (255/5816) - 4%
Charlotte NC: (551/10,799) - 5%

Percentiles: Bend 100%, Naples 52%, Wichita 24%, Charlotte 3%, Dayton 0%.

FINALLY! We boil it down to brass tacks and get our Bubble Index numbers for each of these 5 cities:

BEND: 94.9%
NAPLES: 79.1%
DAYTON: 10.85%

If we then normalize these figures into percentiles, we get:

Bend: 100%
Naples: 83%
Charlotte: 15%
Dayton: 10%
Wichita: 0%

I think it can be said with little prejudice that Bend is not just expensive, it is almost certainly the most overpriced home market in the U.S. with respect to fundamentals. Naples has higher prices, but Naples natives are an incredibly affluent lot, with hot & cold running millionaires.

Some people will get their panties in a bunch over each & every little thing with respect to how items on this list were measured & constructed. That's OK, it's meant as an exercise, not hyper-sharpened pencil-point accuracy, something that is basically impossible anyway. My own belief if that Dayton & Charlotte are representative of the "average" U.S. city, and you can see they have score WELL BELOW Bend. They are far more affordable, experienced less appreciation, and have local incomes that will probably support local home prices. In fact, Charlotte appreciation is higher in recent quarters than it was during the "Bubble Years".

My prediction is that Bend will simply revert to "normal". The problem with that is "normal" is down about 40-50% from here. There is no possible way Bend prices can stay levitated so far beyond fundamentals. Just can't happen. For Bend to stay where it is, incomes would have to explode higher, more than double. Not going to happen...

Look at the ratios of mortgage to rent payments, or prices to income: We're twice what other cities are, or more. It takes almost 60% of income to make the principal & interest payment ONLY on a median home mortgage in Bend! There's NOTHING LEFT after that! No food, no toys, no fun. Bend is a town of people who should be having fun, and came here for fun, but they are mortgage slaves. And many will find when they've had enough, that when it comes time to sell, they will either face paying much of what they've earned working in Bend to get out of their house, or foreclosure.

If you are thinking of buying, think again: Bend is so far out of touch with reality, that it'd take an unparalleled implosion to even bring us with in eyeshot of normalcy. I don't think Bend is going down because I want it to, that's just a weird idea. I think it's going down because I don't see anyway it can stay up.