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. Realtor.com 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 Realtor.com:
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 HousingTracker.net: 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%
CHARLOTTE: 15.45%
DAYTON: 10.85%
WICHITA: 1.6%

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.