The Collapse of Bend Has Begun

I don't know if anyone else got this feeling, but the din on the Bearish Buzz Meter seemed to redline for most of the week. There just seemed to be a non-stop cacophony of intense negative sentiment towards housing primarily, but the masses are starting to grasp the effects that wiping out trillions in Bubble wealth is going to have on the rest of the economy.

Starting locally, you can see the deleterious effects overblown housing prices are having on industry. After engaging in what are almost certainly under-the-table dealings with Columbia Air higher-ups, Cessna stated that it would keep a dramatically scaled down Columbia in Bend, only if it's rent was cut in half.

Although they probably will at some point, Cessna doesn't really address any other cost as a contingent reason for keeping Columbia, other than real estate costs. The real estate costs aren't just some small, insignificant side issue here: It's the primary driver of Cessna's decision. Columbia is just the tip of the iceberg.

Industry is evacuating Bend like there's an Ebola epidemic here. And many companies, Cessna included, probably are thinking that price per sq ft on their rented space is their primary real estate cost driver, and it's really not. The high cost of residential homes is indirectly borne by every company here. How do you think rents & mortgages get paid?

That $1 million per week in operating losses quoted by Columbia officials is going to pay for, among many other things, employees & their real estate needs. In fact real estate costs are among the highest costs for local working Bendites (some of the highest in the U.S.), and therefore one of the highest costs for local businesses.

I've said this till I'm blue in the face, but the inflation caused by high home (and commercial RE) prices is pervasive; it'll invade everywhere. Columbia Air, Bend Tarp & Liner, Oregon Woodworking, and Seaswirl are just the tip of the iceberg. These companies are either folding or moving almost entirely due to real estate costs & it's after effects.

Companies are UNABLE to hire employees here. Why? Because no one can live here on peanuts anymore. "Poverty with a view" used to be doable here. You could live dead simple, go agrarian, or even as BendBust has suggested, go into "hunter/gatherer" mode to make ends meet. "Poverty with a view" just is impossible nowadays... maybe in Burns, but not here.

So what companies are really faced with is this: Can I make the mortgage payments on the typical Bend home, plus all the other necessities of life for each of my employees to produce the goods/services my company makes at a competitive price? And the answer is becoming an overwhelming "No".

The economics of staying & working in Bend is fast becoming an untenable proposition for thousands of people, because it is completely impossible for the companies located here. I think I read that the typical Bend family needs to make something like $25/hr for each working adult to survive here. 98% of all Bend companies cannot pay a wage anywhere close to that. Somethings gotta give.

The shrill din of bearishness recently has become almost unbearable. We're almost certainly in a recession, and it is almost certainly due primarily to deflating home prices. Some people wonder why I would even have to affirm such an obvious fact... but read some of the comments, there are still a decent sized contingent of True Believers. So we are being pushed into recession because ALL home prices are declining (not just subprime), and homes are the primary "container" of wealth in this country.

And the U.S. home market has experienced a faint shadow of what Bend has gone through in the past 5 years. We literally hit the Housing Bubble Lottery Jackpot. Probably not a single other town in the U.S. that has done as well as Bend. Probably less that 1 in a 1,000 that have done as well as Bend in the past 20 years; we went from half the national median to almost double at the dead white-hot top last year.

So what happens here? Everyone else is worried about a nasty recession due to an appreciation slump that should make the average Bendite laugh. I don't think people will be laughing long. The contagion of RE inflation will reach into every nook & cranny in our local economy, even more so than it has already. Combine that with a complete cessation of lending on what has essentially been a proxy for Americans income: their housing ATM.

And the bearishness became almost intolerable. Look at last weeks comment count: Over 300 comments, many of the grave-dancing variety. Some really severe beating on those who have used local rags as their own PR/Marketing tabloids for spreading rampant misinformation. The local media & the local RE machine are complicit in pumping the Bend Dream to levels that are simply unsustainable. And this blog has take more than it's share a swipes at them for it, and most deservedly so. In fact, I consider the uncovering of blatant lies by local media as being one of the primary goals of this blog.

So Phase I, "The Recognition of The Bubble & All It's Terrible Consequences" seems to be happening, and with some decidedly furious intensity in the past week. And I'll admit that on a personal level, I get a bit of "validation satisfaction" from that. But then I start thinking about what's really on the other side of this thing. And not just from a selfish perspective of, "Hey, it'll be great! I'll finally be able to afford to buy that house I've always wanted at a rock-bottom price! Cool!". But from a real all-inclusive viewpoint: From that perspective, I'm actually pretty sure I WON'T be able to buy that house I've always wanted to because of the vicious after-effects of what the RE inflation has wrought; a completely destroyed industrial sector and a gutted business base.

There won't be anything here for me (and many, MANY others) when housing gets to very attractive levels. If you can buy for ALL CASH and have a reliable income stream that is 100% independent of the local economy, then you will be one of the rare individuals who will be able to capitalize on the Implosion of Bend. There is the occasional commenter who seems to intimate that they have a steady local job at attractive wages, plenty of savings, and a cash cushion, and are therefore pretty much immune to a local downturn. But I really start to wonder how secure ANY job is around here. I know people who moved to Bend to work at Columbia, and until recently fit this bill to a T. But they are now fully aware that they may lose their job and have to relocate. And they also know they are underwater on their home by $100K, which is where a lot of their "savings" was. They're not broke... but they are in a definite crunch, because they MUST sell their home in order to keep their income stream alive.

If the rest of the country goes into recession, Bend will almost certainly experience something akin to a depression. Even Bill Valentine said that since Bend went up 50% more than the rest of the country (only 50%?), it'll experience a commensurate decline. And the collapse of Bend, while late in coming, has begun. And we are starting to see it manifest itself in a number of ways.

First, Becky Breeze, a much maligned target for RE fibbery, has not sold nearly the unit volume at The Plaza that she claims. Whether it's "most", "about 25%", or whatever she is claiming now, it seems that only 2-3 Plaza condos have sold. Why would she lie? And lie about information that is publicly available? I know she was long schooled at the Community College of Creating Perceived Shortages, as were most area Realtors, but I wonder if she (and others) have to make such claims to assuage the fears of those they are indebted to.

Becky & Tom seem to be in a World of hurt with The Plaza. It is just a terribly conceived idea. It's the sort of thing that could only work in a real urban center, where there truly exist intractable land shortages. And at the time they were in the planning stages, I'm sure it seemed like Bends "land shortage" would only become more acute. So they went forward, completely oblivious to the fact that high land prices "produced" land out of thin air, all over Bend. Subdividing pretty much became the only game in town at the tail end of the Bend Bubble.

But peruse craigslist, or the Bulletin and you will find we are AWASH IN LAND. It's everywhere (One of the main "suppliers" is chameleon "Destination Resorts".) One of the "unintended side effects" of RE inflation; where once there was none, there is a tsunami. Every inch of Measure 37 approved scrub, is getting chopped into innumerable lots. Becky's wonderful concept both made possible AND destroyed by the RE Bubble. And have no illusions, this same fate awaits virtually EVERY SINGLE LARGE RE PROJECT IN CENTRAL OREGON. Lafky's Mercato? Dead. Redmond Water Park? Dead. Yarrow? Dead. IronHorse? Dead. Remington Ranch? Dead. These, all the other chameleon subdiv's, along with Breeze's Plaza will stand as a near permanent testament to the lunacy of the past 3-4 years. For the want of just a few short years of hyper-speculation, this town will be lost.

A commenter from many moons back said they saw a plaque on Arnie Swarens (long-time Sisters Realtor) desk that said something along the lines of, "God, give me the knowledge to not waste the next real estate bubble". Well, it's over. If you've still got skin in the game, you've overstayed and will probably lose everything you made, if not more. If you're out, well Congrats.

But if I were you, I would take my chips and go. The other side of this Mega-Bubble is not likely to be pretty. There will be little if anything to retain business, and the only thing that'll remain is outrageously overpriced vanity businesses -- which will dissipate your winnings far faster than somewhere boring, but less expensive. And they sure as hell ain't going to reflate the Bend RE souffle.

This place is utterly doomed. We've got mind-boggling incompetence in local government, the primary economic engine of the local economy collapsing, the collateral damage of RE inflation slaughtering almost everything else, local media that has no compunction about lying for the sole purpose of frisking every last nickel from locals or immigrants for the benefit of an elite few. All these parties seem bent on absolutely destroying this place.

And that's what has got Paul-doh a little depressed this week. Stock market falling apart, local builders going wholesale with imploding subdiv's, Timmy posting an ever increasing tide of preforeclosure announcements, BendBB posting listing price cuts that are truly stupefying (look at those bad boys! The single digit percent cut is becoming a rarity..), Secretary Paulson stating flat out that housing presents the biggest challenge to the US economy, and a host of other events that you'd think would make a Bearish Bubble Prognosticator positively giddy.

But no. Because I'm starting to get a glimpse of the other side. The Ultimate Product of this Experience can be summed up in 2 words: Human Misery. People getting fired, people losing their homes, peoples hopes & dreams going up in smoke. And for every Becky Breeze or Aaron Lafky whose Super Project ends in a quiet demise, at least 100 "normals", just ordinary people doing ordinary jobs, will also succumb to the Bend Mega Bubble.

And all the "validation" in the World about being dead ass right, will really never compensate for how shitty that makes me feel.