Saturday, June 7, 2008

Bend Oregon: Misery Reaches New Highs

Well now.

On Friday we had yet another pang of SOBRIETY regarding the RE hangover. The misery index, jumped an astounding .5% on Friday, when unemployment exploded nationally, from 5% to 5.5%, FAR higher than anyone expected.

So with inflation still at (an incredibly understated) 3.9%, we hit 9.4% on the misery index, an indicator wikipedia syas, "Some economists posit that the components of the Misery Index drive the crime rate to a degree. They have found that the Misery Index and the Crime Rate correlate strongly and that the Misery Index seems to lead the Crime Rate by a year or so."

This may answer the question I've heard in some corners, "Is it just me, or is there a lot more crime stories on the local news recently"? Yes.

If you go to miseryindex.us, and look at the index by month, you see that the current readings are the highest for G Dub's tenure, except for Sept 2005, when it had a quick spike to 9.8%. Clinton, after a rocky inheritable situation from G Dub's Dad, never really even came close.

This is actually a very interesting graph, especially the monthly version. In a brief period in the mid 1950's, there was no inflation, and this reading was composed only of a very low unemployment rate of 3.5%, or so.

Flash forward to the Ford/Carter years when things got especially terrible, and the index maxed out near 22%.

I've heard some economists state that inflation is not really that bad, because it is accompanied by growth, and hence inflation is a sign of a robust economy.

This is, of course, ridiculous.

Inflation is just a measure of how fast a fixed quantity of money is losing value.

If your paycheck increases 10%, and inflation increases 15%, you are worse off.

These economists err on this idea, because many times inflation IS accompanied by similarly large growth rates. China is a great current day example. They have had very robust growth & inflation rates recently, and they are probably the most vital economy in the World.

But inflation can also be accompanied by contraction, as can be easily seen by these misery index charts. The 1970's & early 80's are clear illustrations of this: Very high unemployment & very high devaluation of the currency.

This is the Worst of All Worlds: Stagflation.

And this is where I think Future Bend will differ from the Bend of Olde.

Bend used to be chronically Undervalued, because of the extreme cyclicality of the local economy. This place boomed & busted, everyone knew it, and so people had to play a middle ground when making home purchases. You priced for the bottom of the cycle, cuz everyone knew it was coming.

But then things began riding a Long Wave up, for about the past 3 decades. Bend went from chronically & deeply undervalued, to wildly overvalued. The Long Wave has finally crested, and we are going to again ride things back down, where Terribly Cyclical Bend reasserts itself.

But at least when things were terrible employment-wise here, they were OK inflation-wise.

Finding a job was hell, but homes were dirt cheap. Things "evened out". We had lots of one kind of misery, but almost none of the other. Poverty. With a View... and Cheap Houses.

Now? Now, we are returning to Poverty. And we do have a View. But we also have almost rampant, out of control inflation. Our home prices are falling, true, but you DON'T pay the value of the house each month, you pay THE MORTGAGE. And if you've bought sometime from 2004-2008, you've essentially "locked in" an incredibly high inflation rate via your mortgage. And we have nationwide inflation exploding higher.

Friday, oil prices spiked higher in the largest one-day price advance ever recorded, up almost $12/bbl.

So we are notching FAR higher unemployment rates, 6.8% at last count. And home values are imploding, which is probably a far better indicator of a large number of independent contractor wages around here than anything. And national inflation is on the verge of a spiral higher.

This all converges to give Bend probably one of the highest Misery Indexes in this country, by far.

We don't make much money. We have a far higher unemployment rate than the nationwide averages. Our local economy is cyclical in the extreme. Our "locked in" inflation has eclipsed the entire country for the largest purchase item most people will make in their lives.

The misery index for Bend continues to climb, and will push this area into the deepest economic depression ever witnessed.

Now, I want to do some "reprints" of some blogs of interest. First Dunc:

Saturday, June 7, 2008

Worm Ouroboros

Sometimes, something is so glaringly obvious that you ignore it. It's right in your face, you know there is something wrong, but you're distracted by other wilder, crazier things.

I've felt that we were building too many houses in Bend for several years; actually, I think I was saying that even before the actual bubble. My concern was that Bend didn't have an underlying industry, or economic base, to justify all the housing.

I didn't think minimum wage tourism jobs could pay for them, and there were only so many amenity rich transplants we were likely to convince to move here. I'm not even sure I was all that conscious that it was a national problem, I just could see what was obvious here in Bend.


I never felt that retired people were big spenders. The number of stores in Bend seems wildly excessive. It seemed that an awful lot of the newcomers were involved in real estate or building or support industries. More and more, it appeared to me that growth was the industry of Bend, and the industry of Bend was growth, a big Ouroboros Worm eating it's tail.


I wasn't really very aware of the credit/liquidity problem until it burst. I don't remember too many people talking about it, or reading very many stories about it.
In hindsight, that too was obvious. I'd heard plenty of troubling stories over the years about people borrowing money that I didn't think they could afford to pay back.

But subprime and Alt loans and other guaranteed to make you 'house poor' schemes have been around for years.
Was it the cause or the effect of too many houses? Whatever, it was the precipitating factor in bursting the bubble. The curtain was drawn back, and the wizard behind the screen was naked as a jaybird. I've begun to see the whole housing thing as a true pyramid scheme. At the top, the fewest and the biggest, and probably the ones who scammed most of the money, were the big financial firms; the Bear, Stearns, the Lehman's.

Right underneath of them, a bit more numerous, were the big banks. Both of these found loopholes in the relaxed regulations to bundle problematic schemes into 'investments.'
Next level under, more numerous, were the national builders, the national chains, and the big box developments. Again, I've felt too many commercial buildings were being built, especially locally. All done, in my opinion, in money borrowed from the future. A vast pool of liquidity that seemed 'free'; but will have to be paid. Just below them, the regional banks, builders, and mortgage companies; the wannabes and the followers.

Under them, in much bigger numbers, a crazy number of local mortgage and banks and other financial services. And an even crazier number of local builders and construction firms.
Working for them, a vast pool of real estate agents, and construction workers, and mortgage agents, and clerks working at stores supplying the bubble, and so on. And finally, in at the base, the home buyers themselves. Prime, alt-loans, and subprime.

In most pyramid schemes, the top walks off with all the money. Whats unusual this time is that the problem first appeared at the top. The level of greed and graft and stupidity was so massive, that once we saw the wizard's big, red, hairy butt, we wanted our money back. After the collapse of Bear, Stearns, the government rushed to reassure us that they are buying the other financial services some fine pants. Don't worry, we'll take care of it!


But, as usual in a pyramid scheme, the biggest number at the bottom are bearing most of the brunt.
Do you see the part of the pyramid that hasn't really been talked about much? Except for a few high profile national builders, it seems to me that most of the developers and big builders, both regionally and locally, haven't really been punished yet.

Even when a company seems to run into problems, someone else comes along and bails them out. Randy Sebastian is given another lease on life, albeit with his nuts firmly clamped.
It has been commented in passing, that building just seems to keep going on, despite the glut of housing and the lending problems. Yesterday, the Wall Street Journal had an article that partly explained what's been going on:

In "Real-Estate Woes of Banks Mount," Michael Corkery, Jonathan Karp and Damian Paletta of the Wall Street Journal: (
Italics are mine, to highlight the role of the developers.) "Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums. "Until now, most of the damage to banks from the housing crisis has come from homeowners defaulting on their mortgages. But amid a dismal spring sales season for new homes, loans to home and condo builders are looking increasingly shaky..."
"...banks that aren't diversified, or those with high exposures to residential construction and development, are of particular concern..." "Home builders are falling behind on loan payments, and the value of the land and housing developments that serve as loan collateral is plummeting." ""We believe this period of procrastination is nearly over," says Ivy Zelman, chief executive of Zelman & Associates.

"The prospect of a new wave of losses worries federal regulators, given the large proportion of loans to housing developers held by many banks and thrifts. The problems are worse at small banks that can't easily absorb losses, and at banks with big exposure in states hit hard by the housing crisis..." 'Real-estate lenders had been hoping for a decent spring sales season for new homes, which would have helped builders stay current on their loans. But the selling season has been a bust.' "..."Finally the banks are capitulating and saying, 'Let's mark to market and flush this all out.' The market is going to get worse. We don't want to hold on to this stuff."

For me, this is the final piece of the puzzle. It both explains why frenzied building continues by developers, and the response of the banks. It finally let me see the whole thing as the pyramid scheme I detailed above. It also appears to me that problems are starting to ricochet through the different levels -- the government steps in to try to firm up one problem, but it breaks out on another level and so on. Which mean, it probably can't be controlled.


I'd thought most of the bad news would be put on the back burner during the spring and summer, and the accounting would take place in the fall. Now, I'm wondering if even locally, they'll be able to hold off taking the developers out of play.
If you don't mind, I'd like to repeat one of the above quoted paragraphs, in Capital Letters and Italicized.

"REAL-ESTATE LENDERS HAD BEEN HOPING FOR A DECENT SPRING SALES SEASON FOR NEW HOMES, WHICH WOULD HAVE HELPED BUILDERS STAY CURRENT ON THEIR LOANS. BUT THE SELLING SEASON HAS BEEN A BUST."


That says it all. There is no way to "gracefully" unwind a Ponzi Scheme (ie Bubble). Our government powers that be, clear down to local City Councilors, media outlet editors, and housing associations will slowly but surely learn this.

What I find baffling is that the markets seem unable to comprehend that we are in uncharted territory. Unemployment just exploded higher, catch EVERYONE by surprise. Well, almost everyone. I wasn't surprised by that, but I have been profoundly baffled as to why so few seem able to see through to the ultimate effects of this catastrophe. I still find this baffling.

Usually the markets discount things to the befuddlement of almost everyone, then The Event comes to light. The markets are an almost mysteriously good discounter of the future. Not in this case. They seem like they are years behind. Again, baffling.

Another Best Of Bends Blogs for the week was from Jesse Felders My Back Pages:

Can we finally put an end to the "it's different here" mantra?

Now that the news outlets have covered the latest National City Housing Valuation Analysis, I think it's time to clarify an important point of the study. Today's coverage of the study in the Bend Bulletin suggests its conclusion, that Bend is one of the most overvalued markets in the country, may be flawed:
Dave Woodland, the vice president and regional manager of Signet Mortgage in Bend, urged caution in drawing too much from the national survey, which doesn’t capture the true income of the area, he said.

“They look at Bend and say it’s overpriced based on reported compensation levels,” Woodland said. “The reason Bend is so popular is that it’s a great retirement area, and there are a base of individuals who are independently wealthy, self-employed or retired.”
This is the most common rebuttal of the study that I've heard. However, those suggesting that the attractiveness of Bend is not factored in have not examined the study's methodology. Actually, for the purposes of estimating "fair value" the study gives Bend a premium on par with similar areas such as Missoula, Montana; Flagstaff, Arizona and Santa Fe, New Mexico. In fact, Bend's premium is greater than that attributed to Boulder, Colorado; Las Vegas, Nevada and Naples, Florida and equal to that of ultra-wealthy Honolulu, Hawaii and San Jose, California. Take a look; The methodology is there for everyone to see.

I agree that Bend is a wonderful place to live but it is no better than these other areas. And it's far from the utopic wonderland the housing bulls would have us believe.
So can we finally put an end to the "it's different here" mantra? For one, it's not valid. And two, it sounds way too much like the "it's different this time" mantra of the tech stock bulls of 2000.

Again, just a great piece. Many people, including yours truly, do not read the fine print on voluminous reports like this, and the media gets a pass when they spout their obligatory bullshit about Quality Of Life, and how that one factor will always justify any and all Bend home prices, no matter how high.

Also note how he points out that CA & FL, yesteryears Marquee Centers of Overvaluation, have returned to some semblance of normalcy, while Bend remains wildly overvalued. THIS is further proof that Bend lags the trends of the country as a whole, significantly. Everyone else has bled off significant portions of their overvaluation. Not us.

Good Job Jesse for spotting this one refuting point of fact that has eluded every media outlet in Bend.

Here is just a very good piece from The NY Times:

About 1 in 11 Mortgageholders Face Loan Problems

About 1 in 11 American mortgages were past due or in foreclosure at the end of March, according to a report released on Thursday, a figure that is rising fast as home prices fall and the job market weakens.

The first three months of 2008 marked the worst quarter for American homeowners in nearly three decades, according to the report, issued by the Mortgage Bankers Association. The rate of new foreclosures and past-due payments surged to their highest level since 1979, when the group first started collecting the data.

All told, about 8.8 percent of home loans were past due or in foreclosure, or about 4.8 million loans. That is up from 7.9 percent at the end of December. (About a third of American homeowners do not have mortgages.)

Delinquency and foreclosure rates started rising from historically low levels in late 2006 and have picked up speed in nearly every quarter since. Analysts say at first past due mortgages represented mostly high-risk loans made to borrowers with blemished, or subprime, credit. Now, as the economy has weakened and home prices have fallen in many parts of the country, homeowners with better loans are also falling behind.

Economists worry that a big loss of jobs in the coming months could drive default rates much higher. The Labor Department will release its report on the job market for May on Friday.

“It’s not going to help the housing market out at all if you have a loss of jobs,” said John Lonski, chief economist at Moody’s Investors Service. “When employment’s contracting, that makes it all the more difficult to sell your home at an attractive price.”

Though defaults are rising in many places, it is worst in areas where home prices soared in recent years or where the local economy is now struggling.

California and Florida, for instance, accounted for nearly a third of all mortgages that were in foreclosure or 90 days delinquent. Home prices, construction and mortgage lending were particularly ebullient in those states earlier this decade. The housing industry accounted for a bigger portion of their economies during the boom.

“The problems in California and Florida are extraordinary, and they are the main drivers of the national trend,” said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.

Midwestern states like Michigan and Ohio, where home prices did not soar, are suffering mostly from the loss of manufacturing jobs and high-risk loans. Default rates in those states appear to have leveled off in the last few months, which may be an early hopeful sign.

About 9.7 percent of loans in five Midwestern states were past due or in foreclosure in the first quarter, down from 10.5 in the fourth quarter.

“This decade has been brutal on the industrial economies of the United States,” said Michael D. Youngblood, a mortgage analyst at Friedman, Billings, Ramsey. But “the rate of labor market deterioration in these depressed cities is significantly slowing.”

Michigan, Indiana and Ohio are still among the five states with the highest default rates. The other two states in that list are Florida and Mississippi.

Defaults are highest for adjustable-rate mortgages — loans that promised a low, fixed-interest rate for the first few years. But people who took out such mortgages are falling behind even before those loans reset to a higher adjustable rate. Analysts say that reflects the fact that those mortgages were popular among investors, buyers who made small or no down payments, and those who did not provide proof of their incomes.

Falling home prices are also contributing greatly to foreclosures. Homeowners who owe more on their loan than their homes are worth are more likely to default if they encounter financial distress, said Robert Van Order, an adjunct finance professor at the University of Michigan.

In past housing downturns like the one in the early 1990s, he said, housing prices did not fall nationwide and even in local markets they fell much more slowly. So far, home prices have fallen about 16 percent from their peak in the summer of 2006, according to the Standard & Poor’s/Case-Shiller index. Economists at Lehman Brothers expect the decline to bottom at 25 percent.

“What that means now is people don’t have that equity cushion as they get into trouble,” said Mr. Van Order, who was once chief economist at Freddie Mac. “The incentive to beg, borrow and steal is not there.”

By many measures the job market is not falling apart; the unemployment rate was 5 percent in April. But these are challenging times even for those who have not lost jobs with gas prices at $4 a gallon, economists said.

“Wage increases are not keeping pace with inflation,” said Bernard Baumohl, managing director of the Economic Outlook Group. “That really puts a lot of pressure on households to make some very serious financial decisions.”

The surge in defaults has been challenging for mortgage servicing companies, which find it hard to keep up with the growing backlog of loans awaiting foreclosure, analysts say.

Some mortgage servicing firms appear to be holding off because lawmakers in Congress are talking about a plan to refinance up to $300 billion in loans using the Federal Housing Administration, Mr. Youngblood said. The discussions are “giving servicers hope of a better solution for many borrowers,” he said.

In states like California and Florida where they have huge inventories of repossessed homes, some companies are starting to move a little faster by auctioning off properties, Mr. Youngblood and others say. In some markets like Las Vegas about half the homes sold in recent months had been in foreclosure.

Dean Williams, chief executive of the auction firm Williams & Williams, said mortgage companies are most eager to hire his firm in markets that have a “rapidly and constantly increasing pile up” of homes.

Note that since this piece was printed, unemployment is up to 5.5%. Have I mentioned that?

Notice that Americans in trouble now looks to be near 11%. Virtually no one had trouble paying mortgages 2 years ago. Why?

Because, as was mentioned by BEM in the comments, HELOC's were used as "income" for many years. And when home values are increasing, homes in some cases, sort of pay for themselves. HELOC it up every couple of years & you pretty much live for free in a house.

Now it's The Dark Side of this Ponzi Scheme. It still seems incomprehensible how bad it can & will get in a place like Bend, where incomes are so overwhelmingly tied to an imploding industry that'll make the timber bust look positively glorious.

Remember: See how bad it is nationwide? We are 18 months behind, and beta 5. Multiple whatever happens nationwide by 5 or a glimpse of Future Bend.

And possibly the most gloomy post of the week was by Cheri Smith, a local Realtor with the appropriately named "Buy In Bend" blog:

I have to admit I was disappointed to see that there was virtually no change in the number of home sales from April to May. And since I’m busy and not feeling very witty, I’ll leave it at that.


Active Pending Sold
May 2132 193 115
April 2003 201 102
March 2009 194 82
February 1867 116 62

Wow. You can FEEL the despondent resignation in this womans tone.

You can also catch some VERY "realistic" vibes from Realty Times entries:

Fran McCormack: "Prices have turned sharply downwards. The average price of a single family residents is running around 475K. If you are an investor the Short Sale market is a place to pick up rental property or buildable land."

Debbie Hood: "
We are still in the midst of a downward market correction, with Sellers adjusting their expectations from 2005 home prices."

Bev Sherrer: "Bend Oregon is a buyers market, interest rates are down and the inventory is up."

How about that Bev Sherrer? That's her entire entry, no mincing words, she's just fed up, incapable of an entry more than a few clipped words.

Go to Realty Times and you can get a taste for what it's like when an entire community of people are trying to talk themselves out of suicide.

And what would a weekly blog entry be with a self-administered kick in my crotch?

From Buster:

My humble opinion, is that this blog is a collective representation of Bend in decline, of intellectual laziness, This blog is Bend. Add insult to injury 99% of the folks on this blog are self-defeating renter losers.

You can't get more Bend than this group.
You got the 'pussy' and his gorilla wife at the bike shop, this is what this blog is all about, middle age guys camping on their computer while their wives SELL in order to pay the bills. One day I went in to the Pussy's bike shop to find a part, as its near my house.

The first word was "Can I HELP YOU", this women was a white version of Grace Jones, a real man-hater. I quickly did a 180, and announced that I had a senior moment.
Bitch Slapping this group is like stepping on a newborn litter of critters, what's the fucking point?

Bend is fucked, I think all of us know, and it will be years before the toilet bowl flushes the detritus. The people on this blog 100% represent the new-bend, which is why they constantly call each other cali-Ho's, because they are.
It will take years to flush the toilet. I have done a good job of educating during the past 1-1/2 years, I'm a contrarian, as duncan has said, what's the fucking point? This is what the bottom looks like.

The "humble opinion" part was pretty damn funny.

But aside from that, you just really have to wonder about the motivations for Good 'Ol Buster. He supposedly owns rental homes which encapsulate most of his wealth, but want RE to implode. Why? He hates everyone here, but asserts that he'll never leave.

Plus he admits freely over & over that "Bend is fucked", and yet he says he abandoned this blog because he has outlined, along with BEM, ways to "fix" Bend. I've also outlined what I thought would fix Bend, but that was a long time ago, and I think it's too late.

Anther area where he & I seem to differ is the Ultimate Path that Bend will take. My own "humble opinion" is that local businesses are slowly but surely being crushed out of the Center. The center of Bend is being avidly turned into wildly overpriced commercial space, most of which is becoming vacant on Opening Day, even with signed tenants, who are defaulting on their leases.

The standard Bend business cannot survive at these lease rates. That's it.

So who does fill the space? Is it filled at all?

I do think we'll hit some eye-popping vacancy rates here in the next few years, but I'm afraid that we'll remain on corporate radars as a place to plop down a franchise. Sonic has just plotzed out the latest soulless edifice to much fanfare.

I visited Sonic this past week, and was left profoundly confused as to why ANYONE would line up to eat there. Not bad. Just wildly expensive & totally pedestrian food. I may never go again. Dandy's is FAR, FAR better. Greasy as hell. But way better.

This is The Problem. Sonic comes in under a corporate spending umbrella, Dandy's goes out.

Yarg.

It's already happening. Look for A Wave of locally owned restaurants to go under in the next 1-2 years downtown. WAVES of them. Retailers too. Then, look to see what pops up in it's place. Might be 2-3 years to fill some spots, but some may fill quick. Is it local? Or is it some slimy ass slick bullshit imported turd?

I'm guessing there'll be more of the latter, and less of the former. THAT will drive people OUT, and they will go in search of The Next Bend.

170 comments:

IHateToBurstYourBubble said...

Comment from last week:

I have a question for duncan? where did you come from?I am a fith generation native oregonian your not a hippie that transplanted from cali and then act like a old timer are ya? And that is not a bad thing I would just like to know . You all think bend of the 80's was so horrible but what about eastern oregon thats where I am from it was always a depression there. you are a bunch of pussys making such a big deal out of hard times ? I grew up with hard times and oh by the way I am not poor and live in a nice home so fuck you.

Awesome. Goes from a question to Dunc, to some sort of inferiority-complex driven admonishment. Cool.

IHateToBurstYourBubble said...

Housing downturn is a boon for some renters

‘Shadow’ market thrives as investors can’t sell off houses, condos
The Associated Press
updated 3:33 p.m. PT, Wed., June. 4, 2008

NEW YORK - Renters may be the biggest winners in the current housing slump, especially in places like Florida, Las Vegas and Southern California, that have thousands of vacant for-sale and foreclosed homes and condos on the market.

Apartment vacancies are edging up in many areas of the country as frustrated sellers instead try to rent out their homes and condos in once red-hot housing markets. And that is making it harder for landlords to raise rents. In the toughest markets, apartment owners are even offering lease incentives to snag renters.

This "shadow market" of investor-owned homes and condos accounts for almost half of the rental stock, and attracts displaced homeowners more often than your typical apartment renter.

"What's different now is the degree of excess homes and condos being put on the rental market. The sheer volume is creating more competition for traditional rental markets," said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services, which analyzed the data for The Associated Press.

After staying relatively flat last year, apartment vacancies bumped up in the first quarter from the end of last year, the research showed. The vacancy rate is expected to rise by a half-percent this year to 6.1 percent as the market absorbs about 3.3 million more rental home and condo units.


Nadji also predicts rent growth nationwide will slow to 3.5 percent from 4.6 percent.

The national trend, however, belies what's happening in the country's most beleaguered housing markets. Areas that experienced explosive condo development and conversions of apartments into condos for sale are finding those units unloaded onto the rental market because developers can't sell them.

Sharp increases in vacancy rates plague most Florida markets where condo development was rampant. In Jacksonville, for example, rental vacancies spiked to more than 10 percent in the first quarter, up from 5.8 percent in the prior year. Orlando and Ft. Lauderdale had the next biggest gains in vacancies.

"As the sale activity for condos and single-family homes declined over the last 24 months, investors decided to rent them instead of trying to sell them at reduced prices," said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors Inc. in Miami.

Since the beginning of the year, the number of rentals on the Miami and Ft. Lauderdale markets combined has risen more than 11 percent to 10,000 from 9,000.

"Our rental activity is about three times what it was three years ago," Shuffield said. "Today, for the first time ever for the firm, we're renting more properties than we're selling."

In San Diego, single-family homes being placed on the rental market are hurting luxury apartment communities, said Rick Snyder, president of the California Apartment Association.

The new supply is preventing some landlords from increasing rents, and other are even being forced to offer freebies like one free month with a one-year lease or upgraded unit fixtures.

"People realize they're getting substantially more value than what they're spending on that rental," said Snyder, who is also president of apartment manager R.A. Snyder Properties Inc.

But there could be some unseen risks behind these bargain shadow rentals. Renters who got homes or condos on the cheap may find a sheriff knocking at the door with an eviction notice if their landlord fails to pay the mortgage.

"Some investors will take any dollar amount to have any cash flow," Nadji said, noting that the rent often only covers a portion of the mortgage payment. "We're seeing a lot of tenants being displaced when landlords get foreclosed upon."

In Southeast Florida, renters have taken notice and have begun to avoid those properties, said Susan Whitney with property management company Riverstone Residential Group in Boca Raton, Fla.

The shadow market battered the rental market in the last two years, Whitney said, as renters opted for investor-owned homes and condos, which helped to drive down rents in the area. But as news spread of tenants getting burned by delinquent landlords, renters returned to the traditional market.

"(They) have become more weary about investor homes and condos, and now concessions in the market have started to decrease," she said.

Meanwhile, renters in some of the costliest cities aren't getting any relief, to their dismay. Rents in pricey San Francisco surged 11.5 percent last year, while New York rents shot up 9 percent and rents in San Jose, Calif., climbed 8.7 percent, Marcus & Millichap said.

Elizabeth Pulido, an administrations manager at a New York hedge fund, recently signed a lease on a 600-square-foot one-bedroom apartment in Manhattan for $2,800 a month. Pulido, who moved from the Bay Area in California earlier this year, originally had hoped to pay only $1,500 per month.

"I quickly found out that you can't get anything decent in Manhattan for that. I think you can get a studio but it's basically a box really," the 31-year-old said. "If I go back to California, I could get double that for the same price and something nicer."

But if job losses continue to mount, rents even in the most robust markets could shrink while vacancies rise, Nadji said.

"Employment has the closest correlation to rental absorption," he said. "Demand for studios and one-bedrooms is weak, while we're starting to see more demand for multi-bedroom, multi-bathroom units because people are doubling or tripling up to save money."

IHateToBurstYourBubble said...

Don't believe the local BS that apartment buildings are having a great go, now that we have people abandoning their homes at warp seed in Bend.

Not true, at least not for long.

Each person needs some sort of aggregate number of sqft to live, and we have WAY TOO MUCH, whether owned or rented, whether apartment building, condo or home. We just have Way Too Much.

Same goes for commercial. Way too much & it'll take 10 years before we revert to normalcy. At least.

IHateToBurstYourBubble said...

Americans $1.7 trillion poorer

Americans' net worth falls for the second straight quarter as home and stock prices decline, but it may not hurt consumer spending, experts say.
By Tami Luhby, CNNMoney.com senior writer

Last Updated: June 5, 2008: 4:12 PM EDT

NEW YORK (CNNMoney.com) -- Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.

The first quarter's decline follows a $530 billion drop in wealth in the fourth quarter of 2007. Until then, net worth had been rising steadily since 2003, climbing nearly 31% over those five years. During the bear market of 2000 through 2002, household's net worth dropped 6.2%.
Spending more

The recent declines, however, may not affect consumer spending, said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months, particularly at the gas pump as fuel prices soared.

Americans "are spending everything in their wallet and borrowing more," Englund said. "But because the pump takes so much more of their dollars, they are buying fewer T-shirts."

Still, as people feel begin to feel poorer, the growth in consumer spending may slow, said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

"When wealth goes down, consumers will cut back some," he said. "There will be a drag on spending."

Household debt grew by 3.5% in the first quarter, down from 6.1% in the fourth quarter. The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%, less than half the pace of 2007. Consumer credit, which includes credit cards, rose at an annual rate of 5.75%, the same as the 2007 pace.

Thefact that consumers continue to borrow against their homes, even as they decline in value, shows how troubled Americans are.

"It signals how consumers are struggling to get cash," Hoyt said.

The Fed's report comes at a time of growing anxiety about the nation's economic health. Many economists believe the country is already in a recession, if not headed toward one.

In the first four months of the year, employers cut 260,000 jobs, and on Friday the government is expected to report an additional 60,000 losses in May. Gross domestic product rose at a sluggish annual rate of 0.9% in the first three months of the year, when adjusted for inflation.

Whether household wealth will be up or down at the close of 2008 depends more heavily on the stock market's performance than on housing values, since financial assets account for about two-thirds of net worth. Because the stock market has been rising in recent months, Englund is expecting a 6% gain in net worth for the second quarter.

As for the year?

"The jury is really still out," said Englund, adding that wealth could end up flat for 2008.

IHateToBurstYourBubble said...

Equity in Americans’ homes falls to historic low

Drops to 46.2 percent in first quarter — level not seen since end of WWII
The Associated Press
updated 4:08 p.m. PT, Thurs., June. 5, 2008

NEW YORK - The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

A homeowner’s equity is the market value of a property minus the mortgage debt. And homeowners’ percentage of equity has declined steadily even as home values surged during the housing boom due to a jump in cash-out refinancing, home equity loans and an increase in 100 percent financing.

Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.

At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.

But to put that number in perspective, one out of every three homeowners own their properties free and clear, with no mortgage at all.

Still, Zandi said, “For most, their home is their key asset. If they have no equity in their home, likely their net worth is negative too. Their entire balance sheet will be underwater.”

The report also showed that Americans’ total net worth dropped to $55.97 trillion in the first quarter from $57.67 trillion.

Zandi expects prices to fall 24 percent from peak to trough. Last week, Standard & Poor’s/Case-Shiller said its national home price index fell about 14 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.

Prices nationwide are at levels not seen since the third quarter of 2004.

Homeowners with no or negative equity are more likely to fall behind on their mortgage payments or, in frustration, mail the keys to the lender and walk away from their mortgages, a phenomenon more lenders are seeing. This will only increase foreclosures, which have been surging the last two years, and further exacerbate the housing downturn.

The Mortgage Bankers Association said Thursday the rate of new foreclosures and late payments in the first three months of this year were the highest on record going back to 1979.

Almost 1 percent of mortgages fell into foreclosure, surpassing the previous high of 0.83 percent in the last quarter of 2007. The percentage of Americans who have missed at least one mortgage payment jumped to 6.35 percent, up from 5.82 percent in the prior quarter.

Jay Brinkmann, the association’s vice president of research and economics, told The Associated Press he anticipates foreclosures and late payments to continue increasing in the months ahead as prices keep dropping as expected.

IHateToBurstYourBubble said...

Northern CA… From Subprime to Negative Equity Epicenter

Posted on June 5th, 2008 in Daily Mortgage/Housing News - The Real Story

While Northern CA is arguably the epicenter of the subprime implosion, with cities like Stockton, Brentwood and Sacramento within its bounds, many areas have held up very well, such as San Francisco and many cities in the East Bay Area, North Bay and South Bay (Silicon Valley).

In my opinion, this is only a temporary phenomenon, and values in these areas will catch up (or perhaps “catch down”). Remember, we had very affordable exotic and jumbo loan programs until very recently. In addition, this is the very first summer selling season without these programs.

For those of you so inclined, I released a lengthy report entitled “CA Housing Crisis, The Real Numbers…4.25 Years Supply!” a week ago, and the report dovetails nicely with this local story from the Contra Costa Times of NorCal.

Contra Costa County is located just East of San Francisco and is home to some of the most upscale communities in the State, as well as some of the biggest bust areas like Antioch, Pittsburg, Brentwood etc. The county is very spread out with over a million residents.

Below are highlights from the Contra Costa Times Story of the Northern CA Housing Market and the devastating negative equity position in which large percentages of its residents now find themselves:

Under water. Upside down. Negative equity. No matter the terminology to describe the erosion of home equity in the East Bay, the conclusion is inescapable: A local housing sector that once was remarkable for how high it could soar has plunged into the depths.

About two out of three East Bay homes that were bought since 2005 are now worth less than the mortgages on the houses, according to a Zillow.com study. The research by Zillow, an online real estate service, portrays a fresh set of woes for a sinking residential real estate market.

Remember, negative equity has been proven to be the leading cause of loan default across the board, because it cuts across all socio-economic boundaries. It is my opinion that negative equity may force a ‘prime’ borrower into default faster than a subprime borrower going forward. This is because the prime borrower has the credit and means to ‘walk away’ and buy or rent a new home. The subprime borrower may not have the credit or cash needed to buy or rent and has to fight for the roof over his family’s head.

Below are county level stats and they look very dire. If values continue to drop, or fall off of a cliff in September, as they did in September 2007, this problem will become epidemic reaching back in years.

…59 percent of the houses bought in Alameda County in 2005, 2006, and 2007 now have negative equity. In Contra Costa County, an average of 76 percentof the homes bought during those years now suffer from negative equity. San Joaquin County and Solano County fared much worse. In San Joaquin, an average of 93 percent of the homes bought in the same three years are worth less than their mortgages. In Solano County, 85 percent of the homes bought during the 2005 through 2007 period are under water.

The housing market in the East Bay and adjacent communities looks much weaker than the nation as a whole. About 52 percent of the U.S. homes bought in 2006 now suffer from negative equity, Zillow reported.

Zillow estimated that home values in the past year have fallen by nearly 17 percent in Alameda County, 23 percent in Contra Costa County, more than 24 percent in Solano County and almost 34 percent in San Joaquin County.

Finally, to the human reality of the situation…

The drastic slump in property values can depress the outlook of homeowners who have seen their equity sink from view, said Stan Humphries, vice president of data analytics with Zillow. For many U.S. residents, a home is their single largest investment.

“Seeing that investment vanish through negative equity has to be disheartening,” Humphries said. “Nationwide, for people who bought at the peak of the market in 2006, more than half are looking at negative equity in their home.”

What’s more, in recent years, homeowners frequently tapped the equity in their homes to finance one-time purchases. That source of cash has withered during the housing market’s collapse.

“Many people have used their homes as a large piggy bank,” Humphries said. They have seen appreciation over time. Now the good times are over. It has a big psychological effect to know they don’t have that as a recourse any more.

The disclosure that so many homes bought in recent years are under water suggests the deluge of housing problems won’t soon ebb.

“This definitely has a ways to go,” said Christopher Thornberg, an economist with Beacon Economics. “There is no sense this is anywhere close to being over. This thing is not over by any stretch of the imagination.”

More homeowners may turn skeptical about the benefit of monthly loan payments when the owners have little or no chance to harvest a financial upside from the house.

“You have the walk-away issue, where people see the house is under water and they give up,” Thornberg said. “People will realize over time that it is ludicrous. They will ask themselves why keep making a mortgage payment.”

Other owners could become financially frozen in homes that will likely be worth less than the mortgage for the foreseeable future.

“People are stuck in the house,” Thornberg said. “They won’t be able to move because they can’t take the financial hit.”

IHateToBurstYourBubble said...

I still think that the Bay area & especially the Sand Hill Road crowd will go down catastrophically. I don't think the Bay will recover... EVER.

But infrequent wins like Google will keep the lottery ticket economy there wasting money there at an untold rate. That place will fold.

The Bay is possibly the only place in the US that'll go down harder than Bend.

IHateToBurstYourBubble said...

I think a lot of people have "locked in" a permanently high local Misery Index, by buying their homes over the past 3-4 years. The inflation component of their misery index is locked at around 10%. Add national inflation. Then add Deschutes Counties Cruel Cruel Summer unemployment rates.

We're headed for the Worst of all Economic cycles locally. This place has always had horrible employment prospects, but at least homes were cheap. Now, about 1/3rd of the people here have locked in a permanently high inflation rate. Just like Jap's who bought after 10-20% had been bled off the top... they still owed $800K FOR 50 years (in cases) on tiny apartments that sunk in value down to the $200K's.

Don't get suckered in to buying here.

IHateToBurstYourBubble said...

$5 Trillion Hidden Off Bank Balance Sheets

The Financial Times is reporting US banks fear being forced to take $5,000bn back on balance sheets.

Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.

Analysts at Citigroup said a planned tightening of the rules regarding off-balance sheet vehicles would force banks to reconsider arrangements and could result in up to $5,000bn of assets coming back on to the books.

The off-balance sheet vehicles have been used by financial institutions to keep some assets off their balance sheets, thereby avoiding the need to hold regulatory capital against them.

Birgit Specht, head of securitisation analysis at Citigroup, said: "We think it is very likely that these vehicles will come back on balance sheet.

"This will not affect liquidity because [they] are funded, but it will affect debt-to-equity ratios [at banks] and so significantly impact banks' ability to lend."

Both international and US accounting bodies are working on rule changes; the US standard-setter, the Financial Accounting Standards Board, is to decide today. US rulemakers have come under domestic pressure from regulators and policymakers who felt the rules allowed banks to hide too much of their exposure to subprime assets.

Absurd Situation

The absurdity is not $5 trillion coming back on bank balance sheets. Rather the absurdity is with accounting rules that let banks hold this much stuff off balance sheets in the first place. It makes a mockery of stated leverage, value at risk, and capitalization ratios. Banks claim to be well capitalized but the ratio is a mere 6% and that 6% does not include the effects of hiding $5 trillion off balance sheets.


Osama & Friends will own more of this country in 10 years than Americans.

IHateToBurstYourBubble said...

Foreclosure Crisis
Buying debt at deep discount

Investors interested in buying distressed properties are increasingly using a different tactic to purchase desirable assets at a deep discount — buying the defaulted mortgage.

Investors are making an end-run around owners, buying mortgages on well-located commercial and residential properties, foreclosing and taking ownership of projects some lenders are increasingly desperate to unload.

“They are going to the mortgage companies and asking to purchase their nonconforming loans for 50 to 60 cents on the dollar. Sometimes even less,” said David Serle, vice president and managing broker at Re/Max Services in Boca Raton. “They then package these loans and foreclose on the properties. Now they have homes 40 percent to 50 percent below market value. They fix them up, and sell them for a profit.”

Although the strategy works for all kinds of properties and investors, commercial real estate is getting the most attention from big players with large pools of money who can buy mortgages in bulk.

“If the amateur investor did this it may not be worth the risk,” Serle said. “But when a hedge fund or a large group of investors do this they can keep several properties that do not sell, because they are making huge profits on the ones that are selling.”

Buying mortgage debt can put the buyer in a position to foreclose on the property. Then they can either acquire the asset at a discount or auction it off to the highest bidder.

In one prominent recent deal, property manager and investor ACF Riverfront LLC obtained the mortgage debt of Fort Lauderdale’s Las Olas Riverfront downtown entertainment and retail complex from Wachovia Bank. The buyer was assigned the mortgage with a principal of $22 million, as well as all leases and rents for the property.

The complex had sold for $31.9 million in July 2005.

Also, Ocean Bank, which in June 2007 filed a foreclosure against Villa Mare, a failed residential condo conversion project in Boca Raton, sold the loan to Laramar Group, a Chicago-based apartment investment company in December.

A foreclosure auction is scheduled for June 26, according to court records. Laramar Group, which has been operating the property as rental apartments since acquiring the loan, is expected to keep control of the property after the auction, said sources familiar with the property.

Real estate insiders like Serle view the trend as a sign that the standoff between sellers seeking the highest value and buyers looking for the deepest discounts is starting to thaw, breaking the freeze on deals in the real estate crisis.

“We see a lot more investors in our marketplace, which usually is one of the signs that the market will start to stabilize, and appreciate,” Serle said. “The South Florida real estate market is nearing the bottom, and the investors are trying to time it.”

While lenders and buyers are increasingly seeing eye-to-eye on such deals, lenders are not always surrendering unconditionally.

“I’m finding that banks are more and more sophisticated nowadays in terms of the economics of the deal. They don’t want to just give these away,” said Tom McCarthy, managing director of Carlton Advisory Services’ Palm Beach office. The New York City-based firm brokers deals between lenders and buyers of their debt. “They’re more than prepared in many instances to hold on to these assets and work them themselves, whether that entails foreclosure or workouts with the borrower.”

McCarthy said that’s a change from downturns in the ’80s and ’90s when, for example, the old Resolution Trust Corp., formed in the wake of the savings and loan crisis, brought a fire sale mentality to the disposal of nonperforming assets.

“The ideal situation for a bank is to sell a nonperforming loan to the end-users,” McCarthy said. “These banks get an awful lot of calls from buyers that are looking to spend 30 to 50 cents on the dollar and then flip it. They really don’t want to sell to a vulture looking to steal something under a duress situation. Most institutions are not in that position and most are not so anxious that they’re going to have to sell.”

Buyers seeking to use a property themselves generally are willing to pay more for it, and plan to make most of their money from developing it themselves, giving sellers more leverage in the deal as they seek to clean their balance sheets, McCarthy said. For the buyer, a debt purchase is a cost-effective way of acquiring the land they want.

Brokers do better on some deals than others. McCarthy said Carlton recently helped a lender obtain close to the full value — “in the upper 90 percent” — for debt on a particularly desirable Gulf Coast property.

“Someone really wanted that collateral, and it could be worth multiples of what it is today,” he said.

Many lenders aren’t waiting to be approached with offers, but are actively marketing their debt through brokers like Carlton.

In one example of a current proposal provided by Carlton, an “institutional seller” whose identity McCarthy would not reveal is offering $95 million of sub-performing and nonperforming commercial mortgage loans and $57 million of real estate-owned properties across Florida and five other states. Many of the assets have a land component in addition to partially completed townhouses, warehouses, retail and office space, or condominiums.

The assets are being offered on a competitive, sealed-bid basis.

Ultimately, the size of the buyer’s discount is tied to the seller’s motivation and the desirability of the properties in the debt package, said Ron Kriss, a real estate attorney with Akerman Senterfitt in Miami.

“Everything is supply and demand,” Kriss said. “Some of them are very nice properties and some are garbage.”

The best bet for buyers is to target banks with the highest rate of nonperforming loans, burgeoning real estate-owned property portfolios and concerns about liquidity and potential regulatory issues.

“That’s a seller that’s going to be very highly motivated,” Kriss said.

He said buyers come in every size and shape.

“The hedge funds take $15 [billion] to $20 billion and buy, in bulk, a huge $20 billion or so pool of defaulted notes,” Kriss said. “At the extreme other end of the gamut is the person who is willing to tolerate some risk, willing to roll up his sleeves and do some sweat equity and buys a foreclosure, maybe in his own neighborhood, and fixes it up himself on the weekend.”

That person finds a broker to sell it or rent it out in the meantime and makes a minor investment, makes a modest profit and does it again.

“Before you know it, he owns two or four foreclosed houses or condo units and he’s got a little business going on,” Kriss said. “He’s got tenants, some houses for sale and he didn’t even pool.”

In the middle are companies who are buying debt with $25 million or $30 million.

“This is happening and I’m seeing it at every single end of the range,” he said.

Not every buyer of debt is looking to foreclose on or take ownership of the properties whose debt it acquires.

Jacob Benaroya, president and managing partner of Biltmore Capital Group, a New Jersey-based bulk buyer and seller of nonperforming mortgage portfolios throughout the country, said his firm works to restructure and rehabilitate the loans. Once those loans are performing again, they can be traded for a higher rate — and a profit for the company.

“The cost of foreclosure and the holding period of defaulted paper that’s going through foreclosure can be up to a year in some states,” Benaroya said. “It might take a year to foreclose, there might be a six-month redemption after foreclosure, where we’re not allowed to do anything, which the borrower has a chance to redeem, and then there might be an eviction process on top of that.”

After 18 months or so, the buyer ends up with a property that it puts on the market, “all the while maintaining, preserving, paying all the taxes and the insurance and then waiting for it to sell at a price that hopefully can generate a profit after all of these expenses and the cost of that loan.”

The discount rate also can be deceptive, he said.

“Just because somebody’s debt is selling at 60 or 70 cents on the dollar doesn’t necessarily make it a good deal,” Benaroya said. “For instance, if you had a $200,000 mortgage on a house that’s now worth $100,000 and you go buy that debt for 70 cents [on the dollar], you’ve just lost money.”

Serle said he sees debt purchasers gaining a stronger hand before the downturn ends.

Some lenders will be increasingly willing to sell debt at discounts, he said, “because they’re either going to have just an absurd amount of property, maybe double or triple what they have now, or they’re going to be forced to give these away at 30 or 40 or 50 cents on the dollar.”

Benaroya said sellers and the end-users they most covet have some hurdles to overcome if they are going to find each other.

“For end-users, there’s a high barrier to entry with the lending institutions that are holding the paper to sell you the debt,” he said. “It’s not like an REO property where it’s a piece of property they want to get rid of. If you have money, they’d be happy to sell it to you. When you’re buying debt, there’s a lot of regulation and there’s usually an extensive approval process by the seller of the debt. You’re buying someone’s mortgage and there’s a homeowner at the other end of it who needs to be treated fairly.”

As is often the case in economics, the big players are in the best position.

“Unless they buy in tremendous bulk, they’re not going to be able to entice the bank to take the hit,” said Michael Sichenzia, chief operating officer at Dynamic Consulting Enterprises, a Deerfield Beach firm that helps consumers work out mortgage debts.

At the same time, he calls debt purchases “the future of the banking business from an entrepreneur’s point of view. This is a golden opportunity for investors who know how to compensate for risk.”

Purchasers of debt in South Florida stand to do well because, he said, “bricks and mortar and land have a certain value. There’s a limited quantity of dirt. In Florida, it’s getting to the point where you can buy condos for less than the dirt price.”

Anonymous said...

After reading the first 7 comments to your own post I couldn't help but laugh out loud after it occurred to me that this is what a crazy person talking to themselves must look like in cyberspace.

IHateToBurstYourBubble said...

Could 50% of All Homes End Up in Foreclosure?
(June 3, 2008)


Just how bad could the housing bust get? How about half of all urban homes being in foreclosure? As stunning or unbelievable as that may sound, it already happened once in the U.S., in the Great Depression, as documented in this report: Lessons from the Great Depression (St. Louis Federal Reserve).

Though history doesn't repeat, it certainly echoes, and the parallels between the present and 1934 are particularly sobering. The only "missing ingredient" to a full-blown depression is job loss/income contraction, and many of us foresee a long, painful wave of lay-offs and downsizing on a global scale just beginning.

How did half the nation's urban housing end up in foreclosure? All too easily, it seems; eerily, the slippery slope seems remarkably like the present:

# As people bought into a long real estate boom, they leveraged/borrowed vast sums of new debt.
# Lending standards and money tightened as property values fell, effectively cutting off refinancing debt as an escape route.
# As income and property values both fell in a deflationary spiral, the relative burden of homeowner debt increased sharply.
# Unable to refinance or make their mortgage payments, homeowners defaulted en masse.

Here are excerpts from the report:

A study of 22 cities by the Department of Commerce found that, as of January 1, 1934, 43.8 percent of urban, owner-occupied homes on which there was a first mortgage were in default. The study also found that among delinquent loans, the average time that they had been delinquent was 15 months.

Among homes with a second or third mortgage, 54.4 percent were in default and the average time of delinquency was 18 months. Thus, at the beginning of 1934, approximately one-half of urban houses with an outstanding mortgage were in default (Bridewell, 1938, p. 172).

For comparison, in the fourth quarter of 2007, 3.6 percent of all U.S. residential mortgages and 20.4 percent of adjustable-rate subprime mortgages had been delinquent for at least 90 days.

Although the nominal value of mortgage debt peaked in 1930 and then declined, deflation caused the real value of outstanding mortgage debt to continue to rise until 1932.

Thus, consistent with Fisher’s (1933) classic "debt-deflation" theory, the burden of outstanding mortgage debt increased sharply during the contraction phase of the Great Depression and economic recovery did not begin until the real value of outstanding debt had begun to decline.

A rising level of debt does not necessarily pose a problem for households, so long as household incomes and wealth are sufficient to make loan payments. However, household incomes and wealth declined rapidly during the Depression.

From 1929 to 1932, personal disposable income and nonfarm residential wealth fell 41.0 percent and 25.7 percent, respectively, whereas the value of nonfarm residential debt declined by just 6.8 percent. Relative to nonfarm residential wealth, residential mortgage debt outstanding increased sharply throughout the 1920s and continued to rise until 1932.

As residential property became increasingly leveraged during the 1920s, the declines in household incomes and wealth after 1929 made servicing that debt especially difficult for homeowners.

Thus, on the eve of the Great Depression, many homeowners were not well positioned to withstand the substantial decline in income or house prices that would occur over the next three years.

Refinancing was common and easily accomplished in the 1920s, an environment of rising incomes and property values, but next to impossible during the Depression. Falling incomes made it increasingly difficult for borrowers to make loan payments or to refinance outstanding loans as they came due.

The report details how loose lending standards during the 1920 Housing Boom contributed to the severity of the Bust:

Thus, although the proximate cause of the high rate of loan delinquencies and foreclosures during the 1930s was the economic depression, the likelihood of default on any given loan apparently was influenced by the characteristics of the loan itself.

Do you reckon that 20% default rate in the subprime mortgage market reflects a similar dynamic?

In another parallel, the state and Federal governments jumped in to "solve" the problem with new government-backed refinancing and by "freezing" the foreclosure process.

Interestingly, the Pareto Principle's 20% (the 80/20 rule) shows up twice: the Federal agency created to refinance every homeowner in trouble ended up owning 20% of all mortgages in the country, and 20% of those mortgages still entered foreclosure.

33 states enacted legislation providing relief for those with delinquent mortgages, including 28 states that imposed moratoria on home foreclosures (Poteat, 1938).

The Home Owners’ Loan Corporation (HOLC) was created as an agency of the Federal Home Loan Bank Board by an act of Congress in 1933. The HOLC was authorized for a period of three years to purchase and refinance delinquent home mortgages, including mortgages on properties that had recently been foreclosed on.

The stock of outstanding mortgage debt held by the HOLC reached a peak in 1935, when it held nearly 19 percent of all mortgage debt outstanding on 1- to 4-family homes. Thereafter, the HOLC share of outstanding debt gradually declined as the economy and private lenders continued to recover.

Still, as late as 1941, the HOLC held about 10 percent of the value of outstanding residential mortgage debt. Of the approximately one million loans made by the HOLC, some 20 percent ended in foreclosure or voluntary transfer of the underlying property to the HOLC. Foreclosures peaked during the recession of 1937-38.

The justification for government intervention remains the same as well:

The right of lenders to foreclose on collateral is the main reason why the interest rates on secured loans, such as home mortgages, are typically much lower than those on unsecured loans, such as credit card debt. Ordinarily, mortgage foreclosures receive little notice from the public because they have little impact on parties other than the delinquent borrower.

However, when the number of foreclosures is high or concentrated geographically, they can lower property values, destabilize neighborhoods, and impose other social costs. Such "externalities" can justify government intervention to reduce the number of foreclosures.

Are there any differecnes between then and now? The report's author worries that there is one key difference: the appetite for risk is so pervasive and ravenous now that any bail-out may well feed further speculative lending. And moratoriums, as popular as they might be politically, merely hinder the "work-through" required to restore the credit markets:

Some policies, including a government bailout of delinquent loans or expanded loan guarantees, could also encourage increased financial risk-taking and thereby lead to further instability in the future.

Other actions, such as a government-imposed moratoriumon loan foreclosures, could simply delay inevitable adjustments that are necessary to restore the functioning of mortgage and housing markets.

Such direct government intervention could also increase the cost of loans for future borrowers by encouraging lenders to add a premium to loan interest rates to compensate for the risk that government officials might re-write the terms of loan contracts.

Conceivably, a bailout would more likely encourage risky behavior in the present situation (in which lax underwriting was an important cause of the increase in defaults) than during the Depression (when a sharp decline in economic activity was the main cause of defaults).

So what finally restored the housing/credit markets and the U.S. economy? Borrowing and spending trillions of dollars to fight World War II. (The U.S. government borrowed about $500 billion during the war which adjusted for inflation would be trillions in current dollars.)

Unfortunately, that's not an option now; we've already borrowed trillions to fight distant wars and other government spending, and we've relied not on domestic savings but on willing foreign buyers of our debt to do so.

As the global economy contracts, so will global savings which can be channeled into buying U.S. T-bills and other debt. Since we'll be unable to "borrow our way out of this mess," then what is the ultimate solution? Start saving and investing, and write off the trillions in bad debt crippling the credit markets.

The government propaganda machine and the TV pundits will have you believe there will be no recession and no job losses. We shall see who's right: the cheerleaders and their ginned-up statistics, or those of us who see severe job losses as the inevitable consequence of a credit contraction.

IHateToBurstYourBubble said...

After reading the first 7 comments to your own post I couldn't help but laugh out loud after it occurred to me that this is what a crazy person talking to themselves must look like in cyberspace.

Go back to your cave, Costa.

IHateToBurstYourBubble said...

CEO declares 'depression' in housing
Toll Brothers head says market could fall by 20% and recovery could be up to three years away.
Last Updated: June 4, 2008: 2:00 PM EDT

PHILADELPHIA (AP) -- The chief executive of Toll Brothers Inc., the nation's largest luxury-home builder, said Wednesday the housing industry is in a "depression" and any recovery could be two or three years away.

In candid remarks at the JPMorgan Basics & Industrials Conference a day after reporting a second-quarter loss, Robert Toll said he's not ready to call a bottom yet since the housing market could still get worse.

"Can the market go down another ten or twenty percent? Sure," said Toll, whose Horsham-based company will sit on cash unless a bargain land deal comes along.

He said the current housing crisis is the worst he's seen since the mid-1970s, but back then the decline was relatively short-lived. The current downturn started in late 2005.

"Maybe '74 and '75 was just as bad, but it was so short," Toll said.

Buyers' lack of confidence that home prices will stop sliding is what's keeping them out of the market, rather than lack of access to credit, he said.

He said the underpinnings for a healthy housing market are still in place: low interest rates, a low jobless rate, increases in population and accumulation of wealth. Moreover, home prices have fallen to levels seen around 2002 and 2003, making them more attractive to buyers.

When the market recovers, home prices will march right back up, Toll said.

In the meantime, builders face another headwind as the cost of materials rises - and there aren't a lot that can still be cut.

"Labor has gone along with us and squeezed themselves to the bone," Toll said.

As for materials, he added, "there's a whole bunch of them that's oil based... I see costs going up from here. So we're caught in a squeeze. Certainly, our clients aren't going to pay more money because our costs our going up."

IHateToBurstYourBubble said...

Bought a book the other day.

Noticed a First:

$38.95 US.

$38.95 CA

Yoinks.

IHateToBurstYourBubble said...

Luxury homes in Napa Valley falling into foreclosure
By Peter Y. Hong
Los Angeles Times Staff Writer

8:15 PM PDT, June 3, 2008

NAPA — Buyers last week of a Spanish-style, 3,220-square-foot house on a cul-de-sac here got a bargain: $1 million for a hilltop home in Northern California's wine country, with views to San Francisco in the distance.

Two years ago, the same property sold for $1.4 million. But after the lender foreclosed on the property, the home was deeply discounted. Real estate agent Michael Snider, who handled the sale, thinks more such sales are on the way.

"It's just beginning," Snider said.

The wealthy may be able to hold off foreclosure longer than others, but eventually those with debt they can't handle will be foreclosed on, he said.

As foreclosures multiply across California, they are spreading from the vast tracts of new houses in the deserts to luxurious homes in picturesque Napa Valley.

Napa County saw 112 homes repossessed in the first quarter, up from 23 a year earlier, according to DataQuick Information Systems. Most of those foreclosures have been in lower-priced areas, where new-home construction and sub-prime lending were widespread during the housing boom.

But the top end is now starting to tumble.

The house Snider just sold is next to two other distressed properties. One house across the street is being offered as a short sale (that is, a sale for less than the amount of the mortgage) and another property for sale a few doors down was abandoned by its developer before construction was complete.

Elsewhere in Napa, a 5,676-square-foot Mediterranean villa on a 35-acre lot was recently foreclosed on. It's now on the market for $5.255 million.

Seven other houses in the city worth more than $1 million each are in default or have been foreclosed on, according to ForeclosureRadar, a company that sells default data.

Snider said he saw some of his well-to-do clients running out of time. "They're just pushing aside their mortgage payments, holding default off," he said, even using credit cards to make mortgage payments.

Those options will run out over the next few months, Snider predicts, pushing more hilltop mansions over the financial edge.

"That will be the next phase," he said.

Anonymous said...

Go back to your cave, Costa.

Hold up there little lady I was just having a little fun. I don't mind watching an insightful crazy person talk to themselves one bit. In fact, it much easier than two way conversation, socially demented, but definitely easier.

IHateToBurstYourBubble said...

May see bigger U.S. bank failures in future: FDIC

Thu Jun 5, 10:25 AM ET

Future U.S. bank failures linked to the downturn in the real estate market may include "institutions of greater size" than in the recent past, Federal Deposit Insurance Corp Chairman Sheila Bair said on Thursday.

In testimony prepared for a Senate Banking Committee hearing on the state of the banking industry, Bair said an increasing number of problem banks face high exposure to commercial real estate and construction lending.

"There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past," Bair said. "Uncertainties in today's economic environment continue to pose significant challenges for the banking industry, households, and bank regulators."

The FDIC, which has about $52.8 billion in its deposit insurance fund, has launched a review of its risk-assessment rates for larger banks to determine if they reflect current conditions, she said.

"The agency plans to examine, among other issues, whether changes in how long-term debt issuer ratings are used to determine premium rates can improve the assessment system's effectiveness in capturing risks posed by large institutions."

IHateToBurstYourBubble said...

I don't mind watching an insightful crazy person talk to themselves one bit.

Well, it's just you & me. I was talking to YOU!

IHateToBurstYourBubble said...

As layoffs bite Wall St, New York real estate hit
Thu Jun 5, 2008 8:37am EDT

By Julie Haviv

NEW YORK (Reuters) - While most of the United States has suffered a housing slump over the past two years, home prices in New York's Manhattan have been largely unscathed, propped up by demand from Wall Street bankers and the island's limited housing supply.

That could change as the housing crisis comes back to bite the banks that securitized sketchy mortgages, leading to layoffs on Wall Street and smaller bonuses for bankers who keep their jobs.

"The market today is showing a significant reduction in new deals," Hall F. Willkie, president of real estate firm Brown Harris Stevens in New York, said of residential real estate in Manhattan, New York City's richest borough.

Willkie said during the first quarter of 2008, Brown Harris Stevens saw the number of contracts signed in Manhattan fall by 21 percent when compared to the same quarter in 2007.

The firm specializes in high-end properties, which he said continues to garner demand, partly due to foreign interest, but properties outside of this realm are seeing sales drop even more sharply, he said.

"Any real estate market is based on confidence and that is what drives it, so with all the uncertainty on Wall Street that confidence has been shaken," Willkie said.

TIME RIPE TO RENT

Blake Yaralian, a 28 year old investment banker, wanted what most successful Wall Streeters desire: the perfect apartment in Manhattan.

That search, however, came to a screeching halt in early April, as he reacted to a flurry of financial firms announcing job cuts, including his own firm, UBS AG. Now, his hunt for a one-bedroom midtown Manhattan abode is on hold.

"When things started to get a bit shaky on Wall Street and I saw all the layoff announcements, it definitely made me think twice about spending the majority of the money that I have saved on an apartment," he said.

"While my job looks safe for now, something could always happen in six months where I might not be able to make those monthly mortgage payments," he said. Swiss-based UBS is one of the firms worst hit by the U.S. mortgage market meltdown.

Yaralian's real estate agent at Century 21 NYC, Mary Lou Currier, said she has several Wall Street clients who are in the same boat.

"They are all in a wait-and-see mode," she said. "Because they are worried about their jobs, they feel uncertain about taking the plunge right now, whether it be for buying or for selling."

Samuel Pierce, who recently graduated from the University of Pennsylvania's Wharton School of Business, is one of a select few who is about to join Wall Street. On June 30, he will start working for Citigroup, one of the many companies that have announced layoffs in recent months.

While comfortable with the security of his upcoming job, Pierce said overall uneasiness has him leaning towards renting.

"I also do not want to put money into an investment that might not retain its value," he said.

Few Wall Street banks have been immune. In addition to Citigroup and UBS, Morgan Stanley and Merrill Lynch have also cut jobs as their exposure to subprime mortgages -- those made to the borrowers with poor credit histories -- becomes apparent.

Some 7,000 analysts, bankers and traders from Bear Stearns lost their jobs when JPMorgan Chase & Co rescued it from collapse.

And Lehman Brothers, which has already cut thousands of jobs, is still not out of the woods.

James Brown, a labor market analyst with New York state's labor department, said he expected 36,000 jobs to be lost on Wall Street in the current downturn.

For those who keep their jobs, bonuses -- the bulk of their compensation -- will probably be much lower.

"In good times you can count on good bonuses to help you out, but in times such as these, bonuses are somewhat of a question mark," Yaralian said.

PROBLEMS ONLY JUST BEGINNING

The full impact of Wall Street layoffs on the Manhattan real estate market could take a year or possibly longer to work through.

"The Manhattan real estate market is at a turning point," said Jonathan Miller, president and CEO of real estate appraisal firm Miller Samuel Inc. in New York.

"What happens from here will largely depend on Wall Street and the state of the overall economy," he said.

The number of homes on the market in Manhattan rose 4.6 percent to 6,194 in the first quarter from the same period last year, according to the Prudential Douglas Elliman Manhattan Market Overview quarterly report released early last month.

Miller, author of the Prudential report, said sales and inventory were the big stories last quarter.

Homes for sale remained on the market for 146 days, two weeks longer than a year earlier, the report said.

Miller, who has been tracking this measure for about a decade, said that was the longest amount of time since the fourth quarter of 2006, when it reached 149 days. In the fourth quarter of 2002 and third quarter of 2006 it reached a record high of 150 days.

Yaralian, however, said he has not ruled out buying an apartment, but his gut is telling him to renew his current rental agreement for another year or rent another place.

"For me, holding off for maybe another year seems to be a better idea," Yaralian said.

Others are already looking for a break in the clouds.

"They are cautious, but it is not doom and gloom, and as Wall Streeters are, they are opportunistic," said Mike Simon, president and CEO of Century 21 NYC in New York. "They will make the right decision for them in the short-term, whether it is to buy or to rent, but the opportunities to buy are significant right now."

Anonymous said...

And I'm listening. So keep talking.

IHateToBurstYourBubble said...

Bernanke warns of danger of weak dollar

* Larry Elliott Economics editor and Ashley Seager in Paris

The dollar rose strongly on the foreign exchanges today after Ben Bernanke, the head of America's central bank, warned that a weaker US currency posed a threat to inflation in the world's biggest economy.

In what was seen by the financial markets as a deliberate attempt to talk up the value of the greenback, Bernanke said the Federal Reserve would work to ensure that the dollar remained "strong and stable", with the exchange rate carefully monitored.

Bernanke normally leaves all comments on the dollar to Henry Paulson, the US Treasury secretary, and the remarks had an immediate impact. The dollar rose almost a cent against the euro and was also stronger against the Japanese yen. In the commodity markets, oil prices continued their retreat from last month's peak of $135 a barrel, dropping by $2 a barrel to around $126.40.

Analysts have seen the weakness of the US currency as a factor in oil's recent rise, although the billionaire hedge fund manager George Soros today also blamed speculators for creating a dangerous bubble in the energy markets.

Nick Parsons, head of strategy at NAB Capital, said: "This is the first time I can remember that Bernanke has spoken openly and substantively about the dollar. He is not doing this by accident. I am convinced that the US has woken up to the fact that the weakness of the USD is worsening the state of the US economy via the oil price. With gasoline now averaging $3.97 a gallon, the only way to give a meaningful downward push to the oil price is through a stronger dollar. "

Bernanke prompted speculation of concerted action by the G7 industrialised nations to halt the dollar's decline by issuing his warning at a conference in Barcelona, also attended by Jean-Claude Trichet, president of the European Central Bank, and Masaaki Shirakawa, the governor of the Bank of Japan.

"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate," Bernanke said.

Markets saw the comments as a signal that the Fed, which has cut interest rates from 5.25% to 2% to try to fend off recession in the US, will keep borrowing costs on hold until the end of the year.

Tony Crescenzi, bond strategist at Miller, Tabak and Co in New York, said: "The depth to which Bernanke discussed the dollar is extraordinary for a Fed chairman and the use of the expression 'we are attentive' was a direct salvo at speculators in the foreign exchange market."

Soros said the phenomenal rise in oil prices showed signs of a bubble, but a crash was not imminent. "We are currently experiencing the bursting of a housing bubble and, at the same time, a rise in oil and other commodities which has some of the earmarks of a bubble," Soros told the US Senate commerce committee.

He said a collapse of the oil price bubble could leave speculators heavily exposed and lead to a stock market crash similar to that seen in 1987, since investment institutions, such as pension funds, have been pumping money into indexes that track the cost of crude.

But the head of the Organisation for Economic Cooperation and Development dismissed Opec claims that oil prices had been driven to a record high by speculators.

Angel Gurría, secretary-general of the Paris-based institution, also urged countries not to cut petrol taxes or increase subsidies in response to higher prices, saying that higher prices would help cut demand at a time when the world was trying to tackle climate change.

"The best solution to high oil prices is high prices," he said, adding that the OECD did not anticipatebig falls in prices. "We are not envisaging a very dramatic reduction. This is not a speculative spike... this is a basic problem of supply and demand and security."

Opec has regularly rebuffed calls to increase supplies, arguing there is enough oil and blaming "speculators" for driving up prices, which have risen sixfold since 2000.

The government is considering scrapping a 2p a litre fuel duty rise planned for October, and plans to tax gas-guzzlers more heavily in the face of growing fuel protests.

The OECD will on Wednesday present its latest forecasts for the world economy, which are likely to be gloomier than its previous predictions .

But Gurría warned governments against being diverted by short-term economic problems from the longer-term goal of tackling climate change.

IHateToBurstYourBubble said...

Man, if you ever wanted to take the contrarion side of a market, it's oil.

I'm starting to hear about the "permanence" of oil inflation from Gov't types. When they jump on the bull side it's time to take some profits.

IHateToBurstYourBubble said...

Fed Governors Openly Question Bernanke's Competence

Open dissent at the Fed continues. I first talked about this a week ago in Infighting At The Fed. Today Lacker Says Fed Loans to Wall Street Risk More Crises.

Richmond Federal Reserve Bank President Jeffrey Lacker said the lending to securities firms that the central bank introduced in March may lay the seeds of further financial crises.

"The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking," Lacker said in a speech to the European Economics and Financial Centre in London. That "in turn could give rise to more frequent crises," he said.

Lacker urged that the central bank now "clearly" set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails "in a costly way."

The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression. While other regulators have focused on tightening investment-bank oversight in exchange for the lending, Lacker said there's a case for "scaling back" the new programs.

Philadelphia Fed President Charles Plosser urged in a separate speech today that officials specify the conditions "under which the central bank will lend" to firms. He told reporters in New York afterwards that "we run the risk of sowing the seeds of the next crisis."

Thomas Hoenig of Kansas City said last month the Fed's actions were "likely to weaken market discipline," while Minneapolis's Gary Stern in April worried about "adequate incentives to contain" an expansion in the Fed's safety net.

The central bank has introduced three programs since December to help counter the credit crisis. Along with the Primary Dealer Credit Facility, the Fed lends Treasuries to dealers in exchange for mortgage and asset-backed debt through the Term Securities Lending Facility. The Term Auction Facility offers cash loans to banks.

Lacker indicated skepticism about the value of the programs.
"It isn't clear what kind of market failure is being addressed" with the TAF, he said. Central bankers should be wary "that they can substitute their own judgment about the fundamental value of financial instruments," he said.

Bernanke Loses Support

The seeds of this crisis were sewn by the loosey goosey policies of Greenspan for which there was never a dissent from Bernanke, or that matter anyone else (at least in public). And what started as a minor revolt has now turned into a major question of confidence regarding the anything goes policies of Bernanke. That Congress is holding up votes on Fed nominees is also not helping Bernanke any.

If various Fed governors continue openly questioning Bernanke's decisions, he is not going to last long as Fed chairman.


Mike "Mish" Shedlock

IHateToBurstYourBubble said...

OK, that's my News Blow for the week.

Happy?

IHateToBurstYourBubble said...

Buster: Add insult to injury 99% of the folks on this blog are self-defeating renter losers.

Hmmm, I don't feel like a loser.

Rent & Invest The Diff be working OK. Well, 'cept for that little Pfizer snafu. Luckily I only bought a few hundred...

IHateToBurstYourBubble said...

Bitch Slapping this group is like stepping on a newborn litter of critters...

Hmmm.

IHateToBurstYourBubble said...

It will take years to flush the toilet.

Damn, I've been there.

timothy said...

Inflation understated? It depends.

Anyone who buys computers knows that we've had massive deflation. I remember buying a 40-column dot matrix printer for an Atari 8-bit for $700. The printouts looked like an old grocery store receipt. Graphics? Yeah right. At school we had a printer for the TRS-80 that actually BURNED text into special silver paper that was marvelously expensive.

Hard drives? My first was 20 megabytes for $800.

That's why inflation is notoriously hard to figure. Large screen TVs cheaper and cheaper even this year.

Here's the real problem. Stuff poor people buy has been going up like crazy. That are pretty much at the raw materials level. They buy food and gas. They don't benefit from the expensive items like laptops and TVs that leverage ever-improving manufacturing technology.

There's no one inflation number that "works." You have to give me a list of what you buy before I can even discuss your inflation level.

timothy said...

If Sonic kills Dandys I will be extremely depressed.

timothy said...

Heard this about option arms...

"In essence, the vast majority of the borrowers are paying only the minimum payment month after month."

This changes the model for forecasting the peak of defaults, moving the time of largest monthly defaults up from Sept 2011 to January 2010. Big default numbers expected stating THIS October, continuing on through January 2012.

Apparently, when you pay "WHAT YOU WANT," what you want to pay is the minimum payment. Go figure.

Marge said...

June homes sales starting off sloooow.
First week of June 07 33 Sold
" " May 08 28 Sold
" " June 08 15 Sold

IHateToBurstYourBubble said...

June 08 15 Sold

DAMN!

June is The Big One each year.

IHateToBurstYourBubble said...

Stuff poor people buy has been going up like crazy.

Exactly.

Food & fuel inflation killing poor people, Housing killing the "rich". And the middle class. And the poor who bought with nothing down.

Should have known that "Bubble 3" would be in consumables.

IHateToBurstYourBubble said...

Seeking to reconnect at Mt. Bachelor
The ski area has vowed changes throughout its operation to address natural, mechanical and perceptual challenges. It’s not unfamiliar terrain — in the mid-1990s, the mountain faced a similar test.

By Jeff McDonald / The Bulletin

Last winter’s discontent over Mt. Bachelor ski area’s operations and management may have resonated loudest on the blogosphere and in other media, but it wasn’t the first time the ski area has heard grievances from its local base.

Powdr Corp., which owns the resort, fired four of Bachelor’s top executives last month including General Manager Matt Janney. The company is expected to name a replacement as early as this week.

Whoever takes over for Janney will be faced with a ski area destination that for the first time in at least a decade will not be the most highly visited in the state, according to data from the Pacific Northwest Ski Areas Association, and will need to reconnect with the mountain’s local customers.

Even before Park City, Utah-based Powdr bought Mt. Bachelor ski area from local shareholders for $28 million in 2001, Mt. Bachelor had its share of pains, said Randy Papé, who served as president and CEO from 1998 until just before the sale was finalized in March 2001 and waged a legal fight to purchase the ski area before its sale to Powdr.

Mt. Bachelor has been a major source of jobs and wintertime tourism revenues feeding Central Oregon’s post-timber economy with what has grown to become a $570.7-million-a-year tourism industry since Bill Healy founded Mt. Bachelor 50 years ago.

“People felt the mountain had distanced itself and wasn’t an engaged corporate citizen within Bend and Central Oregon,” Papé said. “We had moved away from that and were more focused on operating a ski area and less on being an engaged member of the community.”

And that separation began years before Powdr took over.

Mt. Bachelor had begun to lose its sense of connection with Central Oregon communities in the mid-1990s after Healy had stepped down due to illness, according to Papé. He died in 1993.

Healy, the venerable founder with a “wonderful Irish sense of humor,” had been the face of the mountain, Papé said. Other top managers followed Healy without the same success connecting with the community, said Papé, president and CEO of the Papé Group Inc., a heavy equipment dealer in Eugene.

Gripes were related to sporadic lift shutdowns blamed on aging power lines that were replaced in the late-1990s, Papé said.

Locals at the time also complained of rising daily ticket and season pass prices that they said shut out families and an organization that seemed to care more about out-of-town visitors than its base.

The ski area had raised adult season pass prices bought prior to the 1999-2000 season to $898, which, by comparison, is $31 less than the same pass cost last season.

And while Mt. Bachelor raised its season pass prices several times during the period, Colorado and Utah resorts offered heavily discounted pass prices, Papé said.

Just days after Powdr bought the ski area in March 2001, The Bulletin’s headline read, “Skiers optimistic about Powdr Corp.,” and locals were quoted saying that they were excited about Powdr’s experience in the ski industry and the future changes that could occur.

Others were not so optimistic.

Papé had wanted to reinvest in the ski area with a revised master plan that would add lodging and retail at the ski area.

But Powdr had more of a bottom-line, cost-cutting approach when it took over, Papé said.

“In their view, maybe we were running it with too much expense,” he said.

In the seven years since Powdr purchased Bachelor, investments into the ski area have been sparse from skiers’ point of view, Papé said.

“To my knowledge, there has not been a great deal of investment that a skier would notice,” he said.

Mt. Bachelor’s spokesman, Justin Yax, would not divulge the total amount of Powdr’s investments, but said Powdr has invested in $3.5 million in a replacement lift for Pine Marten Express, a remodel of the West Village Lodge and $1.5 million in new snowmaking equipment since it bought the ski area. Other investments have included a new grooming fleet and ongoing maintenance, said Yax, who is public relations director at DVA Advertising & Public Relations in Bend.

Last month’s firings were announced just weeks after the end of a season that saw Mt. Bachelor’s skier visits drop by 7 percent, while the state’s ski resorts as a whole were reported to be on pace to set an all-time record for the 2007-08 season, according to data released by the Hood River-based Pacific Northwest Ski Areas Association.

Mt. Bachelor ski area’s declining skier visits and revenues were among reasons why Powdr fired the longtime employees, with more than six decades of cumulative experience at Mt. Bachelor, but they weren’t the deciding factor, Yax said.

Janney, who had worked at Mt. Bachelor off-and-on from 1976 until 2003, had been Powdr’s top official at Alpine Meadows, Boreal Mountain Resort and Soda Springs Mountain Resort in the Lake Tahoe area before he became Mt. Bachelor’s GM last July.

The GM he replaced, Dan Rutherford, also had started at Mt. Bachelor in the 1970s, and became president of the ski area just before Powdr bought it.

Janney and Rutherford declined comment for this article.

“It was time for a cultural change,” Yax said of the management shakeup. “It’s part of a cultural shift to bring in people more welcome to change or do things different than they had in the past.”

The new general manager’s biggest challenge could be communicating with a more sophisticated customer, who can speak en masse when it wants to share a viewpoint, Yax said.

Changes on the horizon

As it approaches its 50-year anniversary later this year, the ski area is planning numerous changes that will permeate all corners of the organization and reconnect it with the community, Yax said.

In April, Janney announced that the ski area would invest $3.4 million in capital items and other improvements at the mountain — including new grooming machines, a new snowblower for the parking lot, and new park and ride — hire four to five additional maintenance staff and implement a more aggressive maintenance program.

The investment would allow Mt. Bachelor within the next two years to change out lift parts before they wear out, Janney said at the time. Powdr says it still plans those improvements, perhaps at a faster pace.

“They’re putting themselves on a more proactive maintenance path with substantial staffing increases and throwing additional resources into the mountain,” Yax said last week.

Other changes could include amending Bachelor’s master plan with the U.S. Forest Service to build a new east-side lodge that would serve three to four new lifts, remodel West Village Lodge, and improve ski area circulation, Janney said in the April meeting.

Powdr Corp. is still moving forward on seeking to revise its master plan, a process which will be led by the new general manager with help from Whistler, British Columbia-based Ecosign Mountain Resort Planners Ltd., a mountain resort planning firm.

Revising the plan will require Forest Service approval and extensive public input.

Public opinion

The public’s support has been in doubt in recent years, starting with a rash of mechanical problems during the busy 2004-05 holiday season, according to reports in The Bulletin.

An engine problem with the Pine Marten Express lift stopped it abruptly Dec. 27, 2004, tossing seven riders onto the snow 10 feet below. There were no serious injuries, but one person broke a thumb, according to a Bulletin report.

Brian Bell, 61, a longtime season passholder from Eugene, had been sitting on the Pine Marten chairlift when it came to a sudden halt, then dipped, bounced back up and briefly went into reverse.

At the time, Bell criticized Mt. Bachelor’s reaction, saying he did not receive a caring and compassionate response from management.

Interviewed last week, Bell said he wants to see Mt. Bachelor succeed in its effort to reshape the mountain’s culture.

But he questioned whether his children or grandchildren would be able to enjoy the mountain due to what he called a “history of diminishing performance” by the ski area from 2005 to 2007.

“People have heard about it or experienced it and said, ‘I’m going to go somewhere else,’ ” Bell said. “Negative perceptions die over a long period of time. There’s been a lingering decline of the reputation exasperated by people’s concerns about their pocketbook. People want to feel assured of their recreational experiences, and know that they’re going to have a memory.”

At Mt. Bachelor, this season’s complaints were the worst in recent memory, but not always warranted, said Richard Wesseler, special use administrator for the Forest Service, which leases the land on which Bachelor operates to Powdr.

Annual lease payments to the Forest Service, based on a percentage of Bachelor’s total revenues, averaged about $536,000 over the past five years.

Many of this year’s complaints were targeted at lift operations, which actually improved in the 2007-08 season under Janney, Wesseler said.

The Forest Service does not require Mt. Bachelor to submit ongoing lift records, but every time a lift stops it gets recorded in the company’s logs at the mountain, Wesseler said.

The logs are open to the Forest Service for review, but Mt. Bachelor declined to provide access for this article to stop-log information.

Most of the issues that have occurred have been gearbox issues, not safety-related, Wesseler said. The gearbox is like the transmission of a car for the chairlift, and doesn’t affect the lift’s safety, he said.

“The public perception is that lifts should be constantly running — so people don’t have to wait at all — but it’s not the way it works,” Wesseler said. “People don’t want to hear that.”

Lift inspections

The Forest Service relies upon annual summer inspections performed by the ski area’s insurance company, Willis of New Hampshire Inc., and makes periodic inspections throughout the year, he said.

Unlike other states, such as Colorado or Washington, Oregon does not have a state tramway board that oversees ski areas. Instead, ski areas are monitored by the Forest Service and have their lifts inspected by a private insurance company’s qualified engineer or tramway specialist, according to the special-use permit agreed to in 2001 by Mt. Bachelor.

“We depend upon the insurance representative to ensure that the lifts are safe and everything is corrected when we open,” Wesseler said. “We feel confident that these folks know what they’re doing and the lifts are safe to operate every year.”

Following inspection, workers make necessary repairs. Resort management then writes a letter to the Forest Service to certify problems have been fixed.

A five-page report before the start of the 2007-08 season identified 39 lift maintenance and repair recommendations. Janney certified in a Nov. 20, 2007, letter to the Deschutes National Forest district ranger that all deficiencies noted in the report had been corrected except inspections of 20 percent of grips on lifts, which would be completed before the opening date.

The only incident reported by Mt. Bachelor last season happened in February when a 7-year-old snowboarder, who was participating in the mountain’s ski school, fell off the Sunrise Express chairlift after apparently having trouble getting properly seated. The girl was not injured, but the incident raised questions about Mt. Bachelor’s reporting procedures at the time, Wesseler said.

The chairlift operator had not been informed that the emergency stop button on the chair had been deactivated, according to Forest Service documents. Instead, the lift operator had to push the yellow button, which brings the lift to a stop at a slower rate. The girl fell 12 feet from the lift into soft snow and was unharmed, the documents said.

“The lift operator wasn’t informed that the button had been deactivated,” Wesseler said. “We asked Mt. Bachelor what their procedure was. They told us what they came up with and we were satisfied that they had thought it through and it wouldn’t come up again.”

Following the incident, the Forest Service inspected four lifts — Sunshine, Skyliner, Sunrise and Pine Marten — according to a Feb. 14 Forest Service document.

A Bulletin inspection of maintenance records filed with the Forest Service from 1993 to 2008 turned up no major maintenance problems during the seasons, and the ski area opened with a clean bill of health every season.

But the public outcries on blogs and Craigslist.org were so vitriolic that Mt. Bachelor employees were afraid to wear their company clothing in public over the winter, Janney said in April.

One employee was spat upon after she told someone she worked for Mt. Bachelor, Janney said then.

A pair of lift incidents were notable for raising the public’s ire.

On Dec. 31, 2007, a shutdown of the Sunrise Express chairlift caused what was reported as chaos at the base area and motivated the president of the Bend Chamber of Commerce board of directors to share his concerns in the chamber’s February newsletter about whether lift problems and Mt. Bachelor’s response to them would deter ski visitors from returning to the region.

The incident caused “inexcusable mayhem and confusion at the ski area,” David Rosell wrote at the time. “I observed the anger expressed by countless tourists visiting Central Oregon with their families.”

In March, another episode on the Northwest Express chairlift stranded hundreds of skiers and snowboarders on the western reaches of Bachelor’s slopes, forcing them to hike about a mile to Outback Express.

Many complained about Mt. Bachelor’s response to the incident.

Much of the complaints have been targeted at Powdr, which also owns and operates Park City Mountain Resort in Park City, Killington and Pico resorts in Killington, Vt., Boreal and Soda Springs resorts on Donner Summit, Calif., and Las Vegas Ski and Snowboard Resort outside Las Vegas.

“Certainly there are a lot of disgruntled folks in Central Oregon,” said Marc Guido, editor of the First Tracks!! Online Ski Magazine, based in Salt Lake City. “Folks are not happy with lift maintenance, and Powdr has always been a bottom-line-focused organization.”

Guido blamed Powdr for shortening the spring-skiing season, both at Mt. Bachelor and Killington, which Powdr bought in May 2007.

“The potential for spring skiing is the best in the U.S.,” Guido said of Mt. Bachelor. “They used to stay open through June.”

Mt. Bachelor stayed open this year with limited lift operations through May 18, but skier visits began to diminish several weeks earlier, Yax said. Few other ski resorts in the country stay open as late as Mt. Bachelor, Yax said, adding that attendance doesn’t justify the operating expense of remaining open later.

At Killington, Powdr also fired an unspecified number of longtime employees last summer, according to an article in The Rutland Herald in Rutland, Vt.

Powdr also announced a 61 percent increase in season pass prices there, raising the pass prices from $619 to $999 and angering many of Killington’s longtime skiers, some of whom called at the time for a boycott of season pass purchases until October, according to the Herald article.

For the 2008-09 season. Powdr announced in March that it would invest $8.4 million into Killington, the largest ski and snowboard resort in the East, for a new high-speed replacement lift and other on-mountain improvements. The best available rate for unlimited adult season passes again was increased, by 5 percent, to $1,049, according to Killington’s Web site.

“People are screaming in Killington because the operating season is so much shorter,” Guido said. “Businesses (that draw revenues from ski visitors) are seeing serious impact on their bottom line.”

Powdr reaching out

The company says it plans to sponsor more local events and meet regularly with business and community leaders.

After meeting with Powdr’s chief operating officer, Hedwig Demschar, in Bend last week, Jim Kinney, general manager of Seventh Mountain Resort, said Powdr and Mt. Bachelor are working hard to re-establish ties with the community. Kinney, who runs the closest lodging property to the ski area, has noticed a stronger attempt on Powdr’s part to reconnect with the local business community and concerned individuals since last month’s firings.

“My concerns were that previous leadership here locally did not engage the community and its partners enough from a marketing and partnership standpoint honestly and openly,” Kinney said. “They did not engage the business community. Demschar was willing to apologize for that and recognized that.”

Other local ski officials also supported Mt. Bachelor.

“I personally think Mt. Bachelor is sitting on a bum wave of people complaining who have no idea what they’re talking about,” said Matthew McFarland, general manager of Hoodoo ski area, west of Sisters. “I don’t know why there’s such a negative perception, but it’s something that is feeding itself over and over again.”

Nature’s ‘gnarly’ challenge

One of the chief culprits for Mt. Bachelor’s lift challenges is a perennial Northwest nemesis: rime ice.

The ice affects mountains such as Mt. Bachelor in maritime climates at higher elevations where frozen fog, sometimes more than a foot thick, clings to lift equipment and can delay lift openings, said Tom Lomax, Mt. Bachelor’s operations manager.

The ski area plans to tackle rime ice next season by hiring five additional maintenance employees who will split up into two crews and open the chairlifts on the western side of the mountain — Outback Express and Northwest Express — at 5 a.m., the same time as the mountain’s east side gets attention, Lomax said.

“We’re not trying to beat a mountain,” Lomax said. “But we’re looking to increase the startup crew that clears the rime. This year, from my experience, was one of the top couple of years ever with rime ice. It was gnarly.”

Mt. Bachelor’s rime ice problems are probably the worst in North America, said Mike Lane, a technical adviser for the U.S. Forest Service, who is based in Golden, Colo.

“It’s a pretty nasty environment to work on the lifts,” Lane said. “All ski areas deal with it, but Bachelor gets a bunch. This year was bad for sure.”

Addressing pricing

If Mt. Bachelor is to restore its public ties, it will need to be successful reconnecting with its local base, said Michael Berry, president of the National Ski Areas Association in Lakewood, Colo.

When the ski area had trouble with public perception in the 1990s, it offered various ticket programs aimed at locals, including a points club where customers could purchase points that would be used toward specific lifts. The program was attractive for new and less-skilled guests to ski during the mid-week time when visitor traffic is light, according to documents on file with the Forest Service.

Customers would pay a one-time fee of $45, plus $35 for a “Flex-time Point ticket” that could be used on different runs on a Sunday, Tuesday and Thursday throughout the season, including holidays, according to the Forest Service documents. The $35 fee was about the cost of a single-day ticket in 1994.

Different lifts had different point values. High-speed chairs cost more.

Today, the “Flex Ride” offers customers a 10- or 20-ride pass that can be used to ski any run, any day and is transferable from season to season for $70 and $140, respectively.

“The biggest difference is the flex ride tickets today are valid 7 days a week,” and are worth the same amount for every ride, Yax said.

In the mid-’90s, Mt. Bachelor also began offering three days of free skiing for fourth-, fifth- and sixth-graders and shuttled them to the mountain, free ski days for the general public and other discount programs, according to Forest Service documents.

The student skiing was part of a nationwide program that Mt. Bachelor, through Ski Oregon, participated in at the statewide level, Yax wrote in an e-mail.

“For unknown reasons, the program was disbanded at a national level after about five years, and the Ski Oregon member resorts, including Mt. Bachelor, began to phase out the program,” he wrote, citing a company official. “Mt. Bachelor continued the program for a few years, but it was eventually phased out altogether due to a lack of interest from the school districts.”

However, when Powdr ended the program in 2001, a spokeswoman said at the time that it cost too much and kept students out of the classroom too long. The program cost the ski area $100,000 in 1999-2000, she said.

Today, Mt. Bachelor offers a midweek schools program that can be arranged in advance, where students buy a daily lift ticket, receive a lesson and get rental equipment for $30. The school districts are responsible for providing transportation to the mountain.

Rising pass and ticket prices have long been the bane of frustration for skiers, but Mt. Bachelor maintains that prices have not gone up as dramatically under Powdr’s ownership as some people think.

By the start of the 1999-2000 season, the price had reached $898, only $31 less than it is today. Daily lift ticket prices went up from $43 in 1999-2000 to $56 in 2007-2008, Yax wrote.

Mt. Bachelor has tried to hold down the price of its season passes, which are bought by about 80 percent local residents, compared with its daily ticket prices, which are bought mostly by out-of-town visitors, he wrote.

“When you compare these increases or decreases alongside the consumer price index (which has risen 24 percent since 2000), it’s hard to think of another business where prices for such products/services have barely increased or substantially decreased,” Yax wrote in an e-mail.

Mt. Bachelor will walk a fine line in the future addressing the needs of its local base and out-of-town visitors, its former president Papé said. It will need locals’ support if it wants to make big changes, such as changing the master plan, he said.

“It still needs to re-establish its relationship with the community, including hoteliers, restaurant people and the general public,” Papé said. “That will be essential to bring more people to Bend.”

IHateToBurstYourBubble said...

That is actually a fairly informative history of Mt Bachelor.

Although I see they could not resist the "$570.7 million" bullshit.

The problem is the thing is owned by some corporate Harvesters. They're just harvesting the thing, sucking cash from it.

They have raised prices to ridiculous levels, and put nothing back in. They've got the local Mt Cocksuckers COVA bitches spending $100K's on packing people in beyond 100% capacity. People are fed up.

Putting lodging at the base will only make things WORSE.

When you HARVEST something & never put anything back, you end up with an empty shell. You're deluding yourself if you think anything else will happen.

IHateToBurstYourBubble said...

I don't know if anyone read the Wed Bulletin piece, "As a part of strategic shift, Bend Research cuts jobs", but the Bull was complicit in making this sound like it was part of "some thing", that they made sound like it bordered on... an Expansion. Quoting CEO Rod Ray:

"We're changing our business model from having a single large client (Pfizer) to going out and building a base of new customers and getting into some new technical areas", he said.

Right.

still renting . . . said...

I went to that outlet mall in the southern part of town the other day and about one-third of the stores were vacant with "Available" signs--seven or eight of them. On one visit last year there were only one or two empties, if I recall correctly. Felt like a graveyard in comparison.

Anonymous said...

I found it kind of an odd thing that Mt Bach were selling cheaper daily tickets to out of area skiers (via Joe's outside of Bend) than in-town skiers.

Anonymous said...

I agree that Bend is a wonderful place to live but it is no better than these other areas. And it's far from the utopic wonderland the housing bulls would have us believe.

Hallelujah! Finally, a voice of sanity.

So can we finally put an end to the "it's different here" mantra?

Probably not, because (a) we have nothing to sell the world but our "lifestyle" so we have to keep hyping it to the max, and (b) we've been repeating the mantra so long that many of us have come to believe it ourselves.

Anonymous said...

The Bay is possibly the only place in the US that'll go down harder than Bend.

Nope. The Bay Area has too many things going for it that Bend doesn't. It's a metropolitan hub, home of several leading universities, centered on one of the world's great cities, and you can actually earn a good living there. Oh, and the climate is really nice. Bay Area real estate is overvalued and there will be a correction, but the fundamentals are there. Bend real estate market is nothing but smoke and mirrors.

Anonymous said...

I went to that outlet mall in the southern part of town the other day and about one-third of the stores were vacant

Outlet malls are passe. The Bend one actually was in decline long before the bubble popped.

Anonymous said...

Go back to your cave, Costa.

LOL! But let's face it, you do come off as a little bit obsessive.

timothy said...

>>That is actually a fairly informative history of Mt Bachelor.

tl;dr

Marge said...

If you want some really good stats on the Bend Market go here:
http://www.bendpropertylistings.com/Real_Estate_Trends/
His numbers guy does a great job breaking it down by price range and section of town.

Marge said...

If you want the PDF each month you should contact them and request it.

Anonymous said...

>>> The Bay is possibly the only place in the US that'll go down harder than Bend.

>>> Nope. The Bay Area has too many things going for it that Bend doesn't.

Agreed. Check the job listings for the bay area and you will see thousands of high-paying jobs available. The bay area has pretty much everything going for it, except affordable housing. If San Francisco added a hundred thousand housing units tomorrow they would be filled the next day--with people from all over the globe.

IHateToBurstYourBubble said...

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

We're worth $186,667 each!

Yeah! I'm RICH!

IHateToBurstYourBubble said...

The Bay Area has too many things going for it that Bend doesn't.

It's the Next Detroit.

You'd have said the same thing about Detroit in the 1950's. Unstoppable. A GM goes, so goes the US, etc.

What about Tokyo 20 years ago? White Hot Center of the World for the next 100 years right?

San Fran is The Death Zone for the next 50 years.

I'll say this: I'd rather be in Wichita or Des Moines for the next 30-40 years than San Fran.

IHateToBurstYourBubble said...

http://www.bendpropertylistings.com/Real_Estate_Trends/

Yeah, that is a good one. He's got yearly listing medians & sold medians, plus numbers of sales going back to 1997.

Good stuff.

Anonymous said...

"San Fran is The Death Zone for the next 50 years."

what is that opinion based upon? i'll need some convincing. thanks.

Anonymous said...

It's the Next Detroit. You'd have said the same thing about Detroit in the 1950's.

You have got to be kidding. There is absolutely no comparison. Detroit is an ugly industrial city in the Midwest with a crappy climate. Detroit had only one industry (cars) and when that went tits-up, so did Detroit; the Bay Area economy is much more diversified. Detroit is not home to any major universities; the Bay Area has Stanford, Berkeley and several others.

I've seen the ups and downs of the Northern California real estate market. It goes down but it always comes back up. This time will be no exception. The drop might be worse than usual but the place is not going to nearly dry up and blow away as Bend might.

Anonymous said...

is the price of gas really going up or the value of the dollar going down? Someone I think it was marge asked last week who is really stockpileing? believe you me I am ,food will double and quadruple in the next --- months, god gave us a brain and i will use mine, Prepare for the worst and hope for the best. Things can happen so fast but I really believe we are given ample time to prepare it is just how much of denile you are in, and what steps you willing to take. Have at least 6 months of food and If again if it hits the fan soon it will buy you some time. and if the food doubles that just turned into an investment.

WSJ said...

Oregon Finds a Counterweight in Software
By JUSTIN SCHECK
June 9, 2008; Page A3

PORTLAND, Ore. -- Hardware-manufacturing layoffs in the Northwest's tech industry echo cutbacks that hammered it early this decade, but this time the blow has been absorbed by the scores of software and online-services companies that have sprouted in the past few years.

Old-line tech manufacturing is retrenching because of global outsourcing and fierce competition -- the same factors that shuttered Northwest chip and computer factories starting around 2001. Then, laid-off technology workers in states such as Oregon had few other tech-job options. This time, there is a parallel tech sector, including many small start-ups, to take on some of those skilled workers.

Mark Van Horn's experience is typical. In 2004, after the last tech bust, he was laid off from his programming job at a computer-graphics company near Portland. He spent nine months job-hunting before landing at Intel Corp. But in late 2006, Intel said it would make a major round of layoffs.

Assuming that his job would be cut, Mr. Van Horn started sending out his résumé and braced himself for another long haul. He was surprised when he was hired by Kryptiq Corp., a small health-care-software concern in Hillsboro, Ore., before Intel's layoffs went into effect.

Intel has cut more than 1,800 jobs in the Portland area, or about 11% of its work force there, since late 2006.

In contrast, smaller software and Internet companies are hiring. Kryptiq, for example, has gone from 41 employees in 2004 to more than 100 now; Jive Software, which moved from New York to Portland in 2004, has 155 employees and expects to be at 200 next year; and Vidoop LLC, which develops Internet-security software, has gone from four employees in 2006 to 45 now. Vidoop Vice President Scott Kveton expects to exceed 100 employees next year.

Oregon's software work force has grown 46% since its low in 2004, to about 9,500 jobs. "We didn't expect it," says state labor economist Art Ayre, who predicted last year Oregon would have 9,900 software jobs by 2016. "It really has come powering back, and should be far ahead of what we expected."

The computer-manufacturing sector now employs 39,600 -- or 2,700 fewer than at this time two years ago, for a decline of more than 6%, state data show. Mr. Ayre expects the decline to continue between now and 2016.
[chart]

But partially as a result of the growing software and Internet companies, Oregon's economy has so far remained relatively stable. Its unemployment rate of 5.5% in April was up from 5% a year earlier, mainly because of a construction-industry slowdown. The national unemployment rate in April stood at 5%.

"We're seeing, increasingly, the nonmanufacturing side of the business moving here," Mr. Ayre says.

A similar pattern is seen in Idaho, says Idaho state labor economist Jannell Hyer. Over the last year, the state has seen layoffs at some of its biggest tech manufacturers, including Micron Technology Inc. and Hewlett-Packard Co.

Still, Ms. Hyer says, Idaho saw a net gain in tech jobs last year, thanks to smaller tech companies that are growing at a faster rate than in the past. Idaho's overall unemployment rate was 3.1% in April, up from 2.7% a year earlier -- also mainly because of a construction slowdown -- well below the 5.4% rate in April 2004.

In the summer of 2003, Oregon's unemployment exceeded 8.5%, the highest in the country. Back then, during the last tech bust, laid-off tech workers had fewer alternatives and often had to move away or wait for their old employers to rehire.

Over the past five years, improved Web-based business technologies have also made it easier for companies to work outside tech hubs such as Silicon Valley. Jive Chief Executive Dave Hersh, who moved his company to Portland in 2004, says Manhattan was "too expensive" for it to grow at the rate he wanted.

Executives who have started companies in the Northwest in recent years also cite low housing and business costs and an existing community of programmers coming from companies such as Intel, H-P, Micron and Microsoft Corp.

To be sure, the recent software growth could end up being part of one more boom-bust cycle; Oregon has been hit by many busts in its various sectors, including logging, forest-products manufacturing and technology. Also, software and Web companies tend to be too small to fully offset the region's job losses from tech-hardware plants.

But for now, workers like Sharon Kyne continue to benefit from the small-company growth. Last fall, H-P gave the project manager a nine-week deadline to find a new job at H-P or get laid off. Ms. Kyne opted for the buyout.

After posting her résumé on social-networking Web sites, she says, "I got at least a dozen leads from people I hadn't met before, mostly at software or Web-based companies" in the Portland area. In March, she joined eROI Inc., a 50-employee online-marketing and software company in Portland.

Her boss, eROI Chief Executive Ryan Buchanan, says he isn't too worried for other big-tech-company employees in the region who get laid off. "I think most of them will get absorbed," he says.

Write to Justin Scheck at justin.scheck@wsj.com

Anonymous said...

"Have at least 6 months of food ... and if the food doubles that just turned into an investment."


This reminds me of that Seinfeld episode where Kramer buys 6 months of Beef-a-roni and then can't find any place to store it. He starts feeding it to horses but the extreme flatulence that is generated does in his hansom cab ride business.


*


In any case, inflation in food prices does NOT imply that food is disappearing. It just means that you have to pay more for it.

If you're so worried about food vanishing from the earth, capture some squirrels and keep them locked in your garage. Then if the world's food disappears, you'll be in good shape -- in fact if the food doubles those squirrels "just turned into an investment".


*

Marge said...

Anonymous said...
is the price of gas really going up or the value of the dollar going down? Someone I think it was Marge asked last week who is really stockpiling?


There is no reason not to stockpile. Anything you buy today will cost you more next week. We know that staples and foods you use on an annual basis, are going to at minimum, double in cost, buy now, if you can, and stockpile. Really all it is a rather large pantry.
Anything heavy, like oils or batteries, sugar, flour, rice, beans that can be stored easily!!! It's a slam dunk to buy a years worth and store. Diesle fuel will be way up and truckers are already parking their over leveraged trucks

You don't have to be fearful of the days ahead to simply fill the pantry. You just need the bling to so it.

timothy said...

Don't stockpile gas. Some idiots have already blown themselves up doing that.

The price of oil is going up, It's not just the dollar going down. This is easy to check. Just read about the troubles other countries are having with fuel prices.

IHateToBurstYourBubble said...

It goes down but it always comes back up. This time will be no exception.

I beg to differ.

IHateToBurstYourBubble said...

Anything you buy today will cost you more next week.

I guess before I would actually stockpile food, I'd garden more. Something about food that will keep forever at room temp, is unwholesome.

Garden. Maybe have cows or something. Farming is finally coming back...

Marge said...

Someone I think it was Marge asked last week who is really stockpileing? believe you me I am ,food will double and quadruple in the next sometime

We all should be packing our panties..opps pantries..sorry...sort of.
There is no reason not to pack the pantry full if you can afford it.
I wish I had a pantry, mine consists of 3 large storage boxes. Guess I shall buy more.
Well, think about packing the pantry now and God speed.

IHateToBurstYourBubble said...

It's the Next Detroit. You'd have said the same thing about Detroit in the 1950's.

What is I told you HOMES were going DOWN IN VALUE, 5 years ago?

Its EASY to believe now, cuz it's happened, but 5 years ago, it had NEVER happened.

What if I told you when gold was in the $100's, that it'd hit $1,000/oz in 5 years? Or oil would hit $140/bbl? GAS AT $4/gallon?

What if I told you people would start TALKING ABOUT STOCKPILING FOOD?

I remember predictions about oil hitting $100/bbl in the 2 years after Katrina, that MANY PEOPLE thought was irresponsibly alarmist.

This credit implosion is going to take out some BIG businesses, notably BANKS. But The Bay consumes credit like Madras illegals consume Meth. The Bay will go DOWN. It'll be a slow grind like Detroit. But it'll hapen.

Do you believe this credit crunch will make the US a second rate Superpower. I do, and I said so 1 1/2 years ago to much howling of protest. NOW, it seems VERY possibly. If you can believe the US is going down, why not San Fran?

It's the next Detroit, mark my words. I'd rather own Wichita & Des Moines than The Bay.

timothy said...

>>We all should be packing our panties..opps pantries..

I think you mean pasties.

Anonymous said...

Where Will U.S. Banks Beg Next?
By KAREN RICHARDSON
June 9, 2008; Wall St. Journal

An all-star lineup of private-equity and sovereign-wealth funds opened their wallets when U.S. financial institutions needed capital during the early throes of the credit crunch.

Who's going to help next?

The pummeling Friday of National City and Washington Mutual shares knocked the respective investments of U.S. private-equity firms Corsair Capital and TPG well below the discounted prices at which they bought in.

They're just the latest examples on a long list of high-profile bets that don't look as if they're working so far. Last December, Singapore's Temasek Holdings said it would invest $4.4 billion in Merrill Lynch at $48 a share, with an option to buy an additional $600 million. Friday, Merrill shares closed at $39.02.
[Chart]

The Abu Dhabi Investment Authority struck a convertible-stock deal with Citigroup in November to pump $7.5 billion into the bank when Citi shares were trading above $30 a share. Now they're treading water at $20. China Investment Corp.'s $5 billion investment in Morgan Stanley last December in exchange for a nearly 10% stake is also out of the money; the shares are off nearly 20% this year.

Then there was Warburg Pincus's bet on beleaguered bond-insurer MBIA. Even with its purchase of shares in January at around $12 designed to "average down" its initial investment at $31 a share, Warburg's investors are now proud owners of MBIA shares valued at $5.44 each, with a couple of board seats added in for good measure.

Private-equity and government funds argue that they're long-term investors who've successfully weathered rocky periods before. At a conference last week, TPG co-founder Jim Coulter analogized such wagers to renovating a home, saying that however long you think it will take for your investment to recover, it will take "double the time, double the money."

Yet, the credit crunch doesn't appear to be over. The Federal Reserve in March tossed out a lifeline to Wall Street banks in the form of easier access to short-term credit. But losses are still piling up on bad loans, and the economy is slowing, meaning more capital is already needed. Lehman Brothers Holdings is next on the list, in the process of raising $5 billion of capital. Much of it will come from inside the U.S.

Given the performance of these investments so far, how much worse does it have to get before pension trustees and university endowments and the top-tier private-equity firms they back ask whether it makes sense to keep doing this? How long before rich overseas funds stop giving cash to Wall Street firms that lose their money?

Wall Street could bang its cups in dicier places. State investment funds are taking root in places like Algeria, Angola, Libya and Zimbabwe. Kazakhstan has a National Fund, bulking up thanks to soaring oil and gas revenue.

Selling stakes to funds of authoritarian or unstable regimes in frontier markets doesn't quite mesh with Wall Street's lofty image of itself. But it created this mess, and beggars can't be choosers.

Write to Karen Richardson at karen.richardson@wsj.com

IHateToBurstYourBubble said...

Hard drives? My first was 20 megabytes for $800.

That's why inflation is notoriously hard to figure. Large screen TVs cheaper and cheaper even this year.


But it seems that while some parts of tech seem to obey Moore's Law, although less & less over time, a humans ability to extract from utility from it is "square root-ish".

It IS still going up & prices are coming down, but remember the heady days of Win 3.11 and 95 and 98? Now its Vista running on the same craptacular Intel chips, at unknown MHz cuz Intel saw it coming, although hard drives continue to get ridiculously cheap.

I'm just not sure how much I buy the Tech as Inflation Savior anymore. My laptop IS dirt cheap, but for the first time I don't think my next one will be 5X better at 1/3rd the price. Maybe 50% better at the same price.

Anonymous said...

I think you mean pasties.

Packing our panties with pasties?

Packing our pantries with pastries?

I'm confused, sargeant.

IHateToBurstYourBubble said...

You thought Olde Bend was nutty:

Prineville Reservoir creates ripples through the region

Though most visitors make their way in and out of the reservoir without incident, the mix of alcohol use and outdoor recreation does lead to higher-than-usual demands on law enforcement, said Crook County Undersheriff Jim Hensley. A couple of decades ago, the area was sometimes a rough-and-tumble place during the busy summer months.

“Years ago, we used to cringe at the thought of three-day weekends up at the reservoir … we had shootings, stabbings up there — one time we had a guy shooting a fully automatic machine gun across the reservoir, and we caught him the next day,” Hensley said. “Over the years, because of improvements done up there and our patrols, it’s tamed down, and it’s more of a family place.”

timothy said...

>>although less & less over time,

There's been no slowdown in Moore's law YET, although it's always expectd.

As for utility. Yeah, right. Did you have a blog 5 years ago?

5 years from now will be even more amazing. Tech is accelerating.

Assuming you have any food to eat, it's going to be awesome.

Anonymous said...

I'd rather own Wichita & Des Moines than The Bay.

I agree you might possibly see better real estate appreciation in those places, but comparing the Bay Area to Detroit, as you did, is just absurd. I think you got a little carried away and made a statement you're now too embarrassed to back away from. That's okay -- you write a hell of a lot on this blog and it can't all be pearls of wisdom.

BTW I also could see five years ago that local RE prices were unrealistic and the bubble would pop someday.

Anonymous said...

“Years ago, we used to cringe at the thought of three-day weekends up at the reservoir … we had shootings, stabbings up there — one time we had a guy shooting a fully automatic machine gun across the reservoir ..."

Ah, those truly were The Good Olde Days! Drunken rednecks as far as the eye could see!

IHateToBurstYourBubble said...

BTW I also could see five years ago that local RE prices were unrealistic and the bubble would pop someday.

5 years ago? 2003? Really?

I thought they were a little stiff in 2003, but not bubble-ish. 2005 was when I thought things had gone a little nutty.

comparing the Bay Area to Detroit, as you did, is just absurd.

I'd rather own a $12K tenement in Detroit today for the next 30 years, than a $1MM apartment in downtown San Fran.

Go look at US Steel. $10 or so just 5 year ago... $180/sh today.

What's Old Is New Again.

IHateToBurstYourBubble said...

That's okay -- you write a hell of a lot on this blog and it can't all be pearls of wisdom.

Unprecedented Economic Events are the watchword for the next 10 years.

US becoming #2.. or #3.

Steel, oil, food... all going hyper-inflation? Did you see that 5 years ago?

Housing prices declining? C'mon. BEM started this blog in 2006, and there was STRONG opinion that housing was becoming the Ultimate Scarce Resource. "Buy Now Or You'll NEVER Be Able To Again!" Sounds just ridiculous today, but if we had BEM's archive's you'd see that just 2 short years ago, housing scarcity was the reality.

I agree San Fran is a beautiful place, hell I got married near there. But it's also a financial house of cards. NYC periodically goes down the crapper... why is the Bay immune?

Again, the Rust Belt is THE investment theme for this country for the next 20-30 years.

IHateToBurstYourBubble said...

It wasn't even a year ago, and we heard about LAND SCARCITY as The Problem in Central Oregon.

How ridiculous is that?

I asked people to head out to Pine Mountain & have a look: We do not have land scarcity. We could stack Cali's like firewood as far as the eye can see, and still have tons of room.

A year ago we had COMMERCIAL SPACE SCARCITY in Bend. Took a year to wipe that out.

San Fran is 1991 Tokyo. Seemingly invincible, scarce land, huge demand.

San Fran won't disappear... but Tokyo has been a BAD INVESTMENT for the last 17 years, and NO ONE predicted that. Casualty of a Liquidity Event.

Anonymous said...

It wasn't even a year ago, and we heard about LAND SCARCITY as The Problem in Central Oregon.

How ridiculous is that?

I asked people to head out to Pine Mountain & have a look: We do not have land scarcity.


Well, if you can figure out a way to get the government to sell you a parcel, let me know.

Anonymous said...

Go look at US Steel.

I guess I am obtuse but but I fail to understand what the price of US Steel stock has to do with the future price of real estate in San Francisco. Except that if Great Depression II comes they will both be fucked, along with everything else.

Anonymous said...

San Fran won't disappear

We agree on something at last. I say it won't turn into Detroit either. But time will tell, to coin a cliche.

Marge said...

Something along the line of 84% of Deshcutes County is guberment land. They are not cutting loose of much. The only parcels they will sell are small and not contiguous to other guberment land.

Anonymous said...

"I'll say this: I'd rather be in Wichita or Des Moines for the next 30-40 years than San Fran."

I'd rather you were in Des Moines too.

This blog gets a little overblown. The Bay area is overpriced, but it is still a wonderful area. Same for Bend. I could live in Aspen. I could live anywhere. I like it here. I moved here because of that.

People tried to bank a bit too heavily on the attraction of Bend, and are now losing their shirts, but the well-to-do scum you all loathe are still here, and will remain a factor. The crash will continue, but this place is no Madras (or Detroit). It won't crash as far as you hope.

Anonymous said...

"This blog gets a little overblown. The Bay area is overpriced, but it is still a wonderful area."

===

A little overblown?

The Bay Area has Stanford and Berkeley, Silicon Valley and an economy bigger than the 20th largest country.

Bend has COCC and a satellite campus of a 3rd tier public University, and an economy bigger than Philomath and Burnt Woods, which is based on Becky Breeze, Bill Smith and two rejects from the Bay Area.

To say that the Bay Area is going the way of Detroit is as overblown as that idiot REHO who predicted that Bend's RE prices would turn around April 24th.

Anonymous said...

II: 50,000 MULTIMILLIONAIRES AND COUNTING
When it comes to wealth, the Bay Area has long been characterized by bouts of boom and bust: Folks make a mint overnight, only to see it vanish just as rapidly. This was the story with semiconductors in the 1960s. For many, the same dramatic rise and fall was repeated during the ’70s and ’80s in computer hardware. Then there was what Internet pioneer Halsey Minor, cofounder of CNET Networks, has called “the mother of all cycles”—the dot-com explosion of the late ’90s and the catastrophic crash of 2001.

But what the scene from the 27th floor at One Rincon suggests is that this time, an unprecedented number of the Bay Area’s wealthy may escape the usual roller-coaster ride. These people are rich now, and they’ll be rich when the latest economic downturn has run its course. In fact, many of them may take advantage of this slack period to become even more prosperous, as they gobble up equities and other assets on the cheap.

To be sure, plenty of fortunes will disappear in a puff of smoke, just as they always have; that’s the nature of the area. Yet what seems to have happened since the dot-com crash is that those who have made it big now have a much less tenuous hold on their money. “There was a tech boom. There was a tech crash. But fundamentally…the wealth here has steadily grown, year in and year out,” says Deborah Shore, who runs Wach¬ovia’s western wealth-management division out of San Francisco. Adds Warren Hellman, one of San Francisco’s best-known financiers: There’s now “a base of wealth with a certain stability” that was absent before.

The sheer size of that base is staggering. One research outfit, TNS Financial Services, estimates that more than 265,000 households in the Bay Area—or greater than 10 percent—now boast a net worth of $1 million or more. (This doesn’t include home values.) A full 1 percent, the company figures, enjoy a net worth of $5 million or more. Another research firm, Claritas, counts more than 50,000 households in the region with $2 million or more in liquid assets—that is, money in checking and savings accounts, stocks, and other investments that are easily redeemable. (Homes and pensions aren’t included.)

That amounts to about 2 percent of all households here having a couple mil at their disposal—a statistic that makes for a greater density of wealth than exists in New York, Los Angeles, Chicago, Philadelphia, Dallas, Boston, Atlanta, Houston, or Seattle. (By this yardstick, only the Washington, D.C., area trumps San Francisco and its surroundings.)

Climb up the ladder, and the trend is even more pronounced. Forbes lists 47 Bay Area residents among the world’s 1,125 billionaires. The roster includes examples of new money, like Google’s Sergey Brin and Larry Page; old money, such as Oracle’s Larry Ellison; and really old money, like William Randolph Hearst III. But even more striking is the magazine’s separate catalog of “billionaire cities” around the globe. There, San Francisco ranks eighth; 19 of its residents have an average net worth of $3.1 billion apiece. What’s more, look at every other city on the list: Moscow, New York, London, Istanbul, Hong Kong, Los Angeles, Mumbai, Dallas, and Tokyo. They’re all larger—in most cases, much, much larger. For instance, Los Angeles, with 24 billionaires, has a population five times greater than San Francisco’s.

III: NEW RIVERS OF MONEY
That all these people, whether millionaires or billionaires, appear better positioned than ever to hang on to their riches reflects several things. Perhaps most important, the Bay Area sits at the confluence of three widely acknowledged trends that have created—and will continue to create—a colossal amount of wealth in the 21st cen¬tury. Even if one of these engines falters, the other two can continue to churn.

For starters, there’s globalization. Picture, for example, the scores of U.S.-educated Chi¬nese nationals who return to their native country and, in the words of a study by the Bay Area Economic Forum, wind up shut¬tling between the local region and greater China “to build and run companies…creating wealth for founders and investors…on both sides of the Pacific.”

Next up is the proliferation of high-octane financial instruments. One database I scoured indicates that the Bay Area is now home to about 75 active private-equity firms and some 400 hedge funds—tributaries of what Robert Frank, author of the best-selling book Richistan, describes as a “river of money” that flows from country to country and “has supercharged the process of getting rich.” McKinsey & Co. says that financial services account for 1 of every 14 private-sector jobs in San Francisco—one of the highest concentrations of any city in the country.

The third factor is technology. Late last year, Google alone was reported, over its history, to have handed out stock grants and options worth more than $5 million to each of 1,000 different employees (though the Internet behemoth’s share price has declined since then). And the odds are awfully good that this region will spawn the next Google. The Bay Area Council Economic Institute recently found that in 2006, local companies attracted $9.5 billion in venture capital—an astounding $1,370 per resident. In second place was Singapore, at just $180 per capita. The figure for New York: $107.

Increasingly, this VC money is smart money—or at least smarter money. Investment firms are insist¬ing on solid business plans, not the half-baked schemes they would have thrown millions at previously. This raises the odds that they’re going to back a winner. In addition, within the high-tech arena itself, dot-com mania is giving way to a healthier mix of investments in biotechnology, green technology, nanotechnology, and other subsectors, reducing the chances that the bottom can fall out at the same time for so many people, as it did earlier in this decade.

Home prices aren’t going to crater for the really rich, either. That’s because, even amid the mortgage meltdown, a sufficient amount of demand is still chasing a very finite supply of high-end housing. In the fourth quarter of 2007, according to DataQuick Information Systems, 17 of the 20 most expensive zip codes in the region saw a year-over-year increase in their median home price.

Add to all this a full generation or two of the would-be well-to-do: engineers and MBAs, fresh out of Stanford and Berkeley, who were exposed at a young age to a culture of entrepreneurship and the incredible riches that can go along with it—and who are now determined (for better or worse) to grab the golden ring themselves. Toss in the Bay Area’s relentless fervor for innovation, and you can start to see how the region’s notorious penchant for boom and bust is giving way to something else: a spectacu-larly large and permanent “overclass.”

IV: NO MORE KOOL-AID
Talk to Bay Area financial advisers, and they’ll tell you that the wealthy have become smarter about how they invest their dough. People, they say, are much quicker to cash out these days if their company goes public. No longer do they leave $300 million on the table in hopes of seeing it soar to $600 million—only to watch it shrivel to $15 million or, God forbid, all the way to zero.

Some entrepreneurs are even pressing to take a significant chunk of the financing that they raise and put it in their own pockets, not into their companies—something unheard-of in the VC universe six or seven years ago.

People “learned from the bubble,” says Jane Williams, the chief executive of Sand Hill Advisors, a wealth-management firm in Palo Alto, where I hung out for a couple of days to better understand the current psychology of the rich. Jim McCaffrey, Sand Hill’s president, puts it like this: “Unless you’re really kind of numb, you’re going to do something different” the second time around.

Take Steve Larsen, the cofounder and chief executive officer of Krugle, a Menlo Park startup that provides a search engine for software developers. He’s hugely enthusiastic about the company, which was launched in 2006, and thinks it has the potential to do very well, both technologically and financially. Still, he’s the first to concede that “you need to temper your belief and enthusiasm” by making the right investment decisions.

Larsen earned this insight the hard way. In the late ’90s, he was a founding executive at Net Perceptions, whose software enabled e-commerce companies to learn about individual customer preferences and make personalized product recommendations. At one point, when Net Perceptions’ stock reached $34 per share, Larsen exercised a bunch of options. But he didn’t wind up liquidating the shares and diversifying his holdings, partly out of loyalty to the company and his colleagues (“You don’t want to send the wrong signal to the market”), and partly because he believed that the stock would keep going up and up and up. For a while, it did—that is, until it didn’t. By the time Larsen had unloaded his stake, Net Perceptions stock had tumbled to just $1 or $2 a share. For “too long,” he says, “we were drinking our own Kool-Aid.”

Even so, Larsen wound up with a windfall of “a couple million” dollars, which could have salved his wounds somewhat. “And then,” he recalls, “I got a multimillion-dollar tax bill.” The IRS had valued the stock at the original exercise price of $34, blindsiding Larsen and leaving him in the hole. “That happened to a lot of people,” he says. Thankfully, he had already made some decent money at Citysearch, another company he’d helped lead.

More cautious now, Larsen has resolved that if Krugle goes public one day, he’s not going to cling to as much of it as he once might have. “I would diversify a little bit more than I’ve done in the past,” he says.

Actually, he’s already diversified. Larsen is an investor in EB Exchange Funds, a San Francisco firm that emblematizes the “let’s not do that again” philosophy. EB Exchange enables select entrepreneurs to pool their pre-IPO stock, then share in the proceeds from all of the companies’ public offerings, mergers, and acquisitions—while also spreading the risk of possible failure. It was started in 1999 by Larry Albukerk, who founded a venture capital–backed company twice in his own career; based on that experience, he knows all too well the potential folly of having “all your eggs in one basket.” Bent on remedying that, he set up his first fund with 11 participating companies and dubbed it Eleven Baskets LP. the concept behind EB Exchange. Entre¬pre¬neurs in their 20s still tend to feel invincible, just like in the old days. “It’s the young guys who say, ‘Why do I want to diversify? I’m going to the moon,’” Albukerk explains. But those who are more seasoned instantly see the wisdom in what he has assembled. “Ours is really a product,” says David Lipa, an EB Exchange vice president, “built on the misfortune that so many had during the bust.”

V: ANYTHING BUT BORING
For all that has changed since the bust, much about the Bay Area’s entrepreneurial culture has stayed the same: the unremitting focus on what’s next, and the notion that failure is expected—even rewarded (better to go for it and blow it than not to try at all).

But perhaps the region’s greatest edge stems from an odd tendency among the rich here: They’re apt to keep on striving, even after they’ve pocketed their millions. One wealth counselor, who has clients on both coasts, says the difference is glaring. In New York, there’s a lot of “leisure wealth,” or dilettante wealth. But out here, it’s a bunch of “serial entrepreneurs. People just don’t relax,” she says.

Anonymous said...

Bend has COCC and a satellite campus of a 3rd tier public University, and an economy bigger than Philomath and Burnt Woods, which is based on Becky Breeze, Bill Smith and two rejects from the Bay Area.

LMAO!! But you left out Mike Hollern ...

Anonymous said...

I could live in Aspen. I could live anywhere. I like it here. I moved here because of that.

Just curious: How long have you lived here? Where else have you lived?

Anonymous said...

10 years, left a few times to work.

Midwest, New England Germany Switzerland Colorado SE Asia Arizona

Anonymous said...

Sounds like you like cold climates. If I could live anywhere it would be Hawaii. But that's just me.

Anonymous said...

Bend and Redmond home prices jump in May
By Andrew Moore / The Bulletin
Published: June 10. 2008 4:00AM PST

Median home prices in Bend and Redmond rebounded in May to $303,000 and $245,000, respectively, according to the latest report from the Bratton Appraisal Group.

In Bend, May’s median price climbed more than 12 percent from its April level of $270,000, which had been the lowest median price recorded since June 2005. However, Bend’s median price is down more than 23 percent from its May 2007 price of $396,000, which was its all-time high.

In Redmond, the May median price climbed nearly 9 percent from the April price of $225,000 but was down nearly 5 percent from its May 2007 median price of $257,000.

The median is the price at which half the homes sold for more and half for less.

Tom Greene, president of the Central Oregon Association of Realtors, chalked up May’s median price increases to more sales of higher-end homes, adding that lower-end homes continue to provide most of the activity. Greene is guardedly optimistic the market is slowly recovering.

“Month to month we’re doing better, but it’s doing what we thought,” Greene said. “We thought it would take off for seasonal reasons but not go gangbusters, and that’s what we’re seeing.”

The report said 102 homes sold in Bend in May, up more than 12 percent from the 91 homes sold in April. By comparison, 132 homes sold in Bend in May 2007 and 244 in May 2006.

In Redmond, 37 homes sold in May, a 26 percent drop from April sales of 50 homes, according to the report. There were 38 home sales in Redmond in May 2007 and 98 in May 2006.

The Bratton Report cites the sale of single-family residences only and does not include condos, townhouses, manufactured homes or acreage.

Andy Zook, a mortgage broker and the owner of Arbor Mortgage Group in Bend, said changes in the median price don’t necessarily reflect changes in home value but rather the types of homes sold.

“I think the story here is the increase in sales in mid- and upper-tier markets in recent months and that’s why the median price is going up, because people are not increasing the prices of their homes,” Zook said. “That’s not happening.”

Zook said the overwhelming majority of customers he’s now serving are first-time buyers lured into the housing market by declining prices.

For May 2008, 56 percent of the homes sold in Bend were between $150,000 and $300,000, according to the report.

In Redmond, 76 percent of the homes sold in May were between $150,000 and $300,000.

The report also showed that inventory levels in Bend for houses priced between $150,000 and $300,000 are at or less than a 12-month supply. While not great — a six-month supply of homes is generally considered normal and anything higher a buyer’s market — the inventory for more expensive homes exceeds 24 months in some price brackets, including houses priced at more than $1 million.

In Redmond, homes priced between $150,000 and $250,000 also showed less than a 12- month supply.

Inventories are calculated by dividing the current number of listings by sales in the prior 12 months.

Waiting to hit bottom

Zook said it’s impossible to say when the housing market will reach bottom, but with mortgage rates likely to increase in the coming months, he said fence-sitters should act. Zook said a half-point swing in 30-year fixed mortgage rates effectively equates to roughly a 5 percent move in the price of the house.

For example, Freddie Mac’s June 5 mortgage rate survey gave the average national rate for a 30-year, fixed mortgage at 6.09 percent. Using that rate, the purchase of a $200,000 home, with 20 percent down, would result in a monthly mortgage payment of $1,210.70.

If the price dropped to $190,000 but the rate jumped to 6.59 percent, the monthly mortgage payment would be $1,212.90.

“If you are apt to buy a home, you may want to hurry up because inflationary pressures are pushing rates up and as rates move up, homes become more expensive,” Zook said. “So while you are waiting for price points to hit bottom, it may be completely offset by missing the chance to secure financing at a low rate.”

Other statistics released in the report said the May sales price per square foot in Bend held steady at April’s level of $155. A year ago, the sales price per square foot in Bend was $197.

In Redmond, the sales price per square foot climbed to $135 in May, from $118 in April. A year ago, the sales price per square foot was $148.

The report also listed median prices for the region’s smaller communities, which are released on a quarterly basis. For the first quarter of 2008, median prices were $175,000 in Crook County; $160,000 in Jefferson County, $188,000 in La Pine; $429,000 in Sunriver; and $389,000 in Sisters.

Anonymous said...

What brings about economic development? A research university can help a lot especially if it has a strong technology and engineering focus.

Infrastructure (airport, roads) also matters a lot as it affects transport times -- you need a critical mass of people to support an airport.

Perhaps central Oregon is more like Phoenix and Las Vegas. These places were small cow towns not too terribly long ago (at least compared to the bay area), and don't have any research university of note. They are 'far away' from most other major population centers.

Should they exist? If they weren't there would anyone create them now? Somehow they got a critical mass and then mushroomed, like any vibrant urban area.

There was a point where St. Louis was a big city while Chicago was a fishing village, but a change in transportation technology changed all that.


Whoever has the answers to all these questions can make a lot of money as a 'consultant' to every town in the U.S. that's trying to make it to the big leagues (or just survive).

bruce said...

A rather momentous op-ed from the WSJ, entitled The Weak-Dollar Threat to World Order

Imagine how Americans would feel if we suddenly realized that our most trusted trade partners have been slowly but inexorably imposing a tariff against U.S. goods since 2002 – a tariff now in excess of 50%.

What really stings is that these same trade partners are also our most important allies, in both military and ideological terms. We like to think we share the same moral values when it comes to defending democracy and the virtues of free market capitalism.

How disillusioning to discover that the leading proponents of open global trade – the ones who insist on a "level playing field" – think nothing of adopting policies that render our products overly expensive for their consumers, even as they proffer their goods around the world at inordinately discounted prices.

Now you know how members of the European Union feel these days.

As former New York Fed economist David King recently observed, the value of the U.S. dollar against the euro has fallen drastically in the last few years. In December 2002, one dollar was equal in value to one euro; today, it requires more than half again as many dollars to equal one euro. For American consumers, that means prices of imported European goods are more than half again higher than they would be had the dollar retained its value relative to the euro.

Too bad for our esteemed friends across the Atlantic. If the steep price rise was the result of a tariff imposed by the U.S. government, they could haul us before the World Trade Organization on a complaint that we engage in unfair trade practices. But since it's accomplished through loose monetary policy for domestic purposes and bolstered by plausible deniability at the highest levels – "A strong dollar is in our nation's interest" – there is little the Europeans can do about it.

The euro is the official currency used by 320 million Europeans in 15 member states: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain. Another three member states – Denmark, Sweden and the United Kingdom – use their own currencies. But the nine countries that have become EU member states since 2004 have all set convergence goals to join the eurozone in the near future: Slovakia (2009), Lithuania (2010), Estonia (2011), Bulgaria (2012), Hungary (2012), Latvia (2012), Czech Republic (2012), Poland (2012) and Romania (2012).

Taking note of these latest EU member states – former victims of Soviet-style central planning, now advocates for private enterprise – makes it clear that the U.S. has much more at stake than merely undercutting the competition in global markets with cheapened dollars. The connection between price stability and entrepreneurial effort is profound. Why should anyone work hard or take risks if financial rewards can be blithely confiscated through inflation? The old communist aphorism – "They pretend to pay us and we pretend to work" – reflects deep cynicism borne of citizen subservience to totalitarian government. Honest money is the bedrock of democratic capitalism.

When the U.S. turns a blind eye to the consequences of diluting the value of its monetary unit, when we abuse the privilege of supplying the global reserve currency by resorting to sleight-of-hand monetary policy to address our own economic problems – inflating our way out of the housing crisis, pushing taxpayers into higher brackets through stealth – it sends a disturbing message to the world.

Why would the nation that espouses Adam Smith and the wisdom of the invisible hand permit its currency to confound the validity of price signals in the global marketplace? How can Americans champion the cause of free trade and exhort other nations to rid themselves of protectionist measures such as tariffs and subsidies – and then smugly claim that U.S. exports are becoming "more competitive" as the dollar sinks?

That's not competing. It's cheating.

The U.S. cannot go on pretending the dollar's fate is somehow beyond our ken. Maintaining a reliable currency is a moral responsibility as well as a strategic imperative. To the extent we force Europeans to bear the costs of fighting inflation unleashed by accommodative Fed policy – higher interest rates and the hidden tariff of currency appreciation – we renege on our shared commitment to democratic capitalism, both in principle and practice. Moreover, we risk causing a rift in our vital alliance at a time when the geopolitical situation most requires strategic partnership.

It is interesting that one of the major foreign policy goals envisioned by Republican presidential candidate John McCain is to form a "League of Democracies" to promote the values of freedom and democracy. "I am an idealist," Sen. McCain noted in remarks before the Los Angeles World Affairs Council this past March, "and I believe it is possible in our time to make the world we live in another, better, more peaceful place, where our interests and those of our allies are more secure, and American ideals that are transforming the world, the principles of free people and free markets, advance even farther than they have."

The greatest ideological struggle since World War II – the one with the potential to devastate mankind through a nuclear exchange – united the U.S. and what was then called "Western Europe" against an "Eastern bloc" dominated by the Soviet Union. As today's Russia displays renewed interest in recapturing old territory, the seeming Cold War victory of democratic capitalism cannot be taken for granted. Nor should we underestimate the role of stable international monetary relations to facilitate free markets and secure the blessings of free trade.

Ukraine is among the most besieged – and perhaps the most pivotal – of Europe's recent converts to democracy. The biggest threat to Ukraine's prospects for success, both politically and economically? Inflation, now soaring past 30%. Ukraine's hryvnia is pegged to the dollar; every cut in the U.S. fed-funds rate spawns huge dollar inflows that must be converted by Ukraine's central bank into the domestic currency, further exacerbating inflation.

One way to mitigate the impact would be to let the hryvnia appreciate relative to the dollar. But that would doom Ukraine's efforts to boost its two main exporting industries, metallurgy and chemicals. Ironically, Russia finds itself in a similar monetary predicament, forced to choose between inflation (the ruble is based 55% on the dollar, 45% on the euro) or a rising currency.

It's hard to elicit sympathy for oil-rich Russia right now. Still, the economic uncertainties and social tensions unleashed by currency chaos can only damage the outlook for democratic states across Europe and the world. Mr. McCain's proposal for creating new institutions to secure and advance the transforming values of individual liberty and entrepreneurial capitalism holds out great promise. But to provide a stable foundation for global prosperity, the League of Democracies also needs to take on the essential task of international monetary reform.

Edouard Balladur, France's former prime minister, called for a union between Europe and the U.S. in a 120-page essay published in France last November, asserting it is time "to put an end to the disorder of floating currencies, which threatens the prosperity of the world and its progress, and which, in the end will destroy the very idea of liberalism." Nobel laureate Robert Mundell suggests a multiple-currency monetary union among the dollar, euro and yen that could be patterned similarly to the process that brought about European monetary union. Both men have invoked the possible inclusion of gold in a reformed international monetary system, recognizing the importance of protecting its integrity through automatic mechanisms and sanctions beyond the control of governments.

Notwithstanding Fed Chairman Ben Bernanke's assurances – "We are attentive to the implications of changes in the value of the dollar for inflation" – the need for honest money remains.

A gold standard beats a gab standard.


As soon as oil is priced in Euro's the US's economic dominancy is not assured. Iran's biggest challenge to us is not BushCo's trumpeting of a possible nuclear weapon years or decades from now, but the fact that their planned Oil Bourse will price oil in Euro's. The weakness of the dollar and the apparent lack of any policy to restore it's strength is going to be BushCo's second legacy, right after it's bellicose policy of expending a trillion dollars and hundreds of thousands of lives in an unnecessary war.

Of course, the weaker the dollar is, the less that debt incurred to pay for that war will cost in the long run...

Who cares about anybody who makes less than $200K a year anyway? They don't matter. Just let them watch Fox and vote for McSame after he tells them how much he will reduce taxes.

Marge said...

Bend competing with other Million + population towns is not the question. If more than 100,000 people populate Bend it will be a disaster for the "Quaility of life" that most have come for. There are already too many people here for our job market and not enough to be considered a college town. The job base is screwed as any tourist town.
If we could have a 4 year University it can't be at Juniper Ridge. It has to be at the COCC location as a hub to the REAL center of Bend. Juniper Ridge, without question needs(sometime in the future) to be an industrial hub, not a mixed use and residential (crapshack) (college)mix. The whole point of having industrial land there was having a buffer between industrial and residential areas. The City fathers are fools to try to change that into some sparwling industrial/college/residential neighborhood.
We need to get back to basics.
The "Vision" is so flawed I could puke. Just turn COCC into a 4 year. Problem solved.
When the demand for industrial comes back , years from now, start buildging out Juniper Ridge. The City should have nothing to do with anything but selling parcels there.

bruce said...

Marge, Thursday night is the great unveiling of the new Juniper Ridge Master Plan. Although June 12 is burned in my brain, I can not find a single piece of PR referring to it.

We all need to howl about how little we need residential and how much we need industrial.

Marge said...

My chance to say the words "Bruce Pussey" are unequaled with the acoldes you should recieive for your vigil at the " council meetings" I have appreciated your participation and recounts here. I will write emails, I am mentally unable to speak in front of crowds, so I can't help in that fashion. I am adament that JR should be and only be an industrial area. The mixed use shit is dead. You can not locate a college there period. If the City has some disconnected idea to put all property types in that basket....they are the centuries biggest fools and fuck them. We are screwed...they are even more screwed. Hope you council boys are reading this and can fix things.

WSJ said...

Paid too much for your house? Effectively cut your purchase price in half! Excerpts from the WSJ:

Some Buy a New Home to Bail on the Old

By NICK TIMIRAOS
June 11, 2008

Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine, 44 years old, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn't want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.

In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the "buy and bail," in which borrowers with good credit buy a new home -- often at a much lower price -- then bail out of the "upside down" mortgage on their first home.

Homeowners are able to pull off this gambit -- which some lenders and real-estate agents call mortgage fraud -- by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold. And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.

In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it. Some blame the phenomenon in part on lenders' unwillingness to cut deals or restructure loans made when home prices were inflated. "It's just a business decision," says Linda Caoili, a Sacramento real-estate agent who is working with Ms. Augustine and others who are considering walking away from their mortgages. "If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

. . .

Ms. Augustine . . . became a first-time homeowner in November 2006 by taking out two loans with nothing down to cover the $426,000 home purchase. With her home valued at about $220,000 now, she is actively looking in nearby communities for another one to buy before the bank forecloses on her current home.

Anonymous said...

blah blah blah the sky is falling blah blah blah

IHateToBurstYourBubble said...

A glimpse into the Delusional Paradise that is Sisters:

Gas prices may be a boon to Sisters

Tuesday, June 10, 2008


As gas continues to rise in price throughout the country, some people in Sisters think pain at the pump may actually boost the local economy.

Emily Pelletier, owner of Cork Cellars Wine Bar and Bottle Shop at 161A N. Elm St. in Sisters, believes that there will be more visitors in town this summer.

"We are a great one-day stop, and the Sisters (Area) Chamber of Commerce has done such a good job promoting us in Portland and other places as a nice getaway without being too far away," Pelletier said.

Pelletier also predicts that locals will find that there are excellent stores in Sisters to be rediscovered. She said that residents sticking around town to do their shopping will find items they need at competitive prices while avoiding the extra cost of driving out of town.

At FivePine Lodge & Conference Center in Sisters, owner Bill Willitts is emphasizing the value of Sisters as a unique destination.

He has joined up with local lodging businesses Black Butte Ranch, The Lodge at Suttle Lake, Best Western Ponderosa Lodge, and Lake Creek Lodge as members of the Central Oregon Visitors Association (COVA).

Willitts cited statistics that show 60 to 70 percent of Sisters visitors come from areas that are one-day drives from Sisters. He likes the advertising COVA directs to that audience, explaining that a family can drive here and stay for the weekend for the same price as LasVegas air fare and car rental.

"It makes sense economically and even environmentally to come to Sisters," Willitts said.

He believes this is a major reason why occupancy in May this year was exceptional in Sisters, and will continue to stay high through the summer.

Customers are telling Stephanie Grant, Floor Supervisor at Sisters Drug located at 211 E. Cascade Ave., that they are staying in town more often to do their shopping because of gas prices. Grant said that people express gratitude for the friendly customer service and social interaction they find at stores in Sisters and are glad to avoid a trip into Bend.

Inside the shop at The Fly Fisher's Place at 151 W. Main Ave. in Sisters, owner Jeff Perin and his staff are busy explaining the local fishing history to out-of-town customers. Perin thinks people from the I-5 corridor will stay closer to home and visit Sisters rather than heading further to Idaho and beyond for their fishing trips.

"People might buy less high-ticket items, or maybe try to make their waders last another year, but they are going to continue to take their fishing trips every year, and hire guides, and definitely buy their flies," said Perin.


Keep telling yourselves that.

IHateToBurstYourBubble said...

Funny

LavaBear said...

"If I hadn't gone out and done all these deals, we'd be in great shape"


Oregon builder Legend Homes seeks bankruptcy protection
Failed land deals force the state's No. 5 homebuilder to file Chapter 11
Wednesday, June 11, 2008
RYAN FRANK and JEFF MANNING
The Oregonian

David Oringdulph built Legend Homes over four decades by building middle-class housing in Willamette Valley suburbs.

With home prices rocketing up, Oringdulph, the company's founder, expanded to red-hot Southern California. He also bought land for the first time in Bend, Oregon's boomtown, and returned to fast-growing Vancouver.

Then the housing market tumbled. All three land deals fell apart. Legend's parent company, Matrix Development, got stuck holding land worth less than the company owed on it.

On Tuesday, the three deals sent Legend Homes into bankruptcy.

Legend filed Chapter 11 to protect itself from lenders and sellers who wanted to recover some of their losses on the ill-timed land purchases. Company executives hope to use Chapter 11 to work out payment schedules with creditors and restart home building as soon as possible.

Matrix reported between $100 million and $500 million in assets and liabilities. It owes creditors $90.6 million, according to the bankruptcy filing.

Legend's troubles show how the national housing slump has rippled through the Portland area even though the region has largely escaped the depths of the market downturn playing out in California, Arizona and Florida.

"If I hadn't gone out and done all these deals, we'd be in great shape," Oringdulph said.

"It was kind of like, 'How can this happen?' It happened. It couldn't have been worse."

Oregon builders, developers and contractors have been pinched since the real estate market slowed from a historic boom that ended in 2007. Portland-area home prices have seen their biggest decline in at least two decades. Subcontractors and suppliers have resorted to liens to get paid. A few small builders have already sought bankruptcy protection.

But Legend, the state's fifth-largest homebuilder since 2000, is by the far the biggest to turn to bankruptcy. The move could mean trouble for small subcontractors who have been teetering in a slow market.

"It's sad," said John Satterberg, president of Community Financial, a major construction lender to Oregon homebuilders. "I've never seen a builder that big tip over in the 30 years I've been here."

Known for stability

Legend Homes and Matrix Development are known among subcontractors as one of the Portland-area's most stable home builders.

Oringdulph founded the companies in 1966. Since 2000, Legend has built 1,700 homes worth a total of $365 million, ranking it fifth statewide in both categories, according to the Construction Monitor, an industry trade group.

When the housing boom hit, Oringdulph started to look for new business ventures.

Affordable land was tough to come by in the Portland area, where an urban-growth boundary constrains supply.

"If I was going to maintain any growth in the company, I had to look outside Portland," Oringdulph said.

But his timing couldn't have been worse.

In 2005, Matrix Development bought about 175 acres in Riverside County, Calif., for future subdivisions.

That included 160 acres within the massive Winchester Ranch development near Murieta, Calif. He planned a 750-home bedroom community.

Craig Brown, Matrix's vice president of land development, said Winchester Ranch's master developer couldn't get roads and sewers built before the housing market tumbled.

Last summer, KeyBank did a new appraisal on part of Matrix's Winchester Ranch property. Oringdulph declined to give the exact figures, but the new value was far less than Matrix had borrowed from KeyBank.

The Cleveland-based bank asked Matrix to pay down its loan. Oringdulph said he used revenues to pay down part of the loan, avoiding a default.

Matrix Development faces a similar problem on a roughly 40-acre Bend project. "By the time we got everything approved the market disappeared," Oringdulph said.

In Vancouver, Matrix Development faces a $5 million court judgment issued this year after it backed out of a land purchase.

By May, Jim Chapman, Legend Homes president, had sent a notice to subcontractors saying the company couldn't pay the May invoices. He halted construction on 11 subdivisions between Portland and Corvallis.

Less than a month later, Legend filed for Chapter 11.

Subcontractors lauded Matrix executives for their honesty. The company invited creditors to a meeting last week at the Holiday Inn in Wilsonville, warning them of a potential bankruptcy.

Tim Mahaffy, president of Medallion Industries, a Northwest Portland supplier of windows and doors, said Matrix isn't the only struggling builder. Matrix owes Medallion $96,872. "There isn't any doubt, the climate is much changed from a year ago," Mahaffy said.

Dominoes keep falling

The bankruptcy of one of Oregon's largest and most reputable homebuilders shows the severity of the real estate downturn and domino effect on the American economy.

The real estate boom's end helped throw the mortgage industry into chaos, which in turn worsened the real estate downturn. Then came the credit crisis, as hard-hit banks beat a hasty retreat from anything deemed overly risky.

As banks have seen their earnings decline and bad loans jump, some are furiously trying to lessen their risk by jettisoning shaky borrowers.

As property values have declined, banks find themselves holding collateral that is worth a fraction of what they're owed.

That's happening in Matrix's bankruptcy. The company lists debts of $81 million to six lenders. The collateral backing up those loans is worth just $40 million, the company reported.

KeyBank made the biggest bet on Matrix, lending the company $22.3 million. Its collateral on the Matrix loans is worth just $12.8 million, according to the bankruptcy filing.

Reporter Allan Brettman of The Oregonian contributed to this report. Ryan Frank: 503-221-8519; ryanfrank@ news.oregonian.com; blog.oregonlive.com/frontporch Jeff Manning: 503-294-7606; jmanning@news.oregonian.com

©2008 The Oregonian

Anonymous said...

Interesting stuff. Paul you always talk about "dark matter" well I was cruising around the outlet mall yesterday and realized it was half empty, that is only half occupancy. Yikes. Also so noticed as shop called "Bear Hugz" you've got to be kidding me, mall of America possibly, half occupied outlet mall in Bend, OR don't think so. OUCH, how much dough do you think they're losing?

Anonymous said...

Jeff Perin may actually be right. Guided fishing trips are spendy and as a rule people who book them are pretty affluent. They might be immune to the economic downturn to some extent.

Anonymous said...

"blah blah blah the sky is falling blah blah blah"

-Realtor whistling past graveyard

Anonymous said...

"Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine, 44 years old, who runs a child-care service out of her home."

I have to stop and ask: Are those the kind of values you want instilled in your kid?

timothy said...

This is a nice side-effect of loans that allow you to buy a new house before you sell your old one. While you have good credit, buy the house that's half-off. Then default on the one you overpaid for.

As these stories spread around, the built-in abhorrence that decent people have for these kinds of tricks will begin to break down.

They'll eventually do the same thing so they aren't "the sucker." They'll hang out with people who support the move. After all, the evil banks did it to them.

$250,000 of foolishness is enough to break the ethics of most people.

WSJ said...

Lampert Puts Money
On Housing Rebound

Stakes Being Taken
In Battered Builders,
Lenders and Retailer
By GARY MCWILLIAMS
June 12, 2008; Page C4
Wall St. Journal

Billionaire hedge-fund manager Edward S. Lampert is placing new bets on a U.S. housing recovery, buying stakes in beaten-up home builders, mortgage lenders and a home-improvement retailer.

Mr. Lampert's ESL Investments Inc., which owns half of department-store giant Sears Holdings Corp. and 40% of car retailer AutoNation Inc., has previously focused with mixed success on retail and bank stocks.
[photo]

Recently, the Greenwich, Conn., hedge fund, which controls investments it valued at about $11.6 billion in its most recent government financial report, began picking up shares in hard-hit housing-related stocks. ESL acquired small stakes in U.S. home builders Centex Corp. and KB Home, according to its latest Securities and Exchange Commission filings. At recent prices, the stakes in the two home builders are valued at $10.4 million and $10.8 million, respectively.

ESL also is tip-toeing into mortgage origination and servicing, acquiring about four million shares of CIT Group Inc., a struggling subprime home and commercial lender, as well as 1.4 million shares of PHH Corp., a mortgage originator and mortgage-service company. The shares are valued currently at about $35.5 million and $25.2 million, respectively. ESL spokesman Steve Lipin declined to comment on the investments.

Mr. Lampert's purchases come as some analysts think the housing market's decline may be nearing an end.

In another bet on a housing turnaround, Mr. Lampert this spring increased his stake in Atlanta-based home-improvement retailer Home Depot Inc. ESL now holds about 22.7 million shares valued at $590 million, up from 16.7 million shares last year.

Write to Gary McWilliams at gary.mcwilliams@wsj.com

Anonymous said...

"Lampert Puts Money On Housing Rebound"

Thing is, out of hundreds of thousands of investors, you're likely to find SOMEONE willing to be against the prevailing winds. Hell I bet you could find someone willing to bet $1,000,000 that a fourth sister will emerge in the next year.

Anonymous said...

Homer,

You like this in SF, there are now MORE homes for sale by Banks, than home-owners.

I'm sure its the same in Bend, where we have had more foreclosures, and short-sales, than real sales for months.

Pretty awesome, when you think that in California the banks are have MORE homes to DUMP than civilians, and remember the banks don't have to live in the home, as the adage says, thus expect prices now to truly drop.

Anonymous said...

Marge,

It's no longer 'bruce pussy', the 'bruce' part was redundant. Now he's only referred to as "Pussy", or "The Pussy". Affectionately our 'Pussy', not to be confused with your pussy.

I concur with Dunc, that Marge is a man.

Marge said...

AM NOT

Duncan McGeary said...

errr....I don't remember saying that.

Anonymous said...

"Lampert Puts Money On Housing Rebound"


Well, see, that's one of the nice things about being a multibillionaire -- you can afford to take a little flyer on a long shot now and then. For this guy putting $10M into some company is like you or me buying a lottery ticket. If it pays off, great. If not, no big deal.

Marge said...

More stats.
June 08 to date Sold single family only...32 Sold @ 300k Med
Same time line in 07...42 Sold @ 309k Med
Same in 06....72 Sold @ 383k Med.
Yup, we are breaking all records.

bruce said...

And the Pussy has two appointments tonight:

JR Unveiling, Tower Theater, 6:30

Deschutes Dems Monthly Meeting, 1036 NE 5th St., 6:30 Social, 7-9 Meeting.

I've read the BULL article twice now and their is no mention of how much acreage is actually stated for each use. So here is the City link for the Master Plan:
http://www.ci.bend.or.us/depts/urban_renewal_economic_development/juniper_ridge/master_plan/index.html

I'm looking at it now...

bruce said...

Yep, they continue to insist on some sort of Celebration-type community with work and a university surrounded by the people in their housing.

Overview
As an addition to a growing city, Juniper Ridge has a responsibility to provide the City of Bend with thriving, vibrant places whose value exceeds the sum of their parts. Time-tested places have shown that a variety of land uses interwoven in a mixed-use development fabric creates communities that are cherished and valued through the years in a way that single-use developments cannot. During the master plan process, open house attendees were asked to select their preferred image of a place in which they would choose to live, work and shop . The clear majority chose photos of mixed-use streets with shops and restaurants at the sidewalk and offices or residences above. When asked which uses and activities they wished would be near their home, work or school, attendees clearly favored proximity to shops, retaurants and usable open space.


Planned Uses:
Residential: 500-600 acres
Town Centers: 75-150 acres

Industrial: 350-400 acres
Commercial: 75-150 acres

Academic: 175-235 acres

Parks/Open Space: 150-175 acres
Roads, etc: 125-150 acres

Source: http://www.ci.bend.or.us/depts/urban_renewal_economic_development/juniper_ridge/master_plan/docs/MP_Land_Use.pdf

bruce said...

More:
Juniper Ridge includes open space in the form of parks, preserves, trails, and beautifully-designed streets. Well-proportioned streets with rich landscape and trees are a key component of the overall open space system.So, we are creating a new landscape?

Duncan McGeary said...

I need a couple of those instant trees for my backyard....

bruce said...

More "goodness":
The Town Center encompasses a small lake which serves as a community focal point and recreational amenity. West of the lake is a retail, dining and entertainment district which might include a cinema along with a variety of local shops, taverns and restaurants. The lakefront edges are prime locations for outdoor dining parallel to the “main street” experience to the west. At the town square, another street leads west into one of the employment neighborhoods of Juniper Ridge. This street and others provide opportunities for live/work buildings. Live/work is a designation for homes that include street-level space that can be outfitted as a business. Furniture makers, CPAs, tailors, café operators and graphic designers are but a few of the wide variety of business people who may use these building types.

bruce said...

WTF--JR was supposed to mean jobs, asshole councilors!:
The planning principles that have guided the Juniper Ridge Master Plan foster placemaking and the creation of traditional neighborhoods, with a mix of uses that are pedestrian friendly, flexible to change and sustainable over time.
...
Juniper Ridge is comprised of a variety of traditional neighborhoods, some of which focus on a range of employment uses or higher education institutions while others include a range of houses, retail, dining and entertainment uses...Given its land area, Juniper Ridge may have up to one dozen neighborhoods.
...
A memorable community includes a range of uses and building types. The most beloved places around the world – places people visit on vacation – include a range of uses and building types on the same street or in the same neighborhood. The Pearl District in Portland and Queen Anne Hill in Seattle each contain a mix of shops, restaurants, offices and workshops along with a mix of residential uses. Less obviously urban places like Nantucket and Monterey consist of residential building types cheek-by-jowl with commercial, retail and dining establishments. Such cherished communities are the model for neighborhoods at Juniper Ridge.
...
Juniper Ridge is an interconnected system of traditional neighborhoods organized about a community-wide open space and primary vehicle network – see page 1.5. The open space system (further described in Chapter 5) is a continuous network of parks, squares, preserves and other landscape features. This system links neighborhoods to or one another and often penetrates to its center providing both an open space focus and a definable boundary.

God-fucking-dammit, whatever happened to a place for jobs!!!

bruce said...

Go to page six of this and see how things have morphed into yet another cool residential/mixed use place ala Northwest Crossing:
Master Plan Overview"

Note that the original guiding principles do not include the word "residential", "neighborhoods" or "housing", but do include "industrial" and "living-wage jobs".

The new guiding principles do not include the word "industrial", but do include "neighborhoods" and "housing". As for jobs? Quote "The most diverse uses should be located in the town center to create a vibrant area that will characterize Juniper Ridge to the region and stimulate job creation through its economic success."

Whatever happened to creating a fucking industrial area and filling the thousands of empty housing units we already have?

bruce said...

One good thing--according to the maps, the first 50 acres is almost all employment or academic land. No cool neighborhoods.

bruce said...

Just picture "The Pearl District in Portland and Queen Anne Hill in Seattle" plopped down in the middle of the arid land at JR.

Yeah, that's really going to be fucking cool. And cost a whole lot of money. Instant lake and waterfall with a rich landscape and lots of trees.

Besides, isn't that what downtown is, with Drake Park, etc.?

We want fucking jobs, not another really cool NW Crossing/Downtown in the middle of the fucking arid sand between here and Redmond.

These people are fucking delirious...

OK, enough for now, time to shower and put the biz look on.

Marge said...

Bruce said" These people are fucking delirious...
No fucking kidding!!
If you look at the old doc's a contingencey of the transfer of property was that it was for industrial land. That is exactly where the new industrial needs to be located. ODOT, I believe, may be more willing to grant road access if the stupid City didn't want all this other crap there.
They are trying to create a 3rd City center (downtown,old mill)and now some Dopey new NWX, that is not working? Dopes, Dopes, Dopes.....
The only place for a 4 year college is to intermingle it at COCC, in the heart of town! Where students may someday be able to afford rent without longer commutes.

I am still not a man. I know this because menopause has made me crazy. ;)

Anonymous said...

Ah, yes, do you remember when the parkway propaganda touted its "richly landscaped" medians? Riiight.

Jeff said...

Should rename it the JR District. Makes it sound more urban and gentrified. You know, like Pearl District.

timothy said...

I believe Juniper Ridge should be enclosed in a plastic bubble so it can have its own climate.

Anonymous said...

got my stimulus check today and am gonna pay my last property tax bill thanks uncle sam.

Anonymous said...

"got my stimulus check today and am gonna pay my last property tax bill thanks uncle sam."

it's not from uncle sam; it's from your grandchildren.

bruce said...

Re: it's not from uncle sam; it's from your grandchildren.

That is the comment of the evening.

So did anyone hear anything about this big JR unveiling from any media source other than the BULL this morning? Anything that would enable you to know when and where it was happening?

Went, hey had no literature, don't know if they had a public comment period because I wanted to go to the Deschutes Dem meeting, which is always the second Thursday of the month. The exact night they had the big JR unveiling. Tower was maybe half full at most.

All in all, not a truly public process. After all, how can you comment coherently if all you know is from the Powerpoint presentation you just saw...

Anonymous said...

Those who are angrily clamoring that J Ridge must be nothing but industrial are missing the whole point of the "New Urbanist" approach: locate jobs, housing and shopping closer together so that people don't have to drive all over the fucking landscape to get from one to the other. With gas edging toward $5 a gallon and global climate change an increasing problem, that makes more sense than ever.

Bend's transportation network is completely fucked up because all kinds of development was built all over the map without any thought to how people would get around from one to the other. I live in Southeast Bend and if I need a pound of nails I have to get in my 2,000-pound car and drive all the way across town to fucking Home Depot. If Juniper Ridge was all industrial and I worked there I would have to drive all the way across town twice a day to get to and from my job. Aside from the huge waste of gas and time, this causes more traffic congestion for everybody.

You can argue that the JR master plan is too ambitious and gold-plated and that there should be less housing and more industrial, but the basic premise of mixed use is solid. As for what the original deed said 40 years ago, it was written at a time when gas was about 30 cents a gallon and everybody thought it always would be. Compartmentalizing uses and scattering them all over the map might have made sense a half century ago, but it sure as hell doesn't. Try to get your heads out of 1968.

Anonymous said...

"As for what the original deed said 40 years ago, it was written at a time when gas was about 30 cents a gallon and everybody thought it always would be."

It was $2 then in today's dollars. It most recently went above that level just about three years ago. See here:

http://inflationdata.com/inflation/images/charts/Oil/Inflation_adjusted_gasoline_price.jpg

Anonymous said...

"You can argue that the JR master plan is too ambitious and gold-plated and that there should be less housing and more industrial, but the basic premise of mixed use is solid."

Nice comments -- I agree with most of what you say 100% in a NORMAL situation. But the existing situation is anything but "normal." There's already WAY too much housing -- not enough bodies to fill them.

The only way to get bodies to fill them (and pay taxes, fill up schools, etc.) is to bring in jobs.

While the mixed use concept is the way things SHOULD be (and when asked, it's what people prefer), it's SUB-OPTIMAL given the distortions of the current built environmental.

Economists call this the 'theory of the second best.' The first-best "ideal" situation is not ideal in practice because of all the distortions already in place that are fucking things up.

Hence a dedicated industrial park begins to make sense.

bruce said...

Re: Those who are angrily clamoring that J Ridge must be nothing but industrial are missing the whole point of the "New Urbanist" approach: locate jobs, housing and shopping closer together so that people don't have to drive all over the fucking landscape to get from one to the other. With gas edging toward $5 a gallon and global climate change an increasing problem, that makes more sense than ever.

...

I never said nothing but industrial, I said majority industrial. Large, 10-acre or more parcels so real industry can provide real jobs. The "new" plan pushes a combination of NW Crossing and the west side area around Columbia and Simpson, 2-6 acre parcels with offices and lots of parking.

If they are planning on pushing non-car commuting, why does every plan footprint shown for commercial have a majority of it's land covered with asphalt parking spaces?

The original conceptual master plan created by OTAK at a cost near a million dollars that was presented back in 2005 reserved 450 acres for 10-acre or more parcels. In Phase I of the OTAK plan there was NO residential, per an agreement with the County when the first 500 acres were added to the UGB. The Juniper Ridge Urban Renewal Zone application states:

Following the adoption of this Plan, Juniper Ridge will be rezoned to allow for primarily industrial and ancillary commercial support uses that will facilitate the goals and objectives of the Plan.

The current plan as presented has a TOTAL of 350-400 acres of industrial in both phases combined, plus 75-150 TOTAL acres of commercial. Yet it has 500-600 acres of residential and another 75-150 acres of town centers. Plus a lake, a waterfall, and lots of nice trees that don't look much like junipers.

They state they are trying to create a community like the Pearl District, etc., communities that have evolved over centuries and were remade in the last couple of decades when the critical mass of population and economic support was in place. We are going about things ass-backwards.

And there is the question of the UGB--if Phase II is not included in the UGB, we are spending millions planning something that we won't be able build for at least 10 years, when the next UGB boundary is mapped. Which won't happen until the current overhang of housing and platted subdivs is dealt with. That's 10,000 or so housing units, at a time when our population is decreasing.

And without jobs that can support families, those housing units will take a real long time to sell. If ever. A $10/hour tourism job does not support buying a house.

Think about this: the first two tenants, Les Schwab (12+8) and Pepsi (10) both are large employers that pay their employees a living wage. Both wanted 10 acre or larger parcels, because a real business simply needs that space. Yet this type of employer is virtually ignored in the Master Plan.

But if you have a boutique in NW Crossing, or a shoe store downtown, Juniper Ridge has all kinds of spaces for you...

Anonymous said...

Just picture bruce with all his fingers in his pussy.

Just picture him taking those fingers in & out all day long, and then stopping to type on the keyboard.

Anonymous said...

``Right now, lenders are afraid to lend and buyers are afraid they'll be under water in a year, so unless something dramatic happens we're going to continue to see the trend go in the wrong direction,'' said Rick Sharga, RealtyTrac's vice president of marketing.

*

It's here, now all the renters couldn't buy if they wanted to.

Just one fucking word on Juniper Ridge. ITS FUCKING OVER.

Sure there is a meeting, yes there is still a committee and millions for the city and other PR folks to spend on the study.

But at the end of the day, at a cost of $800k/acre to excavate, it will be a cold day in hell, and quite a few years before anything other than the BORGMAN CUNT LS tire-flip UNIV be out there. The city is broke, unless its for PR, then there is lots of money.

Why Not? BEND rotation Univ says spend a few years at city-hall, and become a consultant, and get paid to study, SHIT KURATEK made $2.5M for doing the same,

Go for the GOLD create another STUDY in BEND.

There will be NO more $$$ to any excavator at Les-Schwab ( JR world ), because the land was free ( 0.06 cents/acre $1 for 1500 acres ), but it costs $800k/acre to excavate. That makes the land a sink-hole, unless developed by Government. But Bend ONLY HAS MONEY FOR PR, MARKETING, and ADVERTISING ( AKA DVA/VCB, COVA )

Anonymous said...

Economists call this the 'theory of the second best.' The first-best "ideal" situation is not ideal in practice because of all the distortions already in place that are fucking things up.

So we just have to accept that because we fucked things up in the past we have to stay fucked up forever? Sorry, can't buy it.

Yes, we're overbuilt in housing right now and yes, we need more jobs. But is it lack of industrial land that's keeping the jobs from coming here, or is it a whole bunch of other factors -- geographic remoteness (which translates to high transportation costs), shortage of skilled and motivated workers, high cost of housing, etc.? Creating another industrial park is not going to magically cause jobs to appear.

The master plan should be considered a guideline, not something that has to be followed to the letter. The development of JRidge should be gradual and market-driven, like the development of the Old Mill District. Bill Smith sold land on the upper terrace for office and light industrial first because that's where the demand was. He used the revenue stream from that to put in the infrastructure needed to bring in the retail down along the river. Finally the third component of the mix -- residential -- will come along. J Ridge could follow a similar path. I just would hate to see the mixed use idea tossed out entirely and have this prime piece of land turn into just another tacky industrial park.

Anonymous said...

They state they are trying to create a community like the Pearl District

Well, that's just stupid. The Old Mill District is more like the Pearl District, i.e. a former industrial area converted to mixed us. But even that comparison is far-fetched.

timothy said...

>>The "new" plan pushes a combination of NW Crossing and the west side area around Columbia and Simpson, 2-6 acre parcels with offices and lots of parking.

I wonder if they've happened to notice how many hundreds of thousands of square feet of retail/commercial/office are empty (or still being built) on Colorado and Simpson.

Marge said...

Building homes at JR is not going to help all the laborers that live in Prineville and LaPine with gas costs. It will only let th CEO walk to work.If they build barracks it may help. Until one can buy a place to live in Bend for 50k the workforce will abandon CO.

bruce said...

From the Master Plan Overview:

The Pearl District in Portland and Queen Anne Hill in Seattle each contain a mix of shops, restaurants, offices and workshops along with a mix of residential uses. Less obviously urban places like Nantucket and Monterey consist of residential building types cheek-by-jowl with commercial, retail and dining establishments. Such cherished communities are the model for neighborhoods at Juniper Ridge.

bruce said...

I just ranted on BEM's board, showing how much BS the BULL is spinning, here:
http://bendeconomy.informe.com/juniper-ridge-more-tricks-up-their-sleeve-dt4030.html

Industrial and commercial totals 425-550 acres. Add mixed use and town centers and you end up with 500-700 acres for jobs.

Remember that total above of 1175 acres? Someone please explain to me how going from 1175 acres to 500-700 acres is "...setting aside more room for industry and businesses." Pete Sachs, are you listening?


I'm going to go take out my frustrations with my driver for awhile...

Anonymous said...

"Sure there is a meeting, yes there is still a committee and millions for the city and other PR folks to spend on the study."

I like the idea of being an economic development consultant. You get to go to meetings and put on a slideshow and encourage people to dream BIG. You never have to get your hands dirty, and you get to set your own hours. Where, or where, can I get one of these jobs?

timothy said...

>>I'm going to go take out my frustrations with my driver for awhile...

I saw that movie.

Driving Miss Pussy.

Anonymous said...

"I saw that movie."

Wow. That's clever. That's the most clever thing I've read today.

Congrats.

IHateToBurstYourBubble said...


I concur with Dunc, that Marge is a man.


I know this to be false.

IHateToBurstYourBubble said...

"The most diverse uses should be located in the town center to create a vibrant area that will characterize Juniper Ridge to the region and stimulate job creation through its economic success."

Talk about your circular fucking logic.

IHateToBurstYourBubble said...


it's not from uncle sam; it's from your grandchildren.


Nope. Al Gore says we're all going to roast. I think he's right... sometimes.

IHateToBurstYourBubble said...

Economists call this the 'theory of the second best.'

My wife succumbed to this theory.

Good for me, bad for her.

bruce said...

Yeah, that was funny, Tim :)

Quimby said...

LMAO.....

Good shit.

Marge said...

How does one post a photo here?

Marge said...

I am woman, I am strong...
you hillbillies.

Anonymous said...

Marge said...
"How does one post a photo here?"



No offense, but I agree with Duncan -- I think we're all better off left in ambiguity about your gender.

Anonymous said...

The NY Times claims it reports all the news that is fit to print. Its mission also apparently includes printing this shit:


http://www.nytimes.com/2008/06/11/greathomesanddestinations/11gh-what.html?pagewanted=print


June 11, 2008
Property Values
What You Get for ... $300,000
By ANNA BAHNEY
Banner Elk, N.C.

WHAT: A two-bedroom two-bath 1,499-square-foot cottage

HOW MUCH: $319,000

PER SQUARE FOOT: $219.47

SETTING: Banner Elk has a historic downtown with boutiques and restaurants; the area has ample opportunities for fishing, rafting and hiking. The house is in the mountains of western North Carolina in a residential enclave called Sugar Wood.

COMMON SPACES: The living room and dining area share space. Hardwood floors run throughout.

PERSONAL SPACES: The master bedroom on the upper level has dormer windows. The master bath has been renovated and has an oversized shower.

OUTDOOR SPACE: There is a large deck in the rear of the house with views of Beech Mountain. The property has a covered porch with mountain laurel railings.

AMENITIES: There is a stone gas fireplace in the living room.

TAXES: $505 a year

CONTACT: Lori Dean, Mountain Sotheby’s International Realty (978) 340-0441; www.sothebysrealty.com

New Orleans

WHAT: A one-bedroom one-and-a-half-bath 856-square-foot condo just outside of the French Quarter on North Rampart at Esplanade Avenue

HOW MUCH: $309,900

PER SQUARE FOOT: $362

SETTING: The apartment is in a renovated warehouse on the fourth floor of a five-story 33-unit condominium building.

COMMON SPACES: The living area has exposed brick walls and is open to the kitchen. The hardwood floors are original and date to 1926.

PERSONAL SPACES: The bedroom has a large closet. The master bath has a massage shower and jetted tub.

OUTDOOR SPACE: There is a balcony off the living room with views of the French Quarter.

AMENITIES: The complex has an outdoor pool and courtyard area. There is a fitness room. Parking spots are available for purchase; outdoor spots cost $25,000, indoor ones $45,000.

TAXES: The building qualifies for a five-year tax abatement. There is a condominium fee of $265 a month.

CONTACT: Eileen O’Donnell, Dorian M. Bennett and Mitchell Danese, Sotheby’s International Realty (504) 261-1347; www.sothebysrealty.com

Bend, Ore.

WHAT: A four-bedroom three-bath house with 2,186 square feet in the Elkhorn Estates, a residential enclave south of Bend

HOW MUCH: $324,900

PER SQUARE FOOT: $148

SETTING: Mount Bachelor offers opportunities for skiing and hiking; the Deschutes River is a popular place for rafting and canoeing.

COMMON SPACES: The living area is carpeted, and the kitchen and entryway have hardwood floors.

PERSONAL SPACES: The master bedroom has a walk-in closet and an adjacent office, reached through French doors.

OUTDOOR SPACE: The front yard has a waterfall and a stream; in the back, there is a pergola over the deck.

AMENITIES: These include a gas fireplace, a hot tub and a two-car attached garage.

TAXES: $2,794.40 a year

CONTACT: Matthew Wilson, Sunriver Realty (541) 480-9984; www.sunriverrealty.com

Anonymous said...

Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone.
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'.
For the loser now
Will be later to win
For the times they are a-changin'.

Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall
For he that gets hurt
Will be he who has stalled
There's a battle outside
And it is ragin'.
It'll soon shake your windows
And rattle your walls
For the times they are a-changin'.

Come mothers and fathers
Throughout the land
And don't criticize
What you can't understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin'.
Please get out of the new one
If you can't lend your hand
For the times they are a-changin'.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin'.
And the first one now
Will later be last
For the times they are a-changin'.

Marge said...

No offense, but I agree with Duncan -- I think we're all better off left in ambiguity about your gender.

OKIDOKIE

IHateToBurstYourBubble said...

I think we're all better off left in ambiguity about your gender.

Really?

My Lord, she's done everything but TELL US who she is!

Don't tell them marge. Let it be our secret.

IHateToBurstYourBubble said...

Can it be true?

Oh My God.

Possibly The Best Thing Ever Printed By Bend Media... Was The UN-PRINTING Of The Insipid & Worthless What's Going Up Hogshit in Today's Online Bulletin. Go to todays Business section of the Bulletin, and what's this? No, "What's Going Up"?

Bravo Costa. "What's Going Up" was the most useless, servile, pathetic CRAP ever to see newsprint. Yet it was the only freebie on your Saturday online site for years.

Bravo. Keep that crap where it belongs: In the UNREAD, PAID Pile of Crap section. Also a good indicator that NO ONE gives a crap about Lawyers putting an addition on their building, and other useless garbage.

RIP Free What's Going Up crap. We loathed you from Day 1.

IHateToBurstYourBubble said...

And killing What's Going Up servile crap is what happens when Real New Building comes to a total standstill.

Have you seen some of the crap in the section? Lawyers putting an addition on their offices, a house rehab. I mean they started covering people doing rehabs, for Chrissake.

Yeah, that's real front page news there.

Quimby said...

***Deep inhale***
Ahhhh, I love the smell of a good bubble rant in the morning.

PaulDoh, got my jo in hand, how soon till the weekly post?

Still shaking the cobwebs out of my brain from the rodeo last night. I did see some BMWs in the parking "pasture". It was a queer juxtaposition.

Marge said...

Damn, we are not at the bottom yet. Bend Bust will be back at $50k homes before we know it.
Check out this CNN article.
http://tinyurl.com/56onxq

Anonymous said...

I like the idea of being an economic development consultant. You get to go to meetings and put on a slideshow and encourage people to dream BIG.

Old definition of an expert: Somebody from out of town with slides. Modern definition: Somebody from out of town with a Power Point presentation.

bruce said...

CDO Boom Masks Subprime Losses, Abetted by S&P, Moody's, Fitch

May 31 (Bloomberg) -- The numbers looked compelling. Buy this investment-grade collateralized debt obligation and you'll get a return of up to 10 percent, Credit Suisse Group said. That was almost 25 percent more than the average yield on a similarly rated corporate bond.

Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the three leading credit rating companies --Standard & Poor's, Moody's Investors Service and Fitch Group Inc. Each had blessed most of the CDO with the highest rating, AAA or Aaa.

Investment-grade ratings on 95 percent of the securities in the CDO gave no hint of what was in the debt package -- or that it might collapse. It was loaded with risky debt, from junk bonds to subprime home loans. During the next six years, the CDO plummeted as defaults mounted in its underlying securities. By the end of 2006, losses totaled about $125 million.

The failed Credit Suisse CDO may be an omen of far worse to come in the booming market for these investments.

Sales of CDOs worldwide have soared since 2004, reaching $503 billion last year, a fivefold increase in three years, according to data compiled by Morgan Stanley.

CDO holdings have already declined in value between $18 billion and $25 billion because of falling repayment rates by subprime U.S. mortgage holders, Lehman Brothers Holdings Inc. estimated on April 13. In many cases, investors don't even know that values have dropped.

`We Can't Get There'

In this secretive market, there is no easy way for them to find out what their CDOs are worth.

The uncharted slide of the Credit Suisse CDO points to the critical and little-understood-role played by rating companies in assessing risk and acting as de facto regulators in a market that has no official watchdogs.

Many of the world's CDOs are owned by banks and insurance companies, and the people who regulate those firms rely on the raters to police the CDOs.

``As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,'' says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. ``We can't get there. We don't have the resources to get our arms around it.''

The three leading rating companies, all based in New York, say that policing CDOs isn't their job. They just offer their educated opinions, says Noel Kirnon, senior managing director at Moody's.

`Little New Information'

``What we're saying is that many people have the tendency to rely on it, and we want to make sure that they don't,'' says Kirnon, whose firm commands 39 percent of the global credit rating market by revenue.

S&P, which controls 40 percent, asks investors in its published CDO ratings not to base any investment decision on its analyses. Fitch, which has 16 percent of the worldwide credit rating field, says its analyses are just opinions and investors shouldn't rely on them.

The rating companies apply their usual disclaimer about the reliability of their analyses to CDOs. S&P says in small print: ``Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.''

Joseph Mason, a finance professor at Philadelphia's Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. ``I laugh about Moody's and S&P disclaimers,'' he says. ``The ratings giveth and the disclaimer takes it away. Once you're through with the disclaimers, you're left with very little new information.''

Credit Raters Participate

When it comes to CDOs, rating companies actually do much more than evaluate them and give them letter grades. The raters play an integral role in putting the CDOs together in the first place.

Banks and other financial firms typically create CDOs by wrapping together 100 or more bonds and other securities, including debt investments backed by home loans.

Credit rating companies help the financial firms divide the CDOs into sections known as tranches, each of which gets a separate grade, says Charles Calomiris, the Henry Kaufman professor of financial institutions at Columbia University in New York.

Credit raters participate in every level of packaging a CDO, says Calomiris, who has worked as a consultant for Bank of America Corp., Citigroup Inc., UBS AG and other major banks. The rating companies tell CDO assemblers how to squeeze the most profit out of the CDO by maximizing the size of the tranches with the highest ratings, he says.

`Not a Passive Process'

``It's important to understand that unlike in the corporate bond market, in the securitization market, the rating agencies run the show,'' he says. ``This is not a passive process of rating corporate debt. This is a financial engineering business.''

Credit raters consult with bankers in determining the makeup of a CDO, and banks make the final decisions, says Gloria Aviotti, Fitch's global head of structured finance.

As home buyers and investors grapple with the subprime mortgage crisis, many haven't yet realized the extent to which that turbulence is spilling into CDOs. Foreclosure filings in the U.S. surged to 147,708 in April, up 62 percent from April 2006, as subprime borrowers stopped making mortgage payments, research company RealtyTrac Inc. said on May 15.

As foreclosures increase, the subprime-backed securities in CDOs begin to crumble. Subprime mortgage securities make up about $100 billion of the $375 billion of CDOs sold in the U.S. in 2006, according to data from Moody's and Morgan Stanley.

Subprime Debt Holdings

Seventy-five percent of global CDO sales are in the U.S. Moody's reported in March that about half of the CDOs sold in the U.S. last year contained subprime debt. On average, 45 percent of the contents of those CDOs consisted of subprime home loans, Moody's said.

In a certain class of CDOs, the concentration of subprime is even higher. S&P and Fitch estimate that subprime mortgage securities make up more than 70 percent of the debt in so-called mezzanine asset-backed CDOs, a type of CDO that repackages bonds, mostly mortgage debt, with low credit ratings.

Investors bought $59.5 billion of these CDOs in 2006, according to Morgan Stanley. On average, as with all CDOs, more than 90 percent of the value in them is rated investment grade.

Bankers call the bottom sections of a CDO -- the ones that are the most vulnerable to subprime and other junk -- the equity tranches. They also have another, more-emotive phrase for them: toxic waste.

`The First Loss'

As more home buyers default on their subprime loans, the waste in CDOs becomes more poisonous. ``If anything goes badly, the investors in toxic waste take the first loss,'' says Satyajit Das, a former Citigroup Inc. banker who has written 10 books on debt analysis.

``Let's put it this way,'' he says. ``There's a revolution. If you don't win, you're going to be the first one in line for the firing squad.''

Investors have little idea how toxic some of these CDOs are, Drexel's Mason says.

``We compose CDOs with a bunch of this stuff,'' he says. ``Now we just jack up the risk, jack up the misunderstanding. We're throwing our money to the wind. We now know the defaults are in the mortgage pools and it's only a matter of time before they accumulate to levels that will threaten the CDO market.''

In times of uncertainty, CDO ratings take on even less meaning, says Brian McManus, head of CDO research at Charlotte, North Carolina-based Wachovia Corp. Investors may not know what hit them because there won't be a sudden CDO crash, he predicts.

``They don't blow up,'' McManus says of CDOs. ``They just kind of melt.''

No Regulation

This is not what investors envisioned in 2004 when they started the CDO bull run. In an era of low interest rates, CDOs offered juicy yields.

With defaults at historic lows, the risk of something going drastically wrong seemed remote. Why buy a corporate bond yielding 5 percent when you can invest in a CDO with the same credit rating and the promise of a return twice as high?

There are two caveats: It's nearly impossible to find out exactly what's in a CDO, and CDOs aren't regulated.

Almost all CDOs are sold in private placements, and their current values aren't posted anywhere. ``There is absolutely no transparency,'' Das says. ``It's difficult to get current values or information about the underlying assets in the CDO.''

Financial regulators have effectively outsourced the monitoring of CDOs to the rating companies. No less an authority than the U.S. Office of the Comptroller of the Currency, which regulates banks, depends on the rating firms to assess the quality of CDOs.

Bonanza for Raters

U.S. banks have invested as much as 10 percent of their assets in CDOs, and the OCC requires that all of those CDOs be investment grade, says Kathryn Dick, deputy comptroller for credit and market risk. ``We rely on the rating agencies to provide a rating,'' she says.

CDOs have been a bonanza for the rating companies. In the past three years, S&P, Moody's and Fitch have made more money from evaluating structured finance -- which includes CDOs and asset- backed securities -- than from rating anything else, including corporate or municipal bonds, according to their financial reports.

The companies charge as much as three times more to rate CDOs than to analyze bonds, published cost listings show. The companies say these fees are higher because CDOs are so complex compared with a single bond.

Structured finance is the largest and fastest-growing source of credit rating revenue. Moody's reported revenue of $1.52 billion in 2006 for credit rating. Structured finance accounted for 44 percent, or $667 million. Company credit ratings were the second-largest source of revenue, drawing $485 million.

`A Gold Mine'

In the first quarter of 2007, structured finance rose to 46 percent of Moody's rating revenue.

``CDOs are the cash cow for rating agencies,'' says Frank Partnoy, a former bond trader, now a University of San Diego law professor and author of `Infectious Greed: How Deceit and Risk Corrupted the Financial Markets' (Henry Holt & Co., 464 pages, $27.50). ``They're clearly a gold mine. Structured finance is making a lot of Moody's shareholders and managers wealthy.''

Shares of Moody's, which is the only stand-alone publicly traded rating company, have more than tripled to $68.60 on May 9 from $20.65 at the beginning of 2003.

S&P charges as much as 12 basis points of the total value of a CDO issue compared with up to 4.25 basis points for rating a corporate bond, company spokesman Chris Atkins says. (A basis point is 0.01 percentage point.)

Shares Almost Tripled

That means S&P charges as much as $600,000 to rate a $500 million CDO. Fitch charges 7-8 basis points to rate a CDO, more than its 3-7 basis point fee to rate a bond, based on the company's fee schedule. Moody's doesn't publish its pricing for any ratings.

Fitch, which is 80 percent owned by Paris-based Fimalac SA, a publicly listed investment company, says that rating structured finance accounted for 51 percent of total revenue of $480.5 million in the fiscal year ended on Sept. 30, 2006.

Fimalac's share price has almost tripled in value since the start of 2003, trading at 80 euros ($108.40) on May 9.

New York-based McGraw-Hill Cos., which owns S&P, reports that in 2006, the credit rating company's revenue rose by 20 percent to $2.7 billion. Almost half of that growth was from increased sales of structured finance ratings, it says.

McGraw-Hill's shares have more than doubled in value since 2003, trading at $68.97 on May 9.

The First CDOs

Michael Milken, the junk bond king, created the first CDO in 1987 at now-defunct Drexel Burnham Lambert Inc., says Das, author of `Credit Derivatives: CDOs & Structured Credit Products' (John Wiley & Sons Inc., 850 pages, $120). Until the mid-1990s, CDOs were little known in the global debt market, with issues valued at less than $25 billion a year, according to Morgan Stanley.

Drexel and other investment banks realized that by bundling high-yield bonds and loans and slicing them into different layers of credit risk, they could make more money than they could from holding or selling the individual assets.

Investment-grade CDOs that include subprime assets offer debt returns that exceed yields on junk bonds. In May, BBB-rated portions of CDOs -- the lowest investment grade -- paid 7-9 percentage points above the London interbank offered rate, according to Morgan Stanley.

That amounted to an annual return of about 13 percent, based on May bank lending rates.

Most CDO tranches promise returns at a fixed spread over Libor. That means their value isn't affected by changes in interest rates the way the value of a fixed-rate bond would be, says Arturo Cifuentes, a managing director at R.W. Pressprich & Co., a New York- based fixed income brokerage that buys and sells CDOs.

`A Happy One'

``CDOs offer you a possibility to invest in risk which you cannot do in any other way,'' he says. Cifuentes says CDOs have been good for investors and financial markets. ``For the most part, the CDO experience has been a happy one,'' he says.

That euphoria has blinded investors -- and the rating companies -- to the true risk of CDOs, Partnoy says.

A $1 billion CDO named Timberwolf, sold in March by New York- based Goldman Sachs Group Inc., included a $30 million tranche. It's rated investment grade, BBB, by S&P and Moody's and pays 1,000 basis points, or 10 percentage points, more than the three-month forward Libor.

That's more than double the return on corporate bonds with the same rating. Timberwolf's offering statement warns that the CDO may include subprime mortgage debt.

``When you see something that's priced at a 1,000 basis point spread, you know it's pretty risky,'' Partnoy says. ``The rating agencies might not figure that out for a while.''

CDO ratings may mislead investors because they can obscure the risk of default, especially compared with similar ratings for bonds, says Darrell Duffie, a professor of finance at Stanford Graduate School of Business in California, who's paid by Moody's to advise the company on credit risk.

`Can't Compare'

``You can't compare these CDO ratings with corporate bond ratings,'' Duffie says. ``These ratings mean something else -- entirely.''

Corporate bonds rated Baa, the lowest Moody's investment rating, had an average 2.2 percent default rate over five-year periods from 1983 to 2005, according to Moody's. From 1993 to 2005, CDOs with the same Baa grade suffered five-year default rates of 24 percent, Moody's found.

Non-investment-grade CDOs, rated Ba, had an almost identical default rate of 25.3 percent in the same period. ``In CDO-land, there's almost no difference between Baa and Ba,'' says Cifuentes, a former Moody's vice president who helped develop the company's original method of rating CDOs in the late 1990s.

American Express Loss

Cifuentes highlighted this point when he ran a daylong seminar for 45 U.S. bank regulators in Washington on April 10.

American Express Co. learned about risky CDOs the hard way. The New York-based company invested in high-yield CDO transactions starting in 1998. By 2001, American Express reported losses of more than $1 billion from those investments.

Chief Executive Officer Kenneth Chenault told shareholders in a July 2001 conference call that the company didn't understand CDO risk. He said when his traders first bought CDOs, defaults were at historically low levels.

``Many of the structured investments were investment grade, so they thought they had a reasonable level of protection against loss,'' he told investors. ``It is now apparent that our analysis of the portfolio did not fully comprehend the risk underlying these structures during a period of persistently high default rates.''

As a result, he said, American Express would stop buying CDOs. Chenault declined to comment for this story.

Some investors have always been wary of CDOs. Joe Biernat, head of research at London-based European Credit Management Ltd., says he avoids CDOs. The investment firm, owned by Wachovia, specializes in mortgage- and asset-backed securities and manages about 21 billion euros for institutional clients.

`We Like Clarity'

``We have never invested in CDOs because we like clarity,'' Biernat says. ``You may be buying more of the worst stuff to get the kind of yield that you want.''

Because there are so many moving parts to a CDO, rating companies have to assess not only the chance that something may go wrong with one piece but also the possibility that multiple combinations of things could falter. To do that, S&P, Moody's and Fitch use a mathematical technique called Monte Carlo simulation, named after the Mediterranean gambling city.

The rating companies take all the data they have on a CDO, such as information about specific bonds and securitizations and the remaining types of loans to be purchased for the package.

The firm enters data into a software program, which calculates the probability that a CDO's assets will default in hypothetical situations of financial and commercial stress. The program effectively rolls the dice more than 100,000 times by running the information randomly.

`False Sense of Security'

The rating companies base their simulations and ratings of each tranche on assumptions about default and recovery rates that may be incorrect, Cifuentes says.

``The danger with Monte Carlo is that it gives you a false sense of security,'' he says. ``If the input data that you use is a little bit uncertain, your numbers are going to be trash, but they will look convincing.''

Credit rating companies may have miscalculated the potential toxicity of securities backed by subprime loans, McManus says. ``With CDOs, they underestimated the volatility of the subprime asset class in determining how much leverage was OK,'' he says.

The rating firms use irrelevant or incomplete data to calculate the probability, or so-called correlation risk, that various assets in a CDO will default at the same time, Das says.

``The models are fine,'' he says. ``But they have an input problem. It becomes a number we pluck out of the air. They could be wrong, and the ratings could be misleading. I'm not even sure we understand the networks of links between the subprime tranches.''

`Not an Exact Science'

Stephen McCabe, a London-based managing director at S&P in charge of rating structured finance, defends his firm's evaluations, which are based in part on Monte Carlo simulation. ``It's always an opinion, but it's based on some very deep mathematical analysis and some quite-complicated modeling.''

Kimberly Slawek, group managing director at Derivative Fitch, the subsidiary of Fitch that rates CDOs, says her firm does the best it can. ``It's not an exact science,'' she says. ``This is very much our opinion as to the creditworthiness.''

Kevin Kendra, London-based managing director at Derivative Fitch, says he runs a two-year training course on the rating firm's model for analyzing CDOs. In the first year, he teaches recruits about Monte Carlo simulation, including the use of correlation variables in determining risk.

Correlations mean, for example, that when a German auto company defaults, other German car manufacturers suffer a higher chance of failing.

`Understand the Strengths'

``I spend the second year teaching them how to not believe the outputs of these models,'' Kendra says. ``I want them to understand the strengths of the model, but also why the model may or may not apply to the assets that they're trying to analyze.''

Kendra says he's not telling them to ignore the computer model; rather, he's suggesting that they should understand it and also use their own judgment.

S&P's McCabe says his company's model is valuable, even if it isn't perfect. ``There can be times when the model will spit out something and the people on our credit rating committee will just say, `We're not comfortable with that,''' he says.

Complicating the rating companies' challenges in evaluating CDOs is the unusual role they play in putting them together. Potential conflicts of interest in the ratings game aren't new. The three largest raters are always paid by the issuers of the debt they're rating.

Rating Conflicts

Conflicts in rating CDOs are more acute because the raters work with financial firms in creating these debt packages, says Karl Bergqwist, a senior manager at Gartmore Investment Management Plc in London.

``When you assign a traditional rating on a company or a bank, it is as it is, and you just make an assessment,'' says Bergqwist, who worked at Moody's until 1994. ``When you move into structured finance, the agencies are effectively involved in structuring these transactions.''

Fitch rates the top tranches AAA. The riskier mezzanine tranches usually get investment grades down to BBB-. The lowest portions, the toxic waste, which offer the highest potential return and biggest risk for investors, go unrated.

These sections are also known as equity because their holders are the first to suffer losses and the last in line to collect in the case of a collapse triggered by defaults of the underlying debt, just as shareholders stand behind bondholders when a public company goes bust.

`An Active Role'

Fitch's role in helping to put together a CDO came to light in a civil court case. American Savings Bank of Hawaii Inc. sued UBS PaineWebber Inc. in 2001, claiming that in 1999 UBS had incorrectly said a CDO it had sold was investment grade when it wasn't.

In the lawsuit, American Savings challenged Fitch's ratings of Zurich-based UBS's CDO. The 2nd U.S. Circuit Court of Appeals required Fitch to turn over internal documents. The court found in 2003 that Fitch had advised UBS on how to structure the CDO to get the ratings the bank wanted. Fitch itself was not a party to the lawsuit.


``Fitch played an active role in helping PaineWebber decide how to structure the transaction,'' the court found. ``Correspondence indicates a fairly active role on the part of the Fitch employee in commenting on proposed transactions and offering suggestions about how to model the transactions to reach the desired ratings.''

The case was settled out of court, says UBS spokesman Doug Morris. Fitch's Aviotti says that although her company talks with financial firms as they create CDOs, Fitch doesn't structure CDOs. ``We do as we do, which is not advise,'' she says.

`The Nirvana'

Yuri Yoshizawa, group managing director for structured finance at Moody's, says a credit rating company's close relationship with CDO issuers doesn't compromise objectivity.

``I think if we have the ratings wrong, we don't have a business,'' she says. ``If we put something out there just because the issuer wants it and it's wrong, then there's absolutely no reason for anybody to rely on or give voice to our opinions.''

The banks and rating companies have stretched the frontiers of CDOs with products known as CDO squareds and CDO cubeds.

As the names suggest, a CDO squared is formed by bundling together a bunch of CDOs, and a CDO cubed, which can contain thousands of different securities, is formed by lashing together a bunch of CDO squareds.


Some investors love these fat packages of CDOs because they offer even higher returns than plain CDOs. ``The nirvana is higher risk-adjusted returns,'' says Andrew Donaldson, CEO of CPM Advisers Ltd., a London-based credit investment firm that manages about $2 billion.

`Smoke and Mirrors'

CPM buys and sells CDOs, including CDO squareds. ``CDO squareds give another dimension to achieve portfolio diversification,'' Donaldson says.

Investors shouldn't put much credence in the risk that rating companies assign to CDO squareds and cubeds, says Stanford's Duffie. ``The complexity of analyzing that is beyond current methodology,'' he says.

The grades that rating companies give CDO squareds and cubeds are worthless, says Janet Tavakoli, founder of Chicago-based consulting firm Tavakoli Structured Finance Inc., which advises investors on CDO purchases.

``Ratings on these products are based on smoke and mirrors,'' Tavakoli says.

The inner workings of CDOs are normally invisible to the public. The demise of the $340.7 million CDO Credit Suisse sold in December 2000 was documented in a 38-page report dated March 26 that Moody's stamped as confidential.

CDO Collapse

The Enhanced Monitoring Report, which is written for clients who pay an extra $10,000 to $130,000 for such studies, provided further background about the CDO called SPA.

This ill-fated CDO included a collection of subprime mortgage- backed securities and junk bonds. S&P, Moody's and Fitch stamped 85 percent of the CDO with an AAA or Aaa rating because that portion was guaranteed by bond insurer MBIA Inc.

On April 24, Moody's withdrew its rating on the major part of SPA, saying in a two-sentence note that investors in this tranche had been paid in full.

What Moody's didn't say was that Armonk, New York-based MBIA paid the investors after the CDO had collapsed because many of its underlying securities had defaulted. MBIA spokesman Michael Ballinger says the insurer paid investors in the AAA or Aaa tranche $177 million.

The tranche had suffered about $73 million in losses, which MBIA covered. Moody's spokesman Anthony Mirenda and Credit Suisse spokesman Pen Pendleton declined to comment on SPA.

Total Loss

Moody's also didn't say what became of SPA's uninsured mezzanine tranches, which the credit rating company had rated as investment grade. Investors in these tranches lost all of their money, Ballinger says.

The losses totaled $38.5 million including unpaid accrued interest, based on the numbers in the Moody's report. The unrated equity, or toxic tranches, also lost everything -- $17.2 million. Moody's estimated that SPA's remaining assets, which MBIA took over, were worth $104 million.

``Because of the difficulty in obtaining accurate and timely market prices, some of the prices may be inaccurate or stale,'' Moody's wrote in a footnote in the confidential report. Mirenda declined to comment on the report.

With no regulation and little transparency, the CDO market thrives, and credit raters are helping lead the way, the University of San Diego's Partnoy says.

Investors haven't been deterred by American Express's $1 billion loss. Nor have the March and April studies by Moody's and Lehman showing the concentration of subprime debt in CDOs slowed down CDO sales.

Former banker Das wonders why few people are probing the potential dangers for CDO investors. ``I think the regulators seem to be fairly sanguine about all of this,'' he says. ``The thing that I find quite bewildering is the lack of urgency and focus.''

He says subprime mortgage defaults have just started to soar. ``The fuse has been lit,'' Das says. ``Somebody should be trying to find where this wire is running to.''


We ain't seen nothing yet. This is going to get really ugly.

Marge said...

Looks like you may rather read the full text and not follow a url. So...here it is.
Hard hit cities like Sacramento, Phoenix and Las Vegas are set for more steep losses. Some real estate experts are bracing for price drops of as much as 50%.
NEW YORK (CNNMoney.com) -- With home prices plunging by more than 30% in some markets, bargain-hunters are ready to pounce.

But it may pay for buyers to wait. Many housing experts say that the worst-hit metro areas have even farther to fall, and could see total drops of as much as 50%.

"The housing boom was unprecedented in U.S. history," said Michael Youngblood, a portfolio analyst with FBR Investment Management, "and the correction will be as well."



High-end housing crunch, 90210




Many erstwhile bubble cities have sustained particularly brutal hits. The median- price of a home in Sacramento, Calif. was down 35% during the three months ended May 31 compared to the same period last year, according to the real estate web site Trulia.com. In Riverside, Calif. prices fell 29%, while San Diego prices dropped 26%.

Smaller cities in California's Central Valley, such as Stockton (-39%), Modesto (-37%) and Bakersfield (-29%), also recorded steep declines.

Outside California, hard-hit markets include Phoenix (-18.8%), Las Vegas (-22%), West Palm Beach, Fla. (-32%) and Cape Coral, Fla. (-35%).

Youngblood expects that these markets will likely endure total price drops of 50% or more.

The smart money
Indeed, prices are falling faster and further than in any other post-war housing bust. During the bust in Austin, Tex., which started in 1986 and is one of the worst on record, prices fell 25%, according to Local Market Monitor, a financial data provider. And that cycle took four years to bottom out.

In other major downturns, prices in Los Angeles fell by 21% during a six-year period in the 1990s, and Honolulu home prices saw a decline of 16% in the five years starting in 1994.

Youngblood's forecast "is quite plausible," said Nicholas Perna, of the economic consulting firm Perna Associates. He finds it especially significant that the smart money, investors in the S&P Case/Shiller Home Price Index, are still buying futures as if they expect prices to continue to plummet.

The index, which tracks the sale price of specific homes as they are sold and resold over the years, is considered to be one of the most accurate home price indicators.

"The people who are putting their money where their mouths are," said Perna, "are betting on more losses."

Specifically, Case/Shiller investors are betting that Las Vegas prices will fall an additional 22% by November 2009. Los Angeles futures predict a further loss of 24.2% through November 2009, while investors expect to see Miami down another 21.6% by then.

These markets may have a hard time recovering because, according to Perna, people are afraid to buy right now, because they're concerned about over-paying. That helps explain why price depreciation seems to be accelerating.

"The most severe declines are happening right now," said Mark Zandi, chief economist for Moody's Economy.com.

Prices vs. wages
This correction was inevitable, in Youngblood's opinion; home price gains had simply out-paced income by far too much to be sustained.

Historically, home prices have averaged about four times wages. Whenever homes got significantly more expensive, people could not afford to buy and home prices fell back.

But local price-to-income ratios are still out of whack even after steep price declines, which means prices have further to fall. In Los Angeles, where the ratio peaked at 22.7, according to Youngblood, it's still in the high teens. Home prices would have to come down another 40% or so to get that ratio back into the single digits.

And it's not just the housing fundamentals that lead Youngblood to expect more drops; he also cites the local economic conditions.

"Bubble cities are now seeing fleeing employment conditions," he said. In Miami, the unemployment rate rose 34.3% between April 2007 and April 2008, according to Youngblood. And the job picture in California cities, where many jobs were housing related, has been even more disastrous.

Housing was a key economic engine for towns like Riverside, Stockton and Modesto during the boom, according to Zandi. Builders, real estate salespeople, mortgage brokers and lenders, and even retailers, like Home Depot (HD, Fortune 500) and Lowe's (LOW, Fortune 500), depended on growth in the sector.

"In all those deteriorating housing markets, it's a double hit," he said.

Ten of the 11 cities with the highest unemployment rates in the nation are now in central California, with El Centro , at 18.4% in April, leading the way. Other double-digit disaster areas were in Merced (12.3%), Yuba City (11.8%), Modesto (10.7%), Visalia (10.3%), Hanford (10.2%) and Fresno (10%).
Many of these cities are also among the leaders in foreclosure rates. As more foreclosed properties hit the market, prices are further depressed.

"[The price drops] reflect a wave of distressed sales of [bank-owned] properties and discouraged sellers," said Zandi

The brighter side
Not all analysts are pessimistic. Richard DeKaser, chief economist for National City Corp (NCC, Fortune 500) points out that, thanks to the price declines, the national market is the most affordable it's been in years.

With the national median price of a single family home at $204,229, mortgage rates around 6% and the average household earning nearly $50,000, the average home buyer spent about 23.2% of their income on housing during the first quarter of 2008. That's down from 2006, when homeowners spent an average of 29% of their income on housing.

Nariman Behravesh, an economist with Global Insight, says that while he expects home prices to stagnate for the next five years, Youngblood's 50% price decline forecast is "a little extreme."

But that target is realistic, Behravesh says, after taking inflation into account. In markets where prices have fallen 35% or more, and remain depressed through five years of 4% inflation, home prices in real dollars will absorb an additional 20%-plus hit. That would push price declines to over 50%.

Of course, there are plenty of wild cards that could affect home price trends, such as the election, Congressional legislation, unemployment, gas prices, and interest rates.

"This whole market is fraught with all sorts of implications," said Perna, "and it ain't over until it's over."

Since we are one of the highest escalatings market, we will see some of the hughest declines.
Bring it on!!!! Affordable housing yet to come.

timothy said...

Was that War and Peace or Anna Karenina?

Anonymous said...

"Was that War and Peace or Anna Karenina?"

bruce and marge: love you guys, but please, next time paste the abridged version.

There's WAY too much to scroll through.

Marge said...

Up yours.. I put up a tinyurl... and no one commented. It's not like like PD has never put a long read up or others for that matter.
OK I am done ranting for now...whewwww

timothy said...

My bad. There was so much text there I thought it was all one post. It gets hard to see the conversation.

Usually I've already read the stories that are posted, which adds to my (perhaps unfair) crankiness.

Marge said...

Timmy,
I love to hear from you in first person.Sorry for the long article! I thought it was really an important regarding the ramifications in OUR market.

timothy said...

>>As more foreclosed properties hit the market, prices are further depressed.

Yep. That is important to our market.

I remember a couple years ago we were hearing that Bend wouldn't be a place that saw foreclosures increase.

Marge said...

My opinion is that Bend, with the huge uptick in home prices over the past 5 years,is that we will (on that LAGGING late 18 months curve) see at a minimum of of a 60% haircut from the high median of +-$387K. Which will put the med at $147k. That will be sustainable for most that want to stay here after the apocalypse. I feel for those that purchased during the feeding frenzy. Some greed driven , others fearing being priced out. Both foolish and both paying for it one way or the other. I feel bad for either, except the speculators.
G'Night

bruce said...

Re: bruce and marge: love you guys, but please, next time paste the abridged version.

There's WAY too much to scroll through.

My bad--I usually try to bold the important parts so you can skim through, but had two women hollering at me we were late for the rodeo. I've been trying to post fewer articles, but this one seemed very relevant, showing how the CDO (and CDO squareds and cubeds) sales have actually been soaring: Sales of CDOs worldwide have soared since 2004, reaching $503 billion last year, a fivefold increase in three years, according to data compiled by Morgan Stanley. Along with the "help" from the ratings agencies, who have a direct interest in seeing more of these created and rated, as it leads to much more income for them.

This shit could cause systematic problems that make the current ones, i.e. Bear Stearns, Lehman Brothers, etc., look like small potatoes. It's obvious that they need to be regulated.

bruce said...

Check out the little blurb on the fron page of the BULL Biz section:

Bend building permits issued in May: 22. Twenty-fucking-two.

Last year: 67

I bet if they showed '05 and '06 May numbers, that 22 would look really pathetic.

Anonymous said...

Wow, 22 permits in May. More unemployment coming. Squirrel is going to be in short supply this winter.

Anonymous said...

Bend building permits issued in May: 22. Twenty-fucking-two.

And that includes people putting up a carport or adding on to the kitchen. Wonder how many actual new structures those 22 permits represent?

timothy said...

>>Wow, 22 permits in May. More unemployment coming. Squirrel is going to be in short supply this winter.

Wanna bet? I'm breeding them in my garage to take advantage of the upcoming famine. I had to stop feeding them corn, though. It got too expensive.