Last night my friend, Dave Floyd, and I attended the latest taping of Talk of the Town. The topic this month was, “Homes, Loans and the Local Economy,” and it was quickly apparent that Dave and I were probably the only real estate skeptics (aka, bubble believers) in the house.

Ironically, the show’s host, Dave Jones, started off by addressing the COBA and Bend Chamber propaganda campaign by asking if anyone in attendance actually believes we are currently seeing the, “best buyers’ market in 20 years.”

Though the president of COBA and the head of the Chamber were in attendance, nobody stepped forward to defend the statement until a microphone was shoved in their face in an, “explain yourself,” manner.

A local builder responded by referencing the fact that inventories have come down from around 1,600 homes over the summer to roughly 1,200 today. He theorized that this meant the market is now beginning to turn for the better. He conveniently forgot to mention that inventories are highly seasonal and that there are more homes for sale now than at this time last year. On a year-over-year comparison, inventories are actually up!

Another person (an appraiser, I think) put forth the ever-popular theory that, “it’s different here,” because Bend is such an attractive place to live and will thus be insulated from any economic weakness felt elsewhere. When I responded that this sounded awfully familiar to the, “it’s different this time,” mantra of the internet boom believers of nearly a decade ago (and the participants of every bubble in history from stocks to tulips) I could feel a few dozen pairs of eyes burning into the back of my head.

What nobody thought to mention (and I had no opportunity to) is that home prices are still 68% overvalued in the region, according to the most reliable numbers available (thanks, Missy). Bend is also seeing more notices of default right now than closed sales.

These signs suggest the current downturn isn’t close to bottoming. These things take time to work themselves out. Massive inventories of vacant homes and mounting foreclosures certainly aren’t rectified in 60 days. (In fact, my money’s on the bottom being a lot closer to 600 days than 60.)

In terms of market psychology there are still way too many people hoping for a bottom right now. Any market veteran can tell you that bottoms in markets aren’t formed when everybody is looking for them (neither are tops, for that matter). A bottom comes when there’s blood in the streets and nobody believes an end to the pain will ever come.

People are only just beginning to feel the pain of this downturn. It’s not easy to witness. In fact, it’s very hard for me to witness which is precisely why I have been so vocal about it for the past couple of years. I’ve only hoped to help prevent this kind of pain for anyone willing to listen.

This downturn is a natural progression, however, and ultimately, a healthy one for the real estate market and local economy. I believe that the best response to it is to simply recognize that the tide has changed and adapt as best you can. Because no amount of propaganda can do a thing about it.
LIV

Last night my friend, Dave Floyd, and I attended the latest taping of Talk of the Town. The topic this month was, “Homes, Loans and the Local Economy,” and it was quickly apparent that Dave and I were probably the only real estate skeptics (aka, bubble believers) in the house.

Ironically, the show’s host, Dave Jones, started off by addressing the COBA and Bend Chamber propaganda campaign by asking if anyone in attendance actually believes we are currently seeing the, “best buyers’ market in 20 years.”

Though the president of COBA and the head of the Chamber were in attendance, nobody stepped forward to defend the statement until a microphone was shoved in their face in an, “explain yourself,” manner.

A local builder responded by referencing the fact that inventories have come down from around 1,600 homes over the summer to roughly 1,200 today. He theorized that this meant the market is now beginning to turn for the better. He conveniently forgot to mention that inventories are highly seasonal and that there are more homes for sale now than at this time last year. On a year-over-year comparison, inventories are actually up!

Another person (an appraiser, I think) put forth the ever-popular theory that, “it’s different here,” because Bend is such an attractive place to live and will thus be insulated from any economic weakness felt elsewhere. When I responded that this sounded awfully familiar to the, “it’s different this time,” mantra of the internet boom believers of nearly a decade ago (and the participants of every bubble in history from stocks to tulips) I could feel a few dozen pairs of eyes burning into the back of my head.

What nobody thought to mention (and I had no opportunity to) is that home prices are still 68% overvalued in the region, according to the most reliable numbers available (thanks, Missy). Bend is also seeing more notices of default right now than closed sales.

These signs suggest the current downturn isn’t close to bottoming. These things take time to work themselves out. Massive inventories of vacant homes and mounting foreclosures certainly aren’t rectified in 60 days. (In fact, my money’s on the bottom being a lot closer to 600 days than 60.)

In terms of market psychology there are still way too many people hoping for a bottom right now. Any market veteran can tell you that bottoms in markets aren’t formed when everybody is looking for them (neither are tops, for that matter). A bottom comes when there’s blood in the streets and nobody believes an end to the pain will ever come.

People are only just beginning to feel the pain of this downturn. It’s not easy to witness. In fact, it’s very hard for me to witness which is precisely why I have been so vocal about it for the past couple of years. I’ve only hoped to help prevent this kind of pain for anyone willing to listen.

This downturn is a natural progression, however, and ultimately, a healthy one for the real estate market and local economy. I believe that the best response to it is to simply recognize that the tide has changed and adapt as best you can. Because no amount of propaganda can do a thing about it.
LIV

“…Commit a crime, and the earth is made of glass.” -Ralph Waldo Emerson

With banks announcing ever-bigger losses each day, it seems we’re hearing more and more about, “Rogue Traders.” These are traders who, outside of their employer’s knowledge (supposedly), take on an obscene amount of risk. They are usually found out only when their luck turns bad and, consequently, the bank loses a lot of money.

Societe General claims the most famous “Rogue” of this down cycle. Today we hear of a new “Rogue.”

What I find ironic is that when times were good, these same traders were simply called, “earnings.”
LIV

“…Commit a crime, and the earth is made of glass.” -Ralph Waldo Emerson

With banks announcing ever-bigger losses each day, it seems we’re hearing more and more about, “Rogue Traders.” These are traders who, outside of their employer’s knowledge (supposedly), take on an obscene amount of risk. They are usually found out only when their luck turns bad and, consequently, the bank loses a lot of money.

Societe General claims the most famous “Rogue” of this down cycle. Today we hear of a new “Rogue.”

What I find ironic is that when times were good, these same traders were simply called, “earnings.”
LIV

So Dana Bratton, at the Bend Chamber’s annual real estate conference held yesterday, called the bottom in the local real estate market and the Bulletin is more than happy to publicize his bold optimism (it has to be the most prominent headline for a real estate article I’ve seen since the downturn began).

Hang on a sec; let me get this straight: a group of realtors, mortgage brokers and appraisers are saying, “It’s time to buy! Don’t miss the boat!” and this is considered news? Weren’t they saying this last year, too? And the year before that?

Two years ago, at the 2006 conference, Bratton asked the audience, “are we going to have another jump [in local home prices]? The answer is yes. In 2006, we’re going to see another $50,000 to $60,000 jump in Bend housing prices.” (Translation: “It’s time to buy! Don’t miss the boat!”)

According to Mr. Bratton’s own newsletter, prices only rose a fraction of his estimate during the course of that year. As of the most recent data series, prices are now lower than they were when Bratton made this earlier prediction.

So tell me how Bratton’s stubborn and, in fact, imprudent optimism constitutes news?

Warren Buffett likes to say that asking a stockbroker if you should buy a stock is like asking the barber if you need a haircut. Asking a realtor (or mortgage broker or appraiser, for that matter) if you should buy a home is just as foolish. Some people may remember that most stockbrokers in 2001-2002 were telling people to buy Yahoo! and AOL (Time Warner) all the way down (90%+ down).

I don’t know if this is the bottom for the local real estate market; my guess is that it’s not. What I do know is that the local real estate industry and all of its participants (including the Bulletin) have quite a keen interest in convincing us that it is. By now, this should be news to nobody.
LIV

So Dana Bratton, at the Bend Chamber’s annual real estate conference held yesterday, called the bottom in the local real estate market and the Bulletin is more than happy to publicize his bold optimism (it has to be the most prominent headline for a real estate article I’ve seen since the downturn began).

Hang on a sec; let me get this straight: a group of realtors, mortgage brokers and appraisers are saying, “It’s time to buy! Don’t miss the boat!” and this is considered news? Weren’t they saying this last year, too? And the year before that?

Two years ago, at the 2006 conference, Bratton asked the audience, “are we going to have another jump [in local home prices]? The answer is yes. In 2006, we’re going to see another $50,000 to $60,000 jump in Bend housing prices.” (Translation: “It’s time to buy! Don’t miss the boat!”)

According to Mr. Bratton’s own newsletter, prices only rose a fraction of his estimate during the course of that year. As of the most recent data series, prices are now lower than they were when Bratton made this earlier prediction.

So tell me how Bratton’s stubborn and, in fact, imprudent optimism constitutes news?

Warren Buffett likes to say that asking a stockbroker if you should buy a stock is like asking the barber if you need a haircut. Asking a realtor (or mortgage broker or appraiser, for that matter) if you should buy a home is just as foolish. Some people may remember that most stockbrokers in 2001-2002 were telling people to buy Yahoo! and AOL (Time Warner) all the way down (90%+ down).

I don’t know if this is the bottom for the local real estate market; my guess is that it’s not. What I do know is that the local real estate industry and all of its participants (including the Bulletin) have quite a keen interest in convincing us that it is. By now, this should be news to nobody.
LIV

The following letter was submitted to the editor of the Bend Bulletin:

“All the fundamentals are in place…”

The above quote can be found in the lead story from today’s business section of the Bulletin (”Redmond on firm ground economically”). Bud Prince, manager of Redmond Economic Development, Inc., is its source.

Considering the current real estate crash (with sales down 50% and prices down 20% it can be termed nothing else) any rational human would finish the quote with, “…to lead one to expect severe economic weakness over the coming months.”

Instead, Mr. Prince continues, “…from an industrial perspective, the future can almost be an extrapolation of the recent past [which has brought about $100 million in capital investment over the past 5 years].”

Why Redmond would hire an economist from Mars is beyond me.

Reading Mr. Prince’s comments, I am immediately reminded of the Federal Reserve’s recent analysis of financial bubbles. The Fed concludes that bubbles are created, “as investors extrapolate recent price action [or economic action] far into the future.”

If this is not PRECISELY what Mr. Prince is doing then I must have stepped through the looking glass. Once again, it’s life imitating art (if anything the Fed does can be considered art – a stretch, I know).

Over the next 5 years, I am nearly certain that Mr. Prince will be proven severely misguided. And for all of you looking to Mr. Prince and his ilk for such predictions, remember:

“The Prince of darkness is a gentleman.” -William Shakespeare
LIV

The following letter was submitted to the editor of the Bend Bulletin:

“All the fundamentals are in place…”

The above quote can be found in the lead story from today’s business section of the Bulletin (”Redmond on firm ground economically”). Bud Prince, manager of Redmond Economic Development, Inc., is its source.

Considering the current real estate crash (with sales down 50% and prices down 20% it can be termed nothing else) any rational human would finish the quote with, “…to lead one to expect severe economic weakness over the coming months.”

Instead, Mr. Prince continues, “…from an industrial perspective, the future can almost be an extrapolation of the recent past [which has brought about $100 million in capital investment over the past 5 years].”

Why Redmond would hire an economist from Mars is beyond me.

Reading Mr. Prince’s comments, I am immediately reminded of the Federal Reserve’s recent analysis of financial bubbles. The Fed concludes that bubbles are created, “as investors extrapolate recent price action [or economic action] far into the future.”

If this is not PRECISELY what Mr. Prince is doing then I must have stepped through the looking glass. Once again, it’s life imitating art (if anything the Fed does can be considered art – a stretch, I know).

Over the next 5 years, I am nearly certain that Mr. Prince will be proven severely misguided. And for all of you looking to Mr. Prince and his ilk for such predictions, remember:

“The Prince of darkness is a gentleman.” -William Shakespeare
LIV