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Puncturing a bubble, maybe

Tour NWProbably no place is more thoroughly emblematic of the boom-grwoth side of the Northwest than Bend, where people have long since run out of superlatives to describe the explosion of development in their midst.

We can report that it is ongoing. In the fall of 2004 we gassed our car at a fairly new Chevron tourist stop on the east fringe of Bend, beyond which lay the desert, and across Highway 20 from an under-construction shopping center. Last week we gassed up at the same Chevron station and noticed that across the street, the center was completed – and enormous, almost in itself the size of a small town, easily a match for the biggest new centers at Vancouver. Washington or Meridian, Idaho. Nor was that all. The whole area, back of the shopping center, back of the Chevron station, off into the distance, was brand new residential development.

This was maybe a bit extreme, but other parts of Bend were growing too, notably anywhere on the east or south sides. Visiting the Deschutes County election office, we inquired where, most specificially, were the big growth places around the city. The eventual answer was, almost everywhere.

The prices have been going up, too. We know an executive who took a job at Bend more than a decade ago but concluded he could not afford to live there, and bought a house instead in Redmond. Things have gotten much more extreme since. As late as 2000, the average sales price of houses at Bend still was under $200,000. In 2005, the average sales price was $334,570. If decently-paid professionals couldn’t afford a decent house in Bend a decade ago, what can they afford now? Maybe more to the point, who’s buying these houses?

We may get a clearer public answer before long. And yes, there are political implications afoot.

Bend downtown

Up through 2005, construction and new home buyers were matching up. Low interest rates and “creative” loan packages, and in some cases substantial equity from sale of houses elsewhere, helped people move into those mid-six figure homes. But part of the lure was the idea that prices will continue to rise, and if those big-ticket houses become unaffordable, they could still be sold at a profit. But what if they can’t?

David Foster, a real estate broker who tracks Bend-area real estate on his web site, sounds reluctant (understandably) to write about bursting bubbles, but references the idea anyway. He suggested in his latest post, “As of the end of July 2006, though the market indicators are still somewhat mixed, and while the real estate bubble has not burst in Bend, it might be said that the bubble has grown much bigger. Certainly the ‘sellers market’ of 2005 is over, and the market is ‘adjusting’, but I would still not call it a ‘buyers market’.”

You can parse that, partly, with numbers. In the category of houses sitting on lots of an acre or less (urban or semi-urban), there are today two and a half times as many houses available for sale as they were last year – enough, under normal estimates, to feed the marketplace for half a year. That’s quite a change from last year. The Bend Bulletin notes, ”

Foster again: “With July as typically one of the busiest months of the year, I would not have been surprised to see the number of homes on the market go down. Instead, the number ballooned up by 224 more homes than at the end of June, and the number of homes sold dropped by 17% YTD as compared to last year. I also would not have been surprised to see the average and median sales prices go down, and yet they continued to creep up, while list prices went down. “Bend alone had 1,322 active listings on July 31, according to Foster’s analysis of the MLS numbers – about a six-month supply, based on average sales velocities so far this year. It had 387 listings on July 31, 2005.”

This is all in defiance of the basic laws of supply and demand; something screwy is going on here.

The Bulletin hinted at one of the contours of this story in noting, “Inventory has built rapidly in the once-tight Bend market, Berger and other market watchers say, for one key reason: Speculators are trying to bail out at the top price.” Can’t blame for them for trying, but it my be that the day of pulling housing money out of thin air could be coming to a halt.

There is, as promised, a political overlay of sorts to this.

Consider this precinct map of Bend.

Bend precincts

You’ll notice several central and western precincts colored a bright blue. Those are the precincts which Democrats have tended to either win or race very competitively in recent years.

The precincts to the east and south are the most strongly Republican in Bend. They are also the fastest-growing, and the most involved in the trends of the housing balloon.

What’s coming next isn’t entirely clear. But it seems likely to have an effect on Bend’s politics as well as its economy.

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