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.