How Would a Dow of 6700 Effect Bend Real Estate Values?
Today it was announced by a prominent economic advisor that we have the potential to see the Dow slip to 6700. This is the level that Technical Chartists see where the Dow may head in the days and weeks ahead. It’s no surprise, but the state of our current economy is indeed heading in unchartered territory.
GM Collapsing, huge unemployment numbers, skyrocketing foreclosures….possible depression?
While it’s certainly easy to get caught up in the doom and gloom and all of the what if scenarios, we have to remain diligently focused on our long-term goals. Having spent over 8 years of my career in the Financial Investment world, I can say first hand that Wall Street is quick to react in knee jerk actions that can change market directions in an instant. In fact many of you will likely read the local headlines in the months to come only after a market correction has already been priced into the markets, including real estate values.
You see many people wait for a confirmation of a market bottom when in reality, it is impossible to rely upon a headline of such. Just yesterday it was announced that we have been in a recession since Spring of this year! You see where I’m going here. By the time a market announcement is made, IT’S OLD NEWS!!
The same will hold true for our real estate values. By the time you see a local headline that Bend Real Esate Values are beginning to rebound, you will have already lost the opportunity to buy in at the lowest entry point.
Now I’m not at all suggesting that you run out the door and buy every property you can get your hands on today, but I will say that if you are in a position to consider making a purchase today, now is a very good time to consider our market. Opportunities abound right now. Asking prices are merely suggested starting prices as we have seen with many of the offers we have negotiated of late. What a difference from the bid it up, multiple offer scenarios that were being played out just a few short years ago. If you were willing to buy in that type of market scenario, why wouldn’t you consider making a purchase today?
It’s important to remember that more real estate millionaires were made during down markets than any other market cycle.
Want to chat more about our market or where I see our values going? Drop me a post here and I would be happy to respond for all to read.
As always, Get on the move…GoBend!
November 25th, 2008 at 11:03 pm
I wouldn’t consider making a purchase today because all signs point to Bend prices dropping 25-35% in the next year. I’ve been following what has been going on in other markets, and the Sacramento market seems to be ahead of us by one year exactly in their start of the run up, their peak prices and their peak inventory. They lost 40% in the last 12 months with well more than half of their properties sold as REO. We have had two months so far this fall with county wide Notices of Default higher than county wide sales, and November is looking to have NODs blow sales out of the water by 1.5 to 1.
I’ll wait.
November 25th, 2008 at 11:42 pm
Which signs would you be referring to? The health of our local economy will depend in large part upon the general health of the greater economy. While I don’t believe that Big Gov’t should be stepping in and bailing everyone out, (they should let our free -market capitalistic system run it’s course) I do believe that their intervention will at some point boost overall consumer confidence, leading to renewed optimism about our economy. People are paralyzed by fear right now. Give them a reason to doubt their own fear and you will see things start to turn around.
However, the sliver of optimism that was created today by Congress, could be wiped away in an instant if we see additional large scale Bank and Corporate failures and bankruptcies. This will only continue to add fuel to the fear epidemic that has stopped everyone dead in their tracks at the moment.
You have to realize that there is a tremendous amount of money sitting on the sidelines right now in search of a market bottom. When that time will come, nobody knows for certain, but when it does, you will see another Bull market emerge and Home Buyers will once again emerge from the trenches ready to secure their slice of America at perceived sale-prices.
November 26th, 2008 at 11:33 am
The signs I see are:
1. National City still has us as the 2nd most overpriced town in the US.
2. The Wells Fargo report that came out last week has our affordability index at 30, meaning only 30% of the people in town can afford a median priced house. Supply and demand says that there is way more demand that ability to buy. An index of 30 ranks us 211th of 222 markets.
3. Taking a look of any graphs of the Median price in Bend - at National City, Zillow, or anywhere else - It appears that we are on the same trajectory as other cities, but a year behind. Overlay the graphs and shift the peaks and you can see this. No other location that had a major bubble has started their recovery yet, even though in some locations they are down to 4 months inventory (Sacramento) which in a normal real estate market would mean price increases. The massive foreclosures are keeping prices down, causing more foreclosures.
4. Speaking of inventory, 6 months is a balanced market. Typically when you have less than 6 months inventory prices will go up, more than 6 and they will go down. We have been between 15-20 months inventory this year. That’s unstable. While Bend may be nice, and Bend may be different, there has been no market I have ever seen that has had prices not go down when inventory is still that high.
5. Notices of Default (start of the foreclosure process) have been higher than sales in Deschutes county for 3 of the last 4 months, including November. Yesterday morning there had been 91 sales and 140 NODs. While not all of those NODs will foreclose, many will. We will be putting almost as many houses back on the market as NODs next spring as we took off this month. The NODs have been fairly stable the last few months at around 180-200 a month and show no sign of slowing down, especially as more mortgages reset and prices continue to drop.
6. The historic Price to Rent ratio is completely out of whack. The house I am renting costs me $1250 to rent, with $200 going to HOA. My rent to the owner is then 1050. Using historic P/R the house should be worth around $189k. The person across the street with the exact same floor plan has theirs currently listed at $389k, and it could probably sell in today’s market for about $299k. Prices will go back to to historic P/E levels. During the depression it was actually significantly cheaper to own than rent.
7. It costs significantly less to rent, and I wouldn’t be making money owning. From 2002 until 2007 in Bend it may have been cheaper monthly to rent, but the house was appreciating and you could subtract that money from what you were paying, so it made sense. We are depreciating now, so it needs to be close monthly. If I were to buy the place across the street for $300k (still waaaay less than asking) and put 20% down (which I have), PI would be $1420, Taxes $220, Insurance $75, HOA $200 making my monthly bill $1915 to own an asset that is depreciating. Any tax benefits are canceled by not gaining interest on the money I have in the bank. If I were to pay their pie in the sky price it would cost me $2300, when I could rent for $1250 - and not have to pay to fix the heater when it goes. At $189 with 20% down it would be around $1415, which may make sense with the tax benefits. If interest rates go up between now and then the prices will be depressed more, as has been shown in the past. And remember, you can always refinance a high rate when they come down, but you can’t re-negotiate a buy price.
8. When bubbles burst there is an over correction. When I say that prices should be down 30% from now, that’s where it make sense to buy. I do think that prices will over correct below that, but I may feel comfortable buying.
December 24th, 2008 at 4:03 pm
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December 25th, 2008 at 1:01 am
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January 9th, 2009 at 4:25 pm
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January 15th, 2009 at 1:38 pm
There is a strong correlation between the state of our Real Estate Market and the Stock Market. The impact of an implosion of the DOW would create havoc in the real estate world as foreclosures and bank failures would escalate to unimaginable proportions. It’s not a sight anyone of us really want to see or experience, but in these troubled waters, the possibility is indeed real and one that needs to be explored and considered.
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