Wikinvest Wire

A slack attack in Bend, Oregon

Monday, September 21, 2009

The sharp transition from boom to bust in our new home town of Bend, Oregon is apparently so interesting these days that the Wall Street Journal saw fit to send a couple reporters out here to have a first hand look (maybe doing a little hiking, kayaking, or golfing in their spare time), resulting in the following Page 1 story($) in today's paper.

Slack Attack: Fed Faces Test on Inflation
BEND, Ore. -- Tens of thousands of people who moved here in the past decade saw a booming real-estate market and plentiful jobs amid the mountains of Central Oregon. Now they see slack.
IMAGE A year and a half of recession has left local manufacturer Bright Wood Corp. with too much capacity at its plants that make window and door components. Bright Wood has laid off nearly half of its work force, shut an 80,000-square-foot factory in Bend, and sold or stored its extra equipment.

Additional underutilized industrial space, housing and workers are apparent across town. More than 9,000 people have lost jobs since mid-2006. Some 29% of homes are vacant. "For Lease" signs hang on store windows near the town's main drag, Wall Street.
Maybe that was part of the attraction for these two New Yorkers - the town's two main streets are named Wall and Bond.

From here, they go on to talk about "slack" in the economy and how that might relate to deliberations about inflation at this week's FOMC meeting which is an odd combination to be sure - Bend, Oregon and the Federal Reserve - but one that makes good sense to me for obvious reasons.

As for inflation, there would appear to be so much "slack" around here these days that no one should be too concerned about the price of anything going up for some time.
Slack is important to their equation because, in theory, it should suppress wages and prices and keep inflation down. But if the Fed misreads the dimensions or significance of slack, it could unleash an unwelcome bout of rising prices.

The risk of inflation is significant. The federal government is running budget deficits on a scale last seen during World War II, while the Fed has pumped more than $800 billion into the banking system. Banks haven't been lending this money freely so far, but once they start, it could spur economic activity and send prices rising. One signpost of gathering inflationary fears is that the price of gold, often seen as a hedge against inflation, has soared by more than 40% since last October to more than $1,000 an ounce.
Yeah, might as well throw gold into the mix while they're at it - a trifecta!

They also mention foreclosures, which, I guess if you write about Deschutes County today, you have to cover that topic. The number of default notices tripled in the last two years and more than half of the modest number of sales in August were distressed sales.

And they note that the FDIC was here not long ago to have a close look at the books kept by Bank of the Cascades, one of the areas largest banks with a loan committee that probably made a few too many construction loans a few years back.

These two probably won't be the last East Coast reporters to stop by here to see what some now refer to as the "poster child" for the housing boom gone bust.

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odograph said...

As I might have mentioned, I went up for my post-crash visit. I am considering moving there ... maybe next spring. I ski a little, I mountain bike, I'm learning to fly fish. Awesome, right?

But "29% of homes are vacant?"

Geez louise, at this point I think there is a slum risk.

Tim said...

As I understand it, normally, half the homes here are rentals (lots of second homes and investment properties), so with the glut of rental units, that number doesn't sound that surprising.

odograph said...

Thanks for the reply. I'm not sure that takes the scare off the 29% number, but still.

The interesting thing is that Bend built (predominantly) houses. The classic resort-investment gambit is a condo.

I certainly see that Bend grew at the worst time, when people in other cities might have used their 1st property equity in a risky reach to a 2nd home. If too many Bend homes were sold in that condition, a lot might bounce back as equities fell and one home, 1st or 2nd, had to go.

Do we know percentages bank owned at this point?

(I'm used to good data at Mathew Padilla's OC blog. Perhaps the numbers aren't as available elsewhere.)

odograph said...

A lot of old, junk, data out on the web as I try to track and compare that number. FWIW, this maybe out of date page says Bend's vacancy rate is/was 6%

It also shows 25% of housing being built in the last 5 years covered.

Anonymous said...

The Bend deal was this: There was agressive marketing of second houses in the national media during the early 2000s. Bend construction started upward. Then the prices started to rise. Larger banks and builders got wind of it and wanted in. Folks who should have done their homework saw all the building and believed things were booming (I'm older, and asked my Bend friends what would happen when the outside money stopped coming in). Eventually the market turned, and we have the result. I used to say Bend was like a drug addict, "with no visible means of support." By that I meant not a lot of industry to permanently employ all these newcomers. See, I'd seen the same thing happen in Placerville, CA. The boom ran its course... folks had to commute to Sacramento and Stockton for work. But in Bend - where do you commute to? Portland? Um, no.
So there you have it.

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