Tuesday, June 23, 2009

NYT: Slump Dashes Oregon Dreams of Californians

There are about 7-8 cities/regions I like to keep an eye out on to get a feel for what is really going on out there; since I'm exceptionally biased by the 1 state Depression I like to make sure I have a feel for reality elsewhere. Some areas like Las Vegas I watch as a proxy for the US consumer, others for health of certain industries. One interesting spot that I like because it is not tied to any 1 industry is Oregon - any troubles there cannot be blamed on (a) autos (b) no one gambling (c) high finance job losses. When a real recovery [Dec 15, 2008: The Economic "Recovery"] comes it will be seen in places like Oregon. We looked at Portland back in March [Mar 28, 2009: The Downturn Through the Eyes of Portland, Oregon]

Portland, a metropolitan area of 2.2 million people, affords an ideal window onto the spiral of fear and diminished expectations assailing the economy. The area has long attracted investment and talented minds with its curbs on urban sprawl, thriving culinary scene and life in proximity to the Pacific Coast and the snow-capped peaks of the Cascades. In good times, Portland tends to grow vigorously, elevated by companies like the computer chip maker Intel — which employs 15,000 people in the area — and the athletic clothing giant Nike.

But in recent months, Portland has devolved into a symbol of much that is wrong. Housing prices have fallen more than 14 percent since May 2007, according to the S.& P./Case-Shiller index. Foreclosures more than tripled last year, according to RealtyTrac. The unemployment rate for the metro area surged from 4.8 percent at the end of 2007 to 9.8 percent in January 2009, according to the Labor Department.

The other reason I like Oregon is when I was reading about all the blessed real estate happenings across much of the country mid decade (it never happened locally so I had to read about it) I was trying to figure out how this was happening. Granted there were many pieces of it, i.e. workers making $31,000 qualifying for $375,000 mortgages - but what I noticed on the West Coast was that multiple bubbles (Las Vegas, Phoenix, and to some degree Washington & Oregon) were all from 1 nexus: California. The newly "house rich" used their house ATMs as cash registers to go forth into other provinces of Western America and bid up housing prices there with their monopoly money. In many cases it actually caused a lot of harm to locales - especially in those states where property taxes are not capped. I can remember reading a lot of stories in fact about older retired folks who had to sell their homes because property taxes had been skyrocketing due massive price increases caused by the out of towners. But enough about the savers in the country - I am sick of hearing about their SOB stories. Saving is so 1940s. Let's focus our sympathy for the speculators and borrowers (and also give them more kerosene so we can repeat all this over again) Of course as a side note - California has a tight leash on its property taxes so it's not a problem there. How did that work out for CA state finances?

Skip that question - it was a rhetorical. Anyhow, as Californians either borrowed against their homes and drew out monopoly money to bid up prices elsewhere for investment purposes, or in some cases just sold outright and then viewed the $250K 2200 sq ft homes in other communities as a 'ridiculous bargain - we'd pay 3x that in CA!" they had an impact through many states. And no I don't blame Californians - if the government and Fed gives you monopoly money, have fun with it. Our money trees are bountiful in America.

But when things reverse, it tends to leave some not so fun aftertaste. This New York Times article has a good view of the "after" part of "before monopoly money invades your 'hood and after". Let us only consider for a moment all the systematic anomolies the new era of easy money shall incur in the years to come and the damage that will be wrought after the initial glee (was anyone booing Uncle Al for easy money in 2005? nah - he was a genius; he had created a new paradigm!). In between cheering that said nearly free money is boosting the stock market...

Now as we read this let's keep in mind Bend is a very different city than Portland - while I use Portland as a "represenative city" of the US economy, Bend is a representative of only 1 thing - how the US keeps creating bubbles as it ships away productive value so its citizens in the bottom 80% thinks prosperity is continuing.
  • Susan and Mike Telford had a plan back in the boom years in California. They would sell their house outside Fresno at a solid profit and take their equity to this sunny mountain city to build a better life, a fresh-air future in Oregon. “We wanted to lose the commute, to lose the smog,” Mrs. Telford said. “We wanted to lose California.”
  • They moved here in 2006, when Bend, Oregon was one of the fastest-growing places in the West and money and migration from California fueled that growth. Now the Bend area’s unemployment rate, at almost 16 percent, is one of the highest of any metropolitan area in the nation. “For sale” signs dot desert-toned, unfinished subdivisions. Luxury furniture stores downtown are going out of business. San Francisco chefs have fled.
  • The freefall has made Bend a succinct symbol for the economic perils of “lifestyle destinations” in the so-called New West, recreation-heavy communities where jobs have been heavily tilted toward construction and services and where many of the new residents were self-made exiles from California cashing in on their overpriced real estate. Bend, a former timber town that now has 80,000 residents, was particularly popular among those drawn to the often rainy Northwest because it is located on the sunny side of the Cascade Range.
  • Now the Californians who contributed to Oregon’s growth are in some cases adding to its economic struggle. As of May, Oregon had the second-highest unemployment rate in the nation, at 12.4 percent, behind Michigan. California, which has not released its May figures, ranked fifth in April.
  • While some other states with high unemployment, including Michigan, have seen their labor forces shrink, Oregon’s labor force has grown. Economists say some of the growth appears to be driven by people who moved here with money they made in California, whether from real estate or stock market investments, and expected to get by but now must look for work.
  • The Telfords are among those facing trouble. They had presumed they would be able to sell their house in Fresno for more than $300,000 to help pay the mortgage on the new house they bought near the Deschutes River in Bend for $475,000. (and I am sure in 2003-4 before the full effects of Uncle Al and his merry crew of "self regulation by financial oligarchs always works best" and "let me throw 1% interest rates on you just to make sure" were fully unleashed - home prices in sleepy towns like Bend were not near half a million) But the Fresno house has yet to sell, and Mrs. Telford, an accountant, has lost a series of jobs at small firms here that she said had downsized. The couple’s only income now comes from her unemployment checks and her husband’s salary as a high school teacher.
  • Carolyn Eagan, a regional economist for the Oregon Employment Department, pointed to federal data showing that the overall percentage of personal income from dividends, investments and rental income in Deschutes County was almost 26 percent in 2007, the latest year for which data were available. Compared with an overall state rate of slightly less than 21 percent, the figures suggest that people here, more than elsewhere, have relied on income from sources other than a steady job.
  • Locally, sustainability is a challenge. Bend’s job market has not proved diverse enough or deep enough to provide jobs for the newcomers who suddenly need them. “Poverty with a view” is how many people describe Bend before the boom. (as I said earlier, I doubted half a million dollar homes were the norm pre bubble conditions)
  • ...just as other places in the West have blamed California transplants for treading heavily into town, the words “California equity” roll off many tongues here in Deschutes County with particular resentment these days.
  • Zachary Lauritzen, a student teacher at Summit High School, on Bend’s west side — the side some residents call “Little California” — said he was teaching a lesson in government when the topic prompted him to ask how many students had lived in California. “Half of them raised their hands,” Mr. Lauritzen said.
  • Economists say the city’s sudden abundance of investment income and housing equity from newcomers made Bend seem more secure than it was. While experienced people like Mrs. Telford, the accountant from Fresno, struggle to find work, there are longer term questions over how the area will support its newest residents.
To that last question - they will move away... where you may ask? Wherever our current policies of free money from the heavens creates the next bubble. I have one thought in which I'll lay out in the week to come.

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