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Thursday, February 25, 2010

The Hangover Isn't Over Yet

Posted By on Thu, Feb 25, 2010 at 9:40 PM

Bad news for anybody betting on a quick real estate rebound: The Commerce Department announced yesterday that new home sales fell to a 50-year low in January.

In news that surprised the so-called experts, purchases of new homes dropped 11.2% from December to January, to a pathetic seasonally adjusted annual rate of just 309,000.

One factor behind the dismal numbers, according to a Washington Post story, is the glut of homes already built: "Builders ... continue to struggle with competition from previously owned homes, most notably the foreclosures that are on the market at fire-sale prices."

Meanwhile, Bend investor, financial adviser and blogger Jesse Felder has an "In My View" piece in today's Bulletin that throws cold water on the optimistic advice economist Alan Beaulieu gave during a recent appearance in Bend.

Beaulieu, "along with most investors today, is overlooking some major potential pitfalls for the economy and financial markets including the real estate market over the next few years," according to Felder.

Felder notes that "the credit crunch is still on and shows no signs of improving," with banks reluctant to lend and consumers and businesses reluctant to borrow. "Ultimately, the past two decades of fiscal debauchery by both businesses and consumers have caused an economic hangover that can only be healed with time and increased fiscal conservatism," he writes. "Over the long term this process of putting our financial affairs in order is healthy for the economy. Over the short term, though, it can be very dangerous."

Felder foresees a long process of "deleveraging" - getting rid of debt - that could lead to a prolonged recession like the one Japan has been experiencing since the early 1990s. Under those circumstances, he continues, Beaulieu's advice to invest in real estate in the expectation of rising prices "represents precisely the attitude that created the financial mess we now find ourselves in and ... there is a very real possibility this advice will have disastrous consequences for those that follow it."

Props to The Bulletin for having the guts to print Felder's piece (it couldn't have made the local realtors happy) although for some reason the editors changed his original headline - "Have We Learned Nothing from the Real Estate Bubble?" - to the much less punchy "Continued economic weakness is a very real possibility."

Now there's a masterpiece of understatement.

Why the headline change? Maybe The Bulletin has developed a severe allergy to the B-word.

UPDATE: We're Number One again! The Federal Housing Finance Agency announced Thursday that Bend led the nation in declining home prices over the past year, with prices at the end of 2009 almost 21% lower than they were at the beginning. Nationwide, home prices fell only 1.2 % over the year.

Even more depressing news: Over the past five years, Bend home prices haven't appreciated at all -- in fact, they actually fell by about seven-tenths of a percent. If anybody needs more proof that the real estate boom here was artificially inflated by speculation rather than being driven by Bend's supposedly unique wonderfulness as a place to live, there it is.

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