Alberta Arts District now part of Bizzaro World

From the Daily Journal of Commerce:

While looking at potential properties to renovate within the Alberta Arts District, developer Brad Fowler saw a lot of artists who didn’t have a place to live, work and sell their goods. In his view, they were missing live-work units, where occupants can employ all three uses.
“There’s efficiency to living where you work,” he said.
Fowler saw an opportunity to capitalize on the district’s arts scene, which led to his latest redevelopment project, the Alberta Arts Building.
He’s developing the project with his partner Phil Cohn through their company, Fowler Andrews LLC. Construction is expected to begin in June and last about six months.
Live-work units are new to Fowler, a developer for 20 years. The Alberta Arts Building will be his first such project.
It won’t be his last. In 2010, around the time that construction stops on the Alberta Arts Building, Fowler will start a new development at Northeast Sixth Avenue and Couch Street. That project will be a mixed-use building and include seven live-work units on the ground floor. It will also feature 3,800 square feet of ground-floor retail and 69 market-rate apartments.
Real estate professionals say that targeting one group of professionals in an area, like Fowler is doing in the Alberta Arts District, is a prudent decision.
“Customers looking for artwork will go to a cluster to save on transportation costs,” Mildner said, “especially when the goods are imperfect substitutes.”
But because these are Fowler’s first live-work units, he doesn’t know what the rental rates will be. He’s seen little market research relating to live-work units.
What he has seen, however, is that most live-work units are sold, not leased. That observation concerns him as he prepares to lease the units.
“It’s worked well as a for-sale product because of the costs associated with it,” he said, but added that selling real estate is too risky in the current economy. “I mean, you can build it for $250 per square foot and sell it for $400 per square foot and make the numbers work. (But it’s) not so easy when you rent.”
At $1.2 million, the project is expected to cost less than other live-work buildings because it’s a renovation of an existing tilt-up concrete building, said the project’s architect, Don Vallaster, a principal with Vallaster Corl Architects.
For Fowler, the concern is whether his project will be able to recoup its budget.
“If anything, there’s an unmet demand in Alberta,” he said. “But right now, I have no idea how they are going to rent.”

This is like a time warp back to 2005 when any project would be a success. I don't understand how projects like this pencil out.

Another 150 jobs leave Bend

From the Portland Business Journal:

Cessna Aircraft Co. will close its plant in Bend and lay off 150 workers there, the company said Wednesday.
The news came after parent company Textron Inc. announced first-quarter earnings.
The company will lay off a total of 1,600 workers companywide. Company spokesman Doug Oliver says the cuts affect all levels of Cessna’s operations and that notices began going out Wednesday morning.

Portland Case-Shiller Index down 19%

The S&P Case-Shiller Index is based on observed changes in home prices. It is designed to measure the increases or decreases in the market value of residential real estate.

For each home sale transaction, a search is conducted to find information regarding any previous sale for the same house. If an earlier transaction is found, the two transactions are paired and are considered a “repeat sale.” Sales pairs are designed to yield the price change for the same house, while holding the quality and size of each house constant.

Sales pairs from the following counties are included in the Portland index: Clackamas, Columbia, Multnomah, Washington, Yamhill, Clark (WA), and Skamania (WA).

The first graph shows all historical data for Portland, Seattle, and the 10 city index. The Portland residential real estate market has fallen 14.4% in the last year.

The second graph highlights the changes since the Federal Reserve stopped lowering interest rates in June of 2003. The Portland index is currently at 150.88; a decline of 19.1% since the market peak. The last time the index was this low was June of 2005.

The final graph shows the year over year percent change since June of 2003.

CRE: negative absorption through the first half of 2010

From the Portland Business Journal:

The recession has come calling on the Portland office market.
Leasing activity dropped, vacancy rates rose and the market returned more space than it took, according to early first quarter reports from both Grubb & Ellis Co. and Colliers International.
The commercial real estate brokerages use different measures to tally the market, so
their numbers vary, but both clearly show that demand for commercial office space is down because of the recession, now in its 16th month, and Oregon’s 12.1 percent unemployment rate.
Colliers International said there are 7.8 million square feet of office space available in the market, which translates to a 10.2 percent vacancy rate. That’s up from 8.8 percent just one quarter ago.
Lease transaction volume is down 64 percent in the same period, it said.
Colliers predicts more negative absorption through the first half of 2010. By the end of 2009, there will be at least one million square feet of negative absorption, which is the equivalent of U.S. Bancorp Tower, which has about 1.1 million square feet.

Finally- an 'economist' gets called out by the Oregonian

From the Oregonian:

Tim Korkeakoski just childproofed his first home.
Korkeakoski isn't a new father or about to become one. He's a homebuilder in Wilsonville and he's desperate for work -- any work.
"I got a call asking if I could do it and normally I might be too busy for something like that, a job so small," he said. "Not any more. I had nothing else on my plate and told them I'd be happy to do the work."
Korkeakoski is part of a real estate industry in Oregon that has shed thousands of jobs over the past year as the economy has soured, stilling builders, stalling sales and leaving some people wondering if, rather than when, the recovery will arrive.
"There is life out there but it's spotty," said Ernie Platt, director of local and government affairs at the Home Builders Association of Metropolitan Portland.
"It's very spotty. People are fearful and are concerned about when things are going to get better."
At the association's December conference on the market outlook for 2009, Jerry Johnson, a real estate market and regional economic development consultant, predicted that "we have found the bottom" and that the "fundamentals are not likely to get worse."
The next month, things did get worse.
According to the Regional Multiple Listing Service, January 2009 saw a 32.5 percent drop in closed sales from the year before. Pending sales dropped 26.1 percent, and the average sale price fell 13.3 percent.

Thank you Oregonian! Thank you for calling out the horrible predictions that too often slip by.

Now unemployment is hitting home values

From the Oregonian:

After nearly two years of high-risk loans driving record numbers of Portland-area homeowners into default, lenders are seeing a second, bigger wave of foreclosures.

And now, the culprit is unemployment.

Since late 2008, the jobless rate and the number of foreclosures have been rising together in Oregon and southwest Washington, entwined in a cause-and-effect climb toward the top of the charts.

"I definitely think that's what we're seeing now everywhere -- and that's especially the trend we're seeing in Oregon." said Daren Blomquist, spokesman for RealtyTrac, a California-based company that tracks foreclosures nationwide. "A lot of the rise in foreclosures has to do with unemployment."

But the picture is even darker in Clark County, which in March produced Washington state's highest foreclosure rate for the second month in a row. Clark County's unadjusted March unemployment rate of 12.5 percent -- the worst since 1983 -- was coupled with 605 foreclosures.

Portland unemployment now at 11.1%

Here are the metro area unemployment numbers (SA first then NSA).

Trendy 23rd Avenue is falling apart

From the Oregonian:

The 23rd Avenue shopping strip, Portland's palace of posh, is fraying under the weight of the recession.

The city's icon to consumerism is where high-end retailers Pottery Barn, Williams-Sonoma Home and Urban Outfitters go to be seen.

But empty storefronts are now as visible as double lattes.

White House Black Market. Gone. French Quarter. Gone. Twenty-Third Avenue Books. Wham. Music Millennium. All gone.

From every street corner between Everett and Raleigh streets -- 13 blocks -- shoppers can spot a "For Lease" sign or plywood-covered window. Demand has fallen far enough that a head shop called Mary Jane's House of Glass can now afford a 23rd Avenue storefront.

The street some call "Trendy-Third" reflects the trouble facing a once-unstoppable real estate boom. Beyond shops, downtown offices are starting to empty as law firms and architects lay off workers. Suburban office parks, once filled with high-tech workers and mortgage brokers, are going dark.

Commercial real estate tends to lag broader economic trends, and vacancies are expected to climb.

Just above 23rd Avenue near Burnside, Clyde Fladwood ferries boxes out of his women's clothing store, CC McKenzie.

He opened the place five years ago when times were booming on 23rd.

Now, the window signs say it all: "Store liquidation. Everything must go."

Fladwood's lease expires in May, and he says his slumping sales don't justify a new lease. "People are scared to death to go out and spend money, and they're not," he said Friday as a few women thumbed through sale-priced pants, shirts and shoes.

"This is the only thing that makes sense to people, buying when someone's going out of business."

The story also talks about Kruse Way in Lake Oswego. The vacancy rate is now 16%.

JLS Custom Homes cuts prices to clear out inventory

From the Oregonian:

JLS Custom Homes, one of Oregon's largest home builders, said Thursday it will liquidate 70 homes to clear out its inventory as sale prices continue to plummet across the region.
Owner Jason Sage said he expects the Beaverton-based company's revenues will drop to about $30 million this year, an 80 percent decline from the boom-time peak. But he said the company will not follow other major Oregon builders into Chapter 11
bankruptcy. "We have enough of a relationship with the banks we can make this work," Sage said.
Sage said he wants to liquidate the homes because of the slow sales pace and small prices that have dropped up to 35 percent below his original expectations. He'd rather unload the homes at a loss than continue to pay construction loans until the market improves.

Foreclosure bus tour comes to Eugene

From the Register Guard:

Investors and other house buyers sought opportunity in misfortune this winter as real estate agents arranged bus tours of Eugene’s foreclosed homes — and the local foreclosure rate climbed.
More than 630 Lane County home­owners faced foreclosure filings in the first quarter of this year, a 112 percent increase from the same period last year.
Banks reclaimed 86 Lane County homes in the first quarter, up 617 percent from the previous year, according to RealtyTrac, a company based in Irvine,Calif.
In March, Oregon joined the top 10 of worst-hit states, behind Utah,Idaho, Georgia, Michigan, Illinois, Florida, California, Arizona and Nevada.
Oregon’s foreclosures increased 151 percent over the past quarter.
Some of Lane County’s foreclosed houses bear the marks of their former owners’ angst, said broker Kit Sixel, who is organizing a second bus tour of Eugene’s foreclosed homes for this Saturday.
“You see the hole in the wall that you just know somebody put their foot or fist through in anger. All that takes is a little bit of plaster and a trowel to fix,” she said.
Sixel’s tours load up to 40 investors and home buyers on an Oregon Coachways bus and take them to nearly every corner of Eugene. Foreclosures have reached into almost all neighborhoods, with bank-set prices for homes ranging from $149,000 to $650,000.
But Sixel said prices are about as low as they’ll get, and with other factors aligning — interest rates, stimulus incentives — now’s the time to buy. Besides, real estate is practical compared with other potential investments, she said.
“When you put your money in the stock market — and the stocks drop and the company goes out of business — your money isn’t going to regenerate. It’s gone. When you invest in real estate, you have a physical object there that’s going to stay there and you can keep renting it out. Someone else is going to pay that mortgage payment for your house when they rent. Even if market values drop for that house, as it has for the last year, eventually it’s going to build up again,” she said.

If you put 10% down and prices drop 10% then your money isn't going to regenerate either. It's gone. You can't sell the 'asset' and you have to keep making the monthly payment.

Bend real estate off 41% since peak

The Central Oregon Realtors Association (CORA) released their quarterly data this month and the downward trend is intensifying.

Bend’s average sale price for the first quarter of 2009 was $265,292; down 31% from the same quarter the year prior. The Bend market peaked in the third quarter 2007 and prices have fallen 41% since then.

Sales continue to fall but at a decreasing rate. 224 homes sold during the quarter; up 1% from the same quarter the year prior.

The final graph shows how affordable the median priced home is for a family of four. History indicates the ratio is usually between 2.5 and 3.0. Prices would have to fall 20% from the current median for the ratio to reach 3.0.

Portland RMLS Market Action Report – March 2009

The Regional Multiple Listing Service released the Market Action Report this week and the median sale price for March 2009 was $246,400; this is a 14.0% decrease from the median sale price for March 2008.

The Portland residential real estate market peaked in August 2007 with a median sale price of $302,000. Prices have now fallen 18.4% from that peak.

Months of supply (total inventory/monthly sales) sits at 12.0 months compared to the 9.1 months of supply for the same month last year. A balanced market has about 7 months of supply.

The first graph compares the median and average sale price with the months of supply. Click on any graph for a sharper image.

The second graph shows the total supply of homes available for sale. This is simply a calculation of the months closed sales multiplied by the months of supply. There are currently 14,208 homes for sale; this is a decrease of 7.7% from the same month the year before.

The third chart shows closed sales by month. There were 1,184 closed sales during the month; a decrease of 30.0% from the same month the year before.

The fourth chart shows new listings by month. There were 3,685 new listings during the month; a decrease of 28.5% from the same month the year before.

The final graph shows how affordable the median priced home is for a family of four. History indicates the ratio is usually between 2.5 and 3.0. Prices would have to fall 17.8% from the current median for the ratio to reach 3.0.

Eugene bedroom community trys to stimulate new housing

From the Register Guard:

The City Council has voted to create an ordinance that would temporarily decrease systems development charges by 50 percent in an effort to stimulate building.

City staff will present the ordinance at the April 23 council meeting. The city proposes to reduce the SDC fees through July 31.

SDCs are charges imposed on new homes and other construction and are intended to pay for the demands placed on city infrastructure. Currently, Harrisburg’s SDCs for a single family home average are about $9,400, which means the new reduction would save a builder about $4,700 per home.

City recorder Michele Eldridge said the city collected more than $869,200 in SDCs in the last fiscal year. This year, the city estimates it will bring in more than $239,200.

I'm sure existing home owners love the idea of more housing supply in their town.

Eugene is a little different than most Oregon towns. The Urban Growth Boundary is a legitimate constraint on land because they never expanded it (probably never will). The result is bedroom communities, like Harrisburg, had a major housing boom because people can't afford/find a home in the city. With sales dropping off a cliff and buyers choosing closer-in areas Harrisburg doesn't have a leg to stand on.

Springfield offered a similar development incentive last year; it didn't work. Now look at their next great idea.

Oregon unemployment rate hits record high

From the Oregonian:

Oregon's 12.1 percent unemployment announced today will go yet higher, the state's chief economist predicts, probably leading the nation.
A major culprit, Tom Potiowsky says, is rapid growth in Oregon's labor force, which is expanding as non-working spouses and others begin seeking jobs.
The Oregon Employment Department says the state's seasonally adjusted unemployment rate jumped 1.4 percentage points to reach 12.1 percent in March,
up from February's level of 10.7 percent, which officials revised downward from the 10.8 percent originally reported.
"I'm guessing when the dust settles," Potiowsky says, "we'll be the highest in the nation."
Oregon's March jobless rate ties the record set at the peak of the 1980s recession, which was the worst since officials began tracking numbers in 1947. Oregon, which had the nation's third-highest jobless rate in February, has now exceeded Michigan's
highest-in-the-nation level of 12 percent for that month.
"The unemployment rate has never jumped that rapidly during a five-month period," said David Cooke, a state labor economist.
Gov. Ted Kulongoski called the March statistics "staggering." Oregon Senate President Peter Courtney, D-Salem, said the state has "runaway unemployment." He called on Oregonians to come together and help family, friends and neighbors in need.

So the government is calling for the people to do something and the people are calling for the government to do something. The state is doing something...

From the Statesmanjournal:

Oregon's version of a stimulus package has gotten off to a sluggish start, but legislators and state officials say they still expect to have most of the projects under way before the end of May.
A report out Friday from the Department of Administrative Services shows that 16 new jobs have been created and 73 of a projected 499 projects are under way.
In January, lawmakers aimed to create 3,000 jobs by pushing construction work across the state.
They picked jobs that could be started quickly, borrowed $175 million, said the benefits of short-term employment would outweigh the cost of long-term debt, and promised quick work.

The states goal is to create 3,000 new jobs but an additional 14,000 lost their job last month.


One footnote from the employment department:

This tied Oregon’s unemployment rate in November 1982, the highpoint of the early 1980s recession. While historical records prior to 1976 are not exactly comparable, it appears clear that the 12.1 percent level is Oregon’s highest since 1947, when the Employment Department first started publishing unemployment rates.

City of Sisters is "severely distressed"

From the Oregonian:

City leaders are attempting to attract new companies to Sisters. As they've ramped up that effort, city councilors have repeatedly invoked Sisters' status as a "severely distressed community" in their effort to get state help in attracting new companies. But with its high-end resorts and retail shops, that designation was surprising to some.

The severely distressed designation refers to the area inside the city limits. Made by the state, it's an official designation meaning that Sisters falls below certain levels of income and socio-economic data.

City leaders are trying to bring more jobs to town through a series of economic development efforts.

They hope the development efforts will balance the economic differences between parts of the city and the wealthier, outlying areas.

One of the most prominent steps has been the joint application Sisters and Redmond are filing for an enterprise zone, which provides short-term tax breaks when qualifying companies create new jobs.

During the run-up to the application, Sisters leaders often invoked the city's designation as a severely distressed community.

City Manager Eileen Stein said she hadn't expected Sisters ever to be severely distressed, in part because of some of the high-end development around the city.

"Quite frankly, it sort of surprised me that we meet the criteria," Stein said.

Condo/Office tower stops construction

From the Portland Business Journal:

One of the biggest anticipated additions to Portland’s skyline in a decade has been put on hold and will eventually be 10 floors shorter than planned.

After weeks of rumors, TMT Development confirmed Friday it's delaying construction of its planned 32-story Park Avenue West Tower at Southwest Park and Ninth Avenues downtown, a block west of Nordstrom. Work was scheduled to be completed in 2011.

Work will stop Monday.

TMT is also redesigning the tower, eliminating condominiums that were to take up 10 stories. The plan now calls for a 22-story tower.

The tower would be one of the first significant additions to Portland’s skyline since TMT opened Fox Tower in 2000.

The company said it was forced to halt construction because it couldn’t secure financing for the project. It hopes to restart work by the end of the year.

“Financing is not available for real estate projects right now, even ones with leases,” said Vanessa Sturgeon, president of TMT.

“If you need a better example, how about a project that’s 55 percent to 60 percent leased with a developer with a great track record and it can’t get financing,” he said.

Hoffman is scrambling to close down the project and find alternative work for the 350 employees working on it.

Sturgeon emphasized that suspending work is temporary, saying, “it is truly a delay.”

Bend home values fall 25% in a year

From the Bend Bulletin:

The median sales price for a single-family home in Bend rose in March to $221,000, an increase of 2.79 percent from February but off more than 25 percent from March 2008, according to a local real estate analysis released Tuesday.

On a quarterly basis, the median sales price in Bend was down 12.55 percent compared with the fourth quarter of 2008 and down 27.6 percent from the first quarter of 2008, according to the Bratton Report.

Produced by the Bend-based Bratton Appraisal Group, the report also showed that single-family home sales in Bend in March rose to 89, an increase of 37 percent compared with 65 sales in February but down 4 percent from March 2008.

I'll post my market summary for Q1 soon.

Love it or hate it...Joe's will liquidate

From the Oregonian:

Gordon Brothers Group, a liquidator that recently helped clear merchandise for Circuit City and several other bankrupt retailers, is expected to earn approval to buy G.I. Joe's Holding Corp. during a bankruptcy hearing Thursday, several sources said today.

John Mangan, a Joe's spokesman, said the company could not comment until after Thursday's hearing in U.S. Bankruptcy Court in Delaware.

G.I. Joe's Holding Corp., a longtime Oregon company bought in 2007 by Gryphon Investors, filed for Chapter 11 bankruptcy protection in early March. Early on the San Francisco private equity firm said it hoped to quickly restructure Joe's or sell it -- either to another company that would continue operating the chain or to a liquidator, which typically means the clearing of goods and a closure.

Lawyers for Joe's creditors have said the retailer did not receive any bids from companies willing to continue operating the chain's 30 stores and outlet location.

Fred Bruning, one of Joe's Sports landlords, confirmed today that he had heard from the company and others that the 57-year-old retailer likely would be liquidated by Gordon Brothers after the auction hearing.

"There was some hope that something could be salvaged, but it looks more and more like a pure liquidation route," said Bruning, whose CenterCal Properties owns the mall in Nampa, Idaho, where Joe's opened one of its newest stores last spring.

U of O Index of Economic Indicators for February

Professor Duy released the U of O Index of Economic Indicators for February this week.

The University of Oregon Index of Economic Indicators™ fell 0.9 percentage points in February to 85.6 (1997=100), signaling continued deterioration in the Oregon economy. Similar to recent months, a wide array of indicators worsened; in February, five of the seven components deteriorated.

As a general rule of thumb, a decline of 2.5 percent (annualized) over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market

Weakness was pervasive throughout the Oregon labor market. Initial jobless claims rose in February, holding in a range consistent with substantial declines in nonfarm payrolls. Likewise, payrolls at employment services firms (largely temporary help
agencies) fell during the month, reversing a slight uptick in January. Total nonfarm payrolls (not included in the UO Index) fell by 21,700 in February, bringing the two-month total job loss to 34,700. The unemployment rate climbed to 10.8 percent, third highest in the nation.

On housing starts

Residential housing permits (smoothed) fell in February, edging down to the bottom of the roughly 900–1,000 range it has been tracking for the past seven months. It remains premature, however, to declare that housing activity has bottomed. Moreover, a bottom in new housing does not signal a bottom in existing home prices, as builders are likely to move more aggressively on pricing compared to homeowners.

Professor Duy is also predicting another bad jobs report in March when unemployment numbers are released next week.

Southern Oregon home values off 40%

Here is an update from beautiful Southern Oregon. The median sales price in July 2007 (market peak) was $325,000...


...last month it was $190,000. A drop of $135,000 or 42%.

Unfortunately unemployment and high inventory levels are still working against the market.

UPDATE:

From the Mailtribune:

Foreclosure sales remained a market driver with bank-owned properties accounting for 43 percent of existing home sales. Inventory of homes dropped 1.2 percent in March.

Foreclosure accounted for about 18 percent of all Portland area resales in February

From the Street.com:

Portland region homes continued to sell at their slowest pace in at least 15 years during February as nearly one out of five buyers in the resale market chose a foreclosure. The overall median sale price, which has held up better than in most housing markets in the West, inched up from January but still fell short of the year-ago level for the 11th consecutive month, a real estate information service reported.

Foreclosure resales - homes resold that had been foreclosed on in the prior 12 months - accounted for about 18 percent of all Portland area resales in February. That's well below levels seen in some other major Western markets , where foreclosures account for half or more of all resale activity.

Bend foreclosures up

From the Bend Bulletin:

The number of pre-foreclosure notices filed in Deschutes County continues to rise, despite a federal housing bailout that is still too new to have any appreciable impact, according to local real estate professionals.
A total of 827 notices of default, a legal document that initiates foreclosure proceedings, were filed in the county in the first three months of the year, an increase of more than 32 percent compared with the last three months of 2008, and a jump of more than 156 percent from the first quarter of 2008.
As the recession continues to take its toll, there are fewer families and individuals able to make their mortgage payments, said Kenny LaPoint, a housing specialist with NeighborImpact, a Redmond-based nonprofit and federally certified housing counseling agency.
And until the job market improves — Deschutes County’s unemployment rate hit 12.6 percent in February — LaPoint believes the federally announced loan modification and loan refinancing programs aimed at lowering mortgage payments aren’t going to amount to much.
“Until our job market changes, it doesn’t matter what stimulus plans come out because if there’s no (household income), it doesn’t matter what your mortgage payment is,” LaPoint said.

Estimating Total Unemployment

How bad is the labor market? Last week we saw how bad the numbers were for Oregon (10.8%) but that number only includes people who are actively looking for work.

Here is a quick look at where we are compared to the nation.

To get a better idea of the true unemployment rate we need to consider marginally attached workers, discouraged workers, and part-time for economic reasons workers. This is referred to as U-6 unemployment.

The Oregon Employment Department doesn’t release U-6 figures but we can estimate the current rate based on past rates.

The green table below shows Oregon’s ‘Headline’ unemployment rate (U-3) and the true unemployment rate (U-6) for 2007 and 2008.

The blue table shows the nation’s unemployment rates for the two most recent months.


Both sets of numbers have similar relationships and if we apply the most conservative ratio to the current Oregon ‘Headline’ unemployment rate we can estimate the current U-6 rate.

This is only an estimate, and a quick one at that.