Housing Bubble Lunacy: Idaho and Oregon’s Wealth-Free “Boom” Towns

Wednesday, August 27, 2008
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This summer, during the course of his job, LRC’er Eric Englund has visited three towns that have experienced extreme housing bubbles. As you may know, Eric has an extensive archive on this topic, and related topics. Here is a great rundown from Eric on the mentality created by the bubble economy.

Bend, OR, Eagle, ID, and McCall, ID all have one thing in common. Home buyers felt that each respective town had the chance of becoming the next Sun Valley, ID. In other words, buying a home in any one of these towns had the possibility of making the homeowner ultra-wealthy. The major problem is that none of these towns had attracted the extreme wealth Sun Valley did several decades ago. Conversely, what each of these towns really experienced was a simple real estate bubble with speculators driving housing prices to surreal levels. There is no real industry (aside from some agriculture) in any of these locales, so tourism is quite important to each local economy; hence, little wealth is being created locally. With no prospect of housing prices being sustained, here are some firsthand stories I have heard regarding these three towns:

Bend, OR — This community of 72,000 residents was so overbuilt that there are now about 3,000 entitled home-building lots for sale. The chances of selling such lots are minimal until the overhang of unsold homes clears out. Last Saturday (8/23/08), while taking a limo to the airport, the limo driver informed me that 62 homes were up for auction on that very day. Late this spring, a major Oregon home builder attempted to auction well over 100 homes–on a single weekend–and sold 0 homes. Bend is an absolute mess. So much for sitting in a home and letting it create wealth effortlessly.

Eagle, ID — This small town of 11,000 folks has become a chic hamlet for professionals who work in Boise and for those who want to purchase second homes near skiing, fishing, hunting, and other outdoor recreation. A gentleman, whom I have known for over 20 years, purchased a newly built home on a golf course. The original price was $850,000 and he bought it for $510,000. Now he wishes he would have offered less because the real estate agent (working for the developer) immediately accepted the offer. On a personal note, having visited Eagle, ID in late June, I drove by many empty subdivisions with nothing more than entitled lots waiting to be sold to home builders; not pretty.

McCall, ID – In late June, I also made a trip to McCall, ID. This is a scenic town (population 2,400) on the shores of Payette Lake. During the housing bubble, McCall’s housing market went insane. Lake front cabins (and I mean nothing super special) zoomed up to $1,000,000. During a business dinner, with a very savvy contractor, he informed me that such $1,000,000 cabins had dropped by 50% down to $500,000. People who leveraged themselves, into such homes, are now severely under water equity-wise.

Each of these three communities is quite aesthetically pleasing but has no real wealth being created locally. Hence, it merely took the combination of easy credit and financially illiterate dreamers to conjure up the fantasy that houses (in beautiful places) could become a lifetime cash machine and the key to mega-wealth. Now the hangover is upon us and the dreams have been shattered.

See a blog post (and a whole blog) on Bend, OR here. And housing bubbles just don’t happen in Idaho; it’s all real. And don’t forget Merced, California.

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