Real Estate v. Stocks: the continuing discussion

            As the national and regional real estate market  begins to recover, albeit at varying rates in different locations, the customary debate continues.

 Is it time to make the move into real estate or spread the risk in stocks or currently low yielding bonds and cash equivalents?

The tables below show cost of an investment in a Bend median-priced single family home in 2002 compared to the  broad S&P 500 stock index at that time. The baseline date reflects the first full year following the 9-11 terrorist attacks.

In summary:

·        A median priced Bend single family home purchased at the end of 2002 would have appreciated by 20%, from $190,557 to $229,000 in October of 2012.

·        The price of the S&P Index for the same 2002 to 2012 period rose 55%. The starting point reflects the first full year following the 9-11 terrorist attacks.

·        The median home price in Bend for a full year has dropped by 36% since the 2007 peak of $358,000.

·        The S&P 500 Index also peaked for a closing day price of $1,561 in October of 2007, then dropped steadily with occasional trends upward until the financial crisis came to a head in the Fall of 2008. That began a slide with minor corrections until a bottom 10-year closing price of $683 in January of 2009.

Granted, the real estate side of the comparison is based on single family homes, rather than specific income producing properties, such as residential or commercial investment properties.

For an owner-occupant of a home there is the practical utility of a place to live in and enjoy. There's not much immediate short-term practical use for a investment on paper that may take years to realize. And not many investors would have the nerve and patience to stick with a stock market index, or the ability to deftly time their buying and selling over an extended period.

STOCK MARKET – S&P 500

Date	Open	High	Low	Close	Volume	Change %	Historical Rating
01/03/2003	908.49	911.25	903.07	908.59	1,560,300,000	+0.57%

10/25/2012

1,409.74

1,421.12

1,405.14

1,412.97

557,434,364

+0.30%

up 55%  from post 9-11 full year (beginning Jan. 3, 2003) to October of 2012

08/01/2008

1,269.42

1,270.52

1,254.54

1,260.31

3,620,107,122

-0.56%

up 11% from pre-crash (Aug. 2008) financial crisis to October of 2012. 

However, an investment of $1,000 in the S&P Index in early 2009 would have grown to approximately $2,000 in late 2012, as the index rose from its post crash bottom.

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BEND SINGLE FAMILY HOUSING:

Median home price for 2002:    $190,557

Minimum	0	1.00	498	$40,000	$37,500	0/0
Average	3	2.19	1,854	$242,367	$237,795	142/140
Median	3	2.00	1,728	$192,999	$190,557	109/109
Maximum	8	7.25	6,191	$1,495,000	$1,400,000	1465/1226
Total Dollar Value					$420,658,765

Median home price 2012 (thru October):  $229,000

Minimum	0	0.00	624	$49,000	$53,000	0/0
Average	3	2.38	2,078	$278,588	$272,130	137/150
Median	3	2.50	1,910	$233,400	$229,000	101/105
Maximum	6	6.00	6,869	$1,695,000	$1,625,000	1760/1819
Total Dollar Value					$507,794,808

up 20.17% from post 9-11 crash to October of 2012

Median home price for 2007: $358,500

Minimum	1	1.00	624	$142,500	$135,000	0/0
Average	3	2.40	2,101	$467,230	$448,930	171/189
Median	3	2.50	1,965	$369,000	$358,000	140/162
Maximum	7	5.50	5,960	$3,500,000	$3,500,000	806/806
Total Dollar Value					$745,223,180

down 36.12% from peak year 2007 through October of 2012

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S&P 500 – 10 year performance

Resorts: Adjusting the "Vision" to meet Economic Reality

            Maybe more so than other developers those who create resorts tend to be visionaries and dreamers. The ones who survive also have a good sense of the bottom line, patience and adequate capital to survive and thrive in a downturn.

            In Central Oregon the various criteria are in play with those resorts that have weathered the seemingly endless wave of economic uncertainty, and the others now flailing in choppy waters.

            Heading into 2013 the regional standbys of Sunriver, Black Butte Ranch and Eagle Crest remain at the top of the success list, although all have adjusted to meet the daunting, lengthy and unfavorable economic cycle.

            Their record has much to do with decades of experience since being founded in the 1970s. With it has come access to working capital to maintain, adjust  and improve amenities throughout market fluctuations.

            Sunriver ownership has also expanded its offering to include Caldera Springs, a sister property which offers addtional lodging and recreation.

            Among the other newer survivors, each shares a brief history of coming to market in the early years of the past decade when access to capital and debt appeared unlimited.  When the funding pipeline sprang leaks, each was forced to find new owners or partners, secure other financing, revise pricing models and in some cases delay construction of promised amenities.

            In this “new and hanging on” category are Pronghorn northeast of Bend, Tetherow on the southwest edge of Bend and Brasada Ranch farther east near Powell Butte.

            Pronghorn emerged early in the past decade with much publicity and high profile twin golf courses designed by the two of the sport’s luminaries, Jack Nicklaus and Tom Fazio.  Tetherow started with a links-style course designed by David McLay-Kidd, known for Bandon Dunes on the southwest Oregon coast, and Brasada opened with a course by state native Peter Jacobsen.

Brasada attracts a new owner

            Of the three, Brasada has enjoyed a more stable ownership structure, having originally been created by Jeld-Wen, a Klamath Falls area window and door manufacturer which also developed Eagle Crest. In 2010 Jeld-Wen sold Brasada, Eagle Crest and its Running Y property near Klamath Falls to Northview Hotel Group backed by Oaktree Capital Management LP.

            Northview has pumped additional capital into the resort accompanied by aggressive marketing to regional and local guests, resulting in The Oregonian naming it a top state resort in 2012. The tourism marketing has also aided in sales of buildable lots, many of which were either short sales or in foreclosure.

            Northview has also begun improvements to existing conference and other facilities at Eagle Crest

            Tetherow has been impeded by a murky and dispersed ownership structure although in recent months some of the issues have been resolved. There has been major investment in the golf course and club facility and new owners have acquired a majority of buildable lots.

            Pronghorn also suffered as the original California-based developers were stretched thin with it and other investments. In the past two years the resort attracted The Resort Group of Hawaii as a buyer of golf and club facilities. Troon Corp. now manages the golf amenities while Auberge Resorts is responsible for managing club and lodging facilities.

            Both Tetherow and Pronghorn have delayed expansion of lodging facilities initially required in their permitting by Deschutes County, as the county has acknowledged the developers’ difficulty in a sagging economy.

            At  the bottom of the list are four projects, only one of which was able to break ground before hitting the economic wall, and three others that are barely footnotes in the planning process.

            Remington Ranch near Powell Butte in Crook County barely got off the ground with a clubhouse/marketing facility and nine-hole golf course before going into bankruptcy. It’s now listed for $5 million in an auction with a Colorado company.

            Crossing Trails and Hidden Valley, another two projects proposed for Crook County, never made it beyond early stages of the permitting process.

            Thornburgh Resort, later know as the Tradition on Cline Butte near Eagle Crest west of Redmond, battled through water and traffic issues before entering bankruptcy without breaking ground on a planned Arnold Palmer course.

Link to an overview of resorts from the archive:

New resorts face tough environment:

A chart of regional resort land sales since 2000

         



Million $ plus market steadily flat into December 2012

            Brisk sales of  lower priced homes in Central Oregon are not reflected in the other end of the spectrum for comparable periods of January into December.

            Sales of homes for more than $1,000,000 throughout Central Oregon have been flat for the past three years--at less than two dozen annually--although the median price and dollar volume have held somewhat steady.  
             And there were only two sales at more than $2 million in 2012, one for $2.195 million on 43 acres along the Deschutes River off South Century Drive in Bend and the other on 1.25 acres for $2.2 million in Black Butte Ranch west of Sisters.

From January 1 into December of 2012 there were 21 sales of $1,000,000 or more at a median  price of $1,300,000. Total sales volume was $29,730,000.

            The number of sales in the upper category increased from only nine in 2002 to a high point of 117 in 2006 and held at 115 in 2007 before dropping nearly 50% to 58 in 2008.

            In the same period the total dollar sales volume of the higher end rose from $13,224,000 in 2002  to $184,461,668 in 2006, before dropping to $160,764,064  2007 and plummeting to $80,609,490  in 2008.

            The statistics include residential single family home sales throughout all regional sub-markets without limits on lot sizes.

				Median		$ Volume
		No. sold		Price		Sold
2012		21		1,300,000		29,730,000
2011		21		1,100,000		25,764,499
2010		20		1,277,500		28,315,555
2009		36		1,225,000		48,277,050
2008		58		1,265,000		80,607,490
2007		115		1,240,000		160,764,064
2006		117		1,300,000		184,461,668
2005		77		1,315,000		115,085,568
2004		32		1,242,500		42,653,950
2003		13		1,375,000		19,447,300
2002		9		1,295,000		13,224,000