Oregon's "New West" tumbles, another sign of hard times

BEND, Ore. — Steve Gudgel hoped to see a family move into the three-bedroom house that he built on a hill west of town.

Priced at just over $1 million, the 3,600-square-foot house features copper gutters, slate decks and a huge garage with room for two cars and an oversized boat. But the house never sold, and in July 2008 was taken back by the bank.

It now sits empty, just like hundreds of other homes in the subdivisions that sprouted amid the sage, bitterbrush and pine of Central Oregon. And Gudgel, after 20 years in the building business, has given up, selling his tools and equipment to help raise enough cash to keep his own home out of foreclosure.

"This is sucking me dry," Gudgel said. "I have sold a couple of trailers and my wife went through her jewelry and sold some gold. It's not a pretty picture."

This town that helped define the booming New West economy has hit tough times. Once tied to timber and home to one of the nation's largest pine mills, Bend reinvented itself in the last few decades as an outdoor-recreation mecca. Tens of thousands of new arrivals were drawn to the mountain-rimmed high desert for a lifestyle that included skiing, fishing, golfing and hiking.

This year, Oregon as a whole has been socked by the nation's economic turmoil. In February, the state had an overall unemployment rate of 10.8 percent — the third-highest in the nation after Michigan and South Carolina. And Bend is one of the state's roughest spots, with 12.6 percent of the work force in the city and surrounding Deschutes County without a job.

Most of Bend's new economy — similar to that of some hard-hit communities in Nevada and Arizona — was built on a homebuilding boom. As the real-estate market crumbles, carpenters, plumbers, masons, mortgage brokers, real-estate agents, architects and others must figure out a way to make a living at a time when there is no need for big new subdivisions.

Housing markets here are so glutted that the median price of a single-family home in the Bend area nose-dived by more than 40 percent from a peak of $396,000 in May 2007 to $221,000 in March.

During the same time period, default notices — a prelude to foreclosures — jumped more than 8-fold to 827, according to Deschutes County statistics tracked by The Bend Bulletin newspaper. More than 1,300 homes are estimated to stand empty in Central Oregon's Deschutes, Crook and Jefferson counties, according to the Multiple Listing Service of Central Oregon.

Bend's trendy downtown area, where million-dollar lofts were sold only a few years back, has been staggered by business failures. One of most high-profile came in January with the closure of Merenda, a white-tablecloth restaurant that had helped launch an era of high-end dining.

"It's just completely out of control," said Mike Hensley, who works for NeighborImpact, a local nonprofit that helps with energy and rental assistance. "There is a completely different type of person requesting our help. A lot of people who were making six figures two years ago, and who haven't seen a paycheck in a long time."

As the vacant-housing stock expands, so, too, do the ranks of the homeless.

More homeless

In the three-county area, a January homeless count tallied 2,237 people. That's a 66 percent rise from the 2006 count, and included 839 homeless children.

Some homeless have found a place to stay with friends or relatives. But many others, including numerous families, have staked out campsites along back roads or secluded stretches of rivers and streams. There, they spend their nights in trailer homes, cars or tents.

"These are our neighbors, our friends and their kids, members of our church, the guy who rotated our tires, the women who fixed our latte," said Corky Senecal, housing and emergency-services director of NeighborImpact, which helped organize the January homeless count.

To help house the homeless, an old motel at the north end of town in 2007 was converted to a shelter operated by Bethlehem Inn, a community group. A few years ago, many of the homeless could quickly find day-labor jobs in the construction industry, and begin to work their way back into rental housing. Now, most of those jobs are gone.

"We were hot"

Gudgel, the builder, is a native of Idaho who spent 10 years in Europe before buying property here in 1988. He was sold on Bend when he first ventured out onto a local golf course and had to shoo the deer off the green.

Gudgel built his own home on a 10-acre tract east of town, and then started building a few houses each year, swinging his own hammer and also hiring subcontractors to help finish the jobs. By 2005, Gudgel says, he was grossing more than $1 million a year as the real-estate market reached a feverish peak.

Gudgel was building houses on spec, with buyers sometimes firming up a deal even before the foundations were in the ground. He was constantly reinvesting his earnings, buying a vacant lot for $70,000 and nine months later reselling it for $170,000.

With a national spotlight turned on Bend's outdoor lifestyle, homebuyers and speculators flocked here from California, Washington and elsewhere. A flood of easy, available credit pushed housing prices up and spurred the building of more housing developments.

"The real-estate market partly was a symptom of the disease. And the disease, I think, mostly was easy money. And you couple easy money with the speculative mindset, and you got the cocktail that results in where we're at — huge overbuying, high leveraging," said Kirk Schueler, president of Brooks Resources, a Central Oregon developer. "We were hot. We were Bend. ... Once the kerosene got on the fire, it took off."

Brooks Resources is one of the area's preeminent developers, with successful planned communities that included Black Butte Ranch in the 1970s and Northwest Crossing, which began selling homes in 2002 as the market started a huge run-up.

Schueler said company officials knew the market would cool — but not as fast or hard as it did. The developer stumbled badly in the timing of a big new venture — a planned community called IronHorse on the edge of Prineville, west of Bend in more rural Crook County.

Lots went on the market in 2007 as the downturn began. The site has room for up to 3,000 homes and projections were for about 50 homes to be built each year. So far, only 14 houses have been built amid a lonely expanse of unsold tracts.

Joseph Cortright, an economist with Impresa in Portland, said that Bend's fortunes have been tied to the collapse of the California housing market. Much of the area's growth was driven by a migration from Oregon's southern neighbor, what he calls the "California Diaspora."

Compared to the rest of Oregon, Bend and the Medford area in the southern part of the state were "much more caught up in the real-estate boom and went south in a much bigger way," he said.

What was left of Central Oregon's old timber economy also thrived in the homebuilding boom.

Wave of layoffs

Even as the old-growth timber from federal forests dried up, hundreds of jobs stayed, tied to plants that made building materials for national markets. One of those, Contact Industries in Prineville, imported wood from all over the world to develop veneer products.

During 32 years with the company, Rosemerry Nelson worked her way up to a supervisor's job. But Contact Industries and other wood-products companies pared back during the recession as homebuilding plummeted nationally and in Oregon. Last year, Nelson took a pay cut and went back to a $12.50-an-hour line job to avoid getting laid off.

"At the time, I was just thankful that they deemed my work record good enough," said the 61-year-old Nelson. "They were trying hard to keep me employed."

In February, Nelson was let go from the line job, part of a wave of layoffs that helped push Crook County's unemployment rate to more than 16 percent.

Builder to truck driver

Developers remain hopeful about Central Oregon's long-term prospects. They don't expect a quick return to the boom days but are hoping for more modest growth that will begin to strengthen the battered real-estate markets.

They predict Washingtonians, Californians and others will pick up the pace of migration to the high-desert sun. They also are hopeful that the local economy — which now includes aircraft, solar-energy-parts manufacturing and some high-tech companies — can continue to diversify. In March, real-estate agents were heartened by a rise of nearly 2.8 percent in the median housing prices for Bend single-family homes, perhaps a sign that the bottom has been reached.

But jobs remain scarce, and foreclosures continue to roust people from their homes.

The congregation at Gudgel's church helped move several families out of houses that had been returned to banks. Gudgel figures he needs to make about $3,000 a month to avoid foreclosure on his own home. He has filed several dozen job applications with the government, insurance adjusters and other positions where he could use his building skills.

Gudgel got no offers, so he has decided to launch a new career as a truck driver.

"I did that when I was 17, and guess I can do it again," he said.

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com