Michael Wells
by Michael Wells
Wed Nov 12th 2008 at 9:53am UTC

Flip This Market?

In the current housing crisis, two sort of counter-intuitive things puzzle me:

In my close-in Portland, Oregon neighborhood there are several older houses being entirely gutted and renovated by new owners, five within two blocks of me. All for mid to high six figures I’m sure (on top of high six-figure purchase prices), plus some smaller five-figure remodels or additions. Many of the owners are younger (30s+) creative class professionals. So if there’s a fiscal crisis, where are people getting the money? And why are they doing this if the value of houses is expected to plummet?

Second, in the last couple of years there have been a half dozen new home and garden type magazines launched here, from the wonderful Portland Spaces, to the blah Ultimate Northwest, to the over-the-top Luxe Northwest, to the down-to-earth Oregon Home. They’re all part of local or national chains. But why would advertising vehicles for high end accessories be a good idea now?

It could be that these are both just poor timing, residual effects of the housing bubble – although Portland didn’t bubble like Las Vegas. Or is there something deeper going on? Is this happening elsewhere?

8 Responses to “Flip This Market?”

  1. Larry H. Says:

    I think that it is important to note that despite the foreclosure crisis, the credit crunch, and the rise in unemployment in the country, there are segments of the population that are not only shielded from these events, but see opportunity in uncertain times.

    The younger members of the creative class are members of such a segment. And while having money is a prerequisite, there is something beyond that just wealth. Something to do with the psychographic makeup that leads them to purchase housing in one of the worst housing markets of the past 50 years.

    I’d like to think that I am a member of the group and when I think about what makes me different (I’m not only buying a house in this market, I started a real estate investment company) I think it really comes down to optimism. I would never profess to be able to predict what I might eat for lunch, let alone what is likely to transpire in the national economy of this battered housing market, but I know for a fact that I will be able to take care of myself, and when the market rebounds, my prospects will only improve. So why not take advantage of a depression in price and buy a house I’ll love. Five years from now, my only regret will be that I didn’t purchase a bigger, better house.

  2. David Miller Says:

    I am in a similar boat to Larry H. I was fortunate to take advantage of the turn in the real estate markets. It was not so much savvy, but lifestyle change. We needed to move to be closer to my wife’s new job and also to avoid the DC ‘child education tax’….

    That being said, in my new hood (close in DC burbs), there is still activity in terms of rehab/remodel/knock-downs. I am sure much of this was planned before the major crisis in September, but the projects are moving ahead. I am also pretty sure that these are owner-occupied jobs and not RE speculators/investors.

    I don’t know if it is so much being positive, but rational. Getting great prices on assets that have real value (based on location, small size of market, school districts, etc) and putting up with some short-term pain is the mind of a rational investor and also people making real commitments to a city/neighborhood/community; viewing personal real estate as a home, not a piggy bank.

  3. Michael Wells Says:

    That makes sense, the optimistic creative class is still employed and seizing an opportunity. It also implies that you expect an ’80’s style recession rather than a ’30’s style depression.

    Certainly my experience since buying my first house in 1972 is that prices keep going up. In the ’80’s they were fairly flat, but didn’t sink appreciably. Of course I live in a “superstar city”.

    How about the magazines? Are there many newish home and garden type magazines in your cities? I’d guess that they’re aiming at just your demographic.

  4. Zoe B Says:

    Some of this stuff is targeted to the ‘do it yourself’ market: it is a cheaper substitute for professional work. Some of it feeds peoples’ daydreams. People who read Martha Stewart Living may enjoy the idea of cake decoration or heirloom gardening without actually doing any of it. In which case, the daydreams are the cheap substitute. Or, maybe these publications spark creativity in unrelated areas, as creative class people are wont to know.

  5. Bert Sperling Says:

    1) Portland is white-hot right now, in terms of city brand (and has been for the past year). One of the metrics I use is the Most-Emailed list of stories from the NY Times. A recent story about Portland stayed on that list for nearly three days.
    So it makes good business sense to invest in this market.

    2) Regarding the magazines, I expect that their business plans have a fairly long lead time, and if they could have foreseen the severity and duration of the current financial storm they might have decided to wait for the economic upturn.

    Best, Bert

  6. Michael Wells Says:

    These magazines are all parts of existing chains, so they have editorial and layout infrastructure and the advertising staff and contacts in place — which are the biggest expenses and startup issues of publications. To an extent the mags are a way to give added value to advertisers (we can sell you two audiences with the same ad.) What interested me is that they’re all aimed at selling things you put in homes when the real estate market, even here, is dicey.

    Portland Spaces is done by Portland Monthly, a high-end lifestyle magazine (I find it boring, but it’s quite popular) so the advertisers fit nicely. But the editorial is very different, they hired Randy Gregg, the Oregonian’s architecture critic, who is doing a great job of stretching the boundaries between publishing and I guess urban studies.

    Ultimate Northwest is a magazine of the Oregonian newspaper, which is suffering as all daily papers are — so the mag is an attempt to offer their advertisers different readers.

    Luxe Northwest is part of a Florida chain that aims at high end demographics with homes of the rich. Sort of Architectural Digest meets Donald Trump. I’m surprised they came into this market, but by combining Portland and Seattle they apparently saw a big enough audience.

    Oregon Home is a sister publication of Oregon Business magazine. Not as obvious an advertising overlap, but they do have the publishing infrastructure in place.

    Zoe — I’ve been focusing on the advertising as a former publisher and ad salesman. But on the editorial side one of the fascinating things about Martha Stewart is how she crosses borders. The magazines layout and image is high end, but as you say the articles are do-it-yourself. Someone living in an apartment can spraypaint pine cones as well as someone in a mansion. Even more interesting are the ads — Sears refrigerators rather than Sub-Zero.

  7. Swordsman Says:

    Close in neighborhoods are going to keep going up as demand rises. The foreclosure mess is affecting suburbia and especially exurbia much, much more.

  8. Wil Says:

    “Luxe Northwest” captures a small segment of the area lifestyle accuately, but for most it is simply “yuppie porn”. During this downturn, well positioned people are finding that buying or building is a bargin. I agree that Portland has become the new West Coast destination city during the last year or so.