No Bubble In The Boondocks?
Readers suggested a topic comparing bubble markets versus so-called non-bubble markets. “I would like articles and discussion of house price drops in states other than FL, CA, NY, NV. Try Tennessee, Pennsylvania, Ohio, Texas, Georgia, Carolinas, Virgina, etc. We need more news on those states!”
A reply, “I concentrate my research mainly in Denver, Atlanta and DC/Baltimore. Declines are not even. For the most part exurbs taking the biggest hit, then condos. Housing in good neighborhoods in good locations are not really declining much in my target areas, and in some cases still moving up. I have no doubt they will eventually fall…a lot of it is that the overbuilt areas are hit hardest and they actually have more houses in the exurbs and condos than ppl to fill them.”
“List prices not down, but not much selling. Any major disruptions in the market, such as acclerated job losses, etc. will force prices down.”
Another said, “Laurel is half way between Washington and Baltimore. Can commute to either, plus commuter rail. Near NSA and NASA goddard. Prices are down slightly, for sale inventory is under control, but what is on the market sets for a long time. Maybe if more stuff could sell I would see lower prices?”
One looks at what makes a place immune, “Any predictions for these ’special-it’s-different-here’ places? Will they eventually come down more than other areas, because the run-up was so high, or will they hold value better because of their supposed specialness?”
“Does the ‘they’re not making any more land’ ever have any truth to it for places like Portland (with urban growth boundaries) and San Francisco (height restrictions in many parts of the city).”
One from Massachusetts. “Here in Mass many people are just holding on to their properties. I’ve been keeping track of SFH and condo’s that appear on ZipRealty in two zip codes. About 45% of all the places that were listed on Zip between February and June of last year haven’t sold.”
One questions the data, “My thoughts go to the accuracy of the data used to indicate the ’supply’ backlog, the calculation using the monthly sales figure and the total MLS listings to derive the number of months it would allegedly take to work off the ‘existing inventory.’”
“Sometimes driving home from errands I end up going by a new upscale community near downtown Orlando called Baldwin Park. At night it seems like a ghost town with very few lights on, very little apparent activity.”
“So I wonder what the real numbers are as far as months to sell homes ‘on the market.’ Because it seems to me what is actually on the market is only a fraction, perhaps a small fraction, of what people really want to sell but have not listed.”
One on overbuilding, “The oversupply is very different in different parts of the country, states, counties, and even towns. Take the Sarasota-Bradenton market for example.”
“Massive overbuilding and speculative purchases in North Port and downtown Sarasota high rises, for examploe, but virtually nothing new has been built on the Sarasota bayfront or barrier islands. As a result, prices have fallen a lot in North Port but relatively little on Siesta Key.”
“Sales are off everywhere, but where few people must sell, prices are falling more slowly. In the end, all prices will decline a lot, but the speed and extent of adjustment will still depend on local supply and demand conditions.”
One notes the rolling bubble, “IIRC, even in 2003/2004, people in California were starting to look elsewhere for ‘investment’ purposes. I definitely remember reading the speculators’ posts on RE blogs…they were always looking for the next bubble area. This was around the time Utah and Idaho were starting to see new ‘investors’ from bubble states.”
“When they (equity refugees & flippers) invested in these new areas, they used money from their CA homes (HELOCs and cash-out refis) to buy them — and many also had no or low down payments. The credit market was getting even funkier, but the bubble was beginning to really roll across the country. Mind you, San Diego was already stagnating by mid-2004 while other areas were just starting to pick up.”
“These investment properties were only bought to make money, and the flippers had no intention of holding on to them or sticking around if they lost value. Combine that with no job centers, and the most toxic of mortgages, and you get the sudden crash, as there is no fundamental reason for prices to rise in many of those farther-flung /lower income areas.”
“OTOH, places like Boston, LA, San Diego, New York, etc. really do have a variety of well-paying jobs which can keep prices propped up for just a tad longer. Many recent buyers in the bubble areas had large down payments from previous sales, so they have a significant buffer before they are underwater. The poorer areas are negative from the moment of purchase (more 100% LTV loans), so they’re going to be the first to fall.”
“After the lower end of the market crashes, the higher-end markets will tank as the new buyers for the move-up homes will not be coming in with the tremendous down payments from selling their starter homes.”
One sees a theme, “The vast reaches of flyover in our country, is more like a back-story, not backcountry…Overbuilding knew no bounds, even in the sticks.”
One points to speculation. “I remember stories of people ’snapping’ up shiny new condos in the ‘historic downtowns’ of these same backwater cities in 2005-2006. As if the young hip urban crowd wants to live in vibrant ‘historic downtown’ Lincoln NB or St. Paul.”
“Those are gonna leave a mark. You’re either going to have dirt cheap condos (leading to cheaper SFH), or Section 8’s.”
One looks at degrees of risk, “The ‘backcountry’ areas did experience some overbuilding, and excessive price increases - however not *nearly* the same as the bubble areas. I’m talking in percentage terms, not absolute terms.”
“I live in northern VA - moved from CA recently, and have relatives in both FL and relatively rural areas of NC and TN, and have visited these various areas quite a bit recently. Northern VA, FL, and central CA have seen *massive* overbuilding, caused by price increases that were on the order of 200%. Most rural / mid-west / etc. areas have had price increases more like around 50%, and subsequently the overbuilding hasn’t been nearly as massive - there simply wasn’t the huge profit for the builders there as in the bubbly areas.”
“As a result - now the inventory overload is way bigger in the bubbly areas. I’ve seen some inventory increase in NC etc., but not nearly as much as in northern VA, FL, and CA. Consequently - prices are falling much much faster in those areas, and not falling at all in many rural / midwest areas.”
“I believe that the reason for this is that most of the RE speculation was driven by anticipation of demand, combined with a supposed ‘lack of land,’ amongst other factors.”
A regional view, “For oilpatch country, I still maintain that the rules didn’t suddenly change, it’s NOT different here. The economies are a bit better, is all, but the housing industry saw the same bubble as anywhere else. Insanity is insanity, no matter where it happens to be located. The oil patch country is seeing foreclosures and will see more.”
One from Washington, “Pullman, WA is about as backcountry as it gets. Permanent population of 9000, a land grant university, and wheat fields as far as the eye can see.”
“Yet we have 5 new and empty luxury condo developments dangling in the wind. We have 108 homes on the MLS right now (highest in recent memory) with 2 closing per month (and most of the condos and new construction are not on the MLS). We had a huge building spree, rental vacancies are the highest in 20+ years, etc… And a house that sold for $200k in 2000 is now listed for $379k.”
“Overall, home prices have roughly doubled in the past 6 years, while income and population growth have followed historical trends of the past 30 years– minimal growth for either.”
“No Bubble here? No speculation? We personally know four flippers in town and have only lived here for a year. The backcountry may not be as bubbly as the coasts, but home prices in our bit of backcountry are still 25% above fundamentals and need to fall.”
From Utah, “Go to little podunk Green River, Utah, where over 40% of the population makes under the poverty level (stat released by the city a few months ago). About 4 houses for sale, all over $150k, unheard of prices. 6 years ago you could buy a house there for 50k. No bubble in the boondocks?”
From Georgia, “I notice in the moutains of GA and TN, house prices are insane as well. I can now buy cheaper in north FL!”
The New York Times. “The real estate market these days is a tale of two Americas, and one of them is not doing too badly. In cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Ore., the available evidence suggests the real estate market is holding up.”
“Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.”
“‘I would call them backcountry cities,’ said Robert J. Shiller, an economist at Yale University and an expert on real estate markets who predicted the bursting of both the housing and stock market bubbles of recent years. ‘They are just going through normal growth, and they are out of the bubble picture.’”
The News Times from Oregon. “Lincoln County’s recent housing market is mimicking many of the trends seen across the United States. Following a swell in home prices originating on the east coast and experienced the last few years, prices are settling out to more easily entice those interested in buying, said Realtor Cathy Neuschafer.”
“‘We’ve all seen quite a few changes in the real estate market in the last few years,’ Neuschafer said.”
“Neuschafer said buyers are delaying in the hope that home prices will drop further. She said real estate agents across Lincoln County are receiving phone calls from buyers who say they will wait to buy until the market falls further. She added the lack of buyers pushes up inventory, depressing home prices, leading to pessimism.”
“Home prices in the county dropped as of late. Lincoln City’s sale prices have dropped from an estimated $360,000 in 2006 to an estimated $310,000 in 2007, for example. However, the average home in Lincoln County increased from $174,878 in 2001 to $367,866 in 2007, according to the county’s MLS.”
“Furthermore, the market has been flooded with new homes, which are competing with existing homes, hurting the market in general. The MLS also shows the number of active listings has risen from 1,846 in 2004 to 2,537 in 2007. The number of homes sold during this period has decreased from 1,114 in 2004 to 649 in 2007.”
“‘The good news about our market is, first of all, our housing prices were not hyper-inflated to begin with,’ Realtor Larry Walke said. ‘As a result, our adjustment period has been shorter.’”
The Idaho Statesman. “Want to buy a house cheap? Try Canyon County. The median price of a home in Canyon County has fallen 12 percent over the past year, from $170,000 in January 2007 to $148,900 a year later, according to the MLS.”
“That’s the lowest the median has been since February 2006, when the median - the point at which half the houses cost more and half less - was $145,000, according to Shaun Tracy an associate broker who tracks residential real estate.”
“The median price for an Ada County home was $219,000, about the same as it was a year earlier. But Tracy isn’t sure buyers will flood into Canyon County. The reason: Home values might continue to erode.”
“‘The farther you get away from the job base, the faster values are going to fall when the market turns,’ Tracy said.”
The Daily News from Tennessee. “New data show 2007 was the worst year for new housing permits and home closings in Shelby County since the early 1980s, adding to the well-documented housing woes that stemmed from last year’s subprime fallout and credit crunch.”
“The year ended with just 2,782 new residential building permits and 2,568 new home closings countywide, the lowest totals in 25 and 24 years, respectively.”
“‘The numbers … were not surprising,’ said Don Glays, executive director of the Memphis Area Home Builders Association. ‘But the numbers are in comparison to the best year ever for home building in this country, so you have to ask the question, ‘Are 2,500 sales in the Memphis market a bad thing or a good thing?’ Certainly, home builders would want to see those numbers go back up to the 2006 level, but realistically, it’s going to be a while before we get back up there.’”
“The county’s inventory of new homes was exceptionally high: 4,055 new homes were on the market as of Dec. 31, vs. 3,828 new homes as of Dec. 31, 2006. That equals an 18.9-month inventory.”
“‘The pendulum swung from being extremely easy to get a mortgage, whether you qualified or not, to tighter lending restrictions,’ Glays said. ‘However, that’s how it should be. We’re not opposed, in any way, shape or form, to the mortgage lending community doing the job that they should have been doing all along. Had they been doing it, we would not have been in this debacle that we had with the subprime situation.’”
The Enquirer. “Condominium sales in downtown Cincinnati and along the Northern Kentucky riverfront have slumped, leaving some projects unable to get off the ground and the developers of others unable to get on with other deals.”
“To blame: In part, it’s the housing market. Many empty-nesters want to relocate from the suburbs but can’t sell their homes and move into expensive new downtown digs.”
“Another problem is a supply-and-demand imbalance. By one expert’s count, roughly 80 percent of Cincinnati’s ‘condo-ready’ buyers are young professionals needing units priced around $200,000. But in the big downtown projects, there are twice as many condominiums priced at $500,000 or more as there are lower-priced ones.”
“‘If we didn’t have this residential housing downturn, we would have sold more units,’ said Gregg Fusaro, regional development partner at Capital Investment Group, which is building the SouthShore condominiums in Newport. ‘It’s impacted everyone, and anyone who tells you that it hasn’t is lying.’”
From Marketplace. “A good many foreclosures are homeowners trying to pay down adjustable rate mortgages — ARMs…A wave of ARM interest rate resets is looming in the next 18 months or so that could drag the housing market down even deeper. From WCPN in Cleveland, Mhari Saito has the story of a family on the leading edge of that wave.”
“Mhari Saito: ‘John and Vicki Glicken spent years working to improve their credit so they could get a loan for a house. They managed to pay off their debts and fix their credit report. In 2005, they paid $183,000 for their first home. It’s a ranch house in Lyndhurst, Ohio, a quiet, middle-class suburb of Cleveland.”
“The couple got a zero-down, interest-only adjustable rate mortgage from First Franklin, a subprime unit then owned by National City Bank. They planned to refinance a year later, but then John lost his job. Vicki took a second job. John couldn’t find work for nine months, but they kept up their mortgage payments.”
“John Glicken: ‘I cashed in a 401k. We’ve exhausted our savings. The record’s there of lump sum payments.’”
“At the same time, the interest rate on their mortgage went from 7.25 percent to 10.25 percent. No one wanted to refinance their loan. Home prices were tumbling and they couldn’t sell their home for what they borrowed. They filed for bankruptcy protection last October.”
“Now, John and Vicki sit at their kitchen table with a new letter from their lender saying their interest rate is going up again on March 1. Their mortgage will be $1,694 a month and that doesn’t include taxes or insurance. Vicki Glicken: ‘We were naive in a lot of areas.’”
