August 6, 2016

On The Other Side Of Over-Optimism

NBC News reports on Iowa. “In agricultural communities across the country, financial worries are growing as quickly as farmers’ unprofitable crops. They’re suffering from the worst agricultural slump in more than a decade — and a major source of federal assistance has run dry. In Durant, Iowa, a rural town of less than 2,000 residents, the punishing combination of economic factors, including a plunge in commodity and farmland values, is bringing in more farmers than usual to lenders at Liberty Trust and Savings Bank, said bank vice president Michael Hein.”

“‘Right now, we’re dealing with a depression in all of our commodities, livestock, and grains. We have corn and beans that are both priced below production costs, and our cattle market has taken a downturn,’ Hein told NBC News. ‘It’s an across the board situation right now.’”

The Forum News Service on Minnesota. “Farmland values in west central Minnesota have softened, still sliding from the peak reached in 2013-14 when commodity prices were at their high too. Believe it or not, until the housing bubble burst, urban sprawl in the Twin Cities had a ’significant’ impact on farmland values in west central Minnesota. Developers were making lots of money and investing in farmland to defer capital gains taxes.”

“Some ‘had so much money in their pockets they needed to spend it somewhere, somehow. Many didn’t even negotiate it much, just purchased what was available,’ said Bryan DeGroot, owner of DeGroot Farmland Sales in Prinsburg. The bubble burst and stock prices tumbled. Still, investors continued to drive up farmland values through the years 2000-2010, DeGroot said.”

The Associated Press on Kansas. “A new government report shows the value of land and buildings on Kansas farms fell 7 percent last year. The National Agricultural Statistics Service said Friday farm real estate value in 2016 averaged $1,880 per acre. That is down $150 per acre compared to the previous year. Cropland values fell 7 percent to $2,050 per acre. Cropland with irrigation averaged $3,000 an acre, down $270 per acre. Cropland without irrigation averaged $1,940, down $150 an acre. Pastureland was valued at $1,290 per acre, down $100 per acre.”

From Hoosier Ag Today on Indiana. “The new 2016 Purdue Farmland Value Survey confirms that Indiana farmland values continue their downward trend. The average declines are 8.2 to 8.7 percent depending on land quality, and declines of this size haven’t been seen since the mid-1980s. Purdue agricultural economists Craig Dobbins and Kim Cook are the report authors and Dobbins told HAT it’s obvious what has values in retreat. ‘We’re adjusting to the lower income environment, the lower price environment, the lowered expectations about what prices are going to be in the future. Those sorts of things are really beginning to have an impact now. The evidence is pretty clear that we’re in a re-adjustment process when it comes to farmland values.’”

“The average farmland value has fallen about 13 percent over the last 2 years. The drop follows several years of spikes in the prices paid for farmland. ‘Yes, there was probably some over-optimism that was in the market,’ Dobbins says, ‘and now maybe we’re on the other side and of that and there’s over-pessimism in the market.’”

Eagle Country Online on Indiana. “According to the report, the downward trend in farmland values was consistent across the five regions of the state. ‘The collapse in grain prices and the impact of tighter gross margins are working their way through the agricultural economy,’ said Purdue agricultural economists Craig Dobbins and Kim Cook, authors of the report. ‘In addition, the farmland value change in this region did not support the conventional wisdom of top-quality land maintaining its value better than lower-quality farmland in a downturn,’ they wrote.”

Bubble Trouble Is On Its Way… Again

The Charlotte Observer reports from North Carolina. “If you’re planning to buy a home in Charlotte these days, you might find yourself writing the seller more than just an offer. With low housing supplies igniting bidding wars here and elsewhere, real estate agents say potential buyers are turning to an increasingly popular tactic: writing personal letters to sellers. Some buyers even slip family photos into the letters – to turn up the emotional dial. ‘Your house is very special and we would be honored to call it home…’ reads a letter one seller wrote to a Charlotte couple who put their home on the market this year. ‘We love the beautifully updated kitchen, the tasteful colors on the walls, the spacious rooms, the amazing patio and backyard and the lovely wood floors.’”

“Often it’s real estate agents who suggest the letters, as they scramble to compete in a market where sellers hold the cards. Home construction isn’t keeping pace with demand, and available land in popular areas is in short supply. It’s a problem in high-growth cities nationwide: ‘We just don’t have enough homes,’ said Lawrence Yun, chief economist for the National Association of Realtors.”

The Mail Tribune in Oregon. “Local home buyers have hit the brakes in recent months, perhaps waiting for more appealing opportunities down the road. There were 19.5 percent fewer existing home sales during the three-month period ending July 31 than the same time in 2015, according to figures compiled by Southern Oregon Multiple Listing Service. That meant for every five existing residential property deals in Jackson County a year ago there were four this year, even as the median sales price rose 4.5 percent to $246,675 from $236,000 in 2015.”

“A shortage of housing stock in the right price range will inevitably take its toll, said Matthew Gardner, chief economist for Windermere Services in Seattle. ‘What we’re seeing is buyer’s fatigue,’ said Gardner, and we’re not alone. ‘The trend lines I’m seeing from 11 different states is the same,’ he said. ‘Whether it’s Denver, Fort Collins or Jackson, Wyo., we’re seeing a lack of inventory. From a buyer’s perspective, with price escalation, it leads to a fear of, ‘How much am I going to spend?’ They’re tired of chasing every house that becomes available at a moment’s notice, hoping it won’t be sold before they get there.’”

“‘There’s not a lot of activity in the really high price ranges,’ said Colin Mullane, of Full Circle Real Estate in Ashland and spokesman for Rogue Valley Association of Realtors. ‘The stuff that’s priced reasonably sells quickly,’ he said. ‘Other places that aren’t priced right sit there while people go through a bunch of times. Buyers become experts after visiting 20 houses. I wouldn’t say they’re being picky, but they’re not going to overpay for a property. We have much more sophisticated buyers now, just because they can afford $400,000 doesn’t mean they will pay that much; they made that mistake 10 years ago.’”

WTOP in Washington, DC. “Residential sales in the District are brisk and prices continue to climb modestly, but the high-end of the market is starting to stumble. Real estate firm Redfin says Washington is one of the worst-performing markets for luxury real estate right now, at least based on pricing. The average sale price in the top 5 percent of the market is just shy of $2.3 million, down 4.1 percent from a year ago.”

“‘There’s a lot of global instability right now, with increasing security concerns in Western Europe, tensions rising with Russia and a Chinese economic slowdown,’ says Dan Galloway, a Redfin agent in D.C. ‘But we’re also tied intricately to the health of the federal government, and I think there’s a lot of unease with how the election is going to shake out this year.’”

The News Press in Florida. “Think of it as a soft landing rather than a crash, and you’ll be good to go — that’s the state of Southwest Florida real estate as Market Watch experts Randy Thibaut, Stan Stouder and Denny Grimes call it through 2016. The price of new homes has hit a wall in many sub-markets — not ideal for builders and developers. But it’s good news for buyers who can expect incentives offered on new homes this summer.”

“By mid-year 2016, only one multi-family residential development order was in play, compared with five the same time last year. This could signal the market is doing what it does best: correcting itself after the recent robust boom in multi-housing.”

“A strange thing occurred last week as I was teaching a class to about 50 local real estate agents. I asked them, ‘How many feel the market is still going up?’ No one raised their hand. Three months ago half the agents would have lifted a hand, and six months ago, every hand would have been in the air, maybe even mine. Perception is meeting reality as the real estate market shifts from a growth rate so steep it would make Chuck Yeager drool, to something resembling a Kmart pony ride.”

“Collier prices on the other hand were supersonic leading into the first of the year, even as sales slowed. Either Naples is one of the most unique markets in the country, or bubble trouble is on its way… again.”

“Looking forward, Lake O problems notwithstanding, we have not lost our luster. Luckily, we don’t have a demand problem; people still want to live here. The threat, other than the instability in the world, is that the U.S. real estate market is also shifting. You’re not reading about it yet, because national perception has not met reality. But it will. This will not change the ‘want to’ in homebuyers’ minds, but it will change the ‘can I’ in their wallets.”

“The other factor in a slowing market is the lack of urgency buyers are showing. In the past, if they found a home that was close to meeting their needs, they would have an offer submitted, accepted and measured for drapes before happy hour that night. Today, we’re lucky to get a yawn from a buyer, even if the home meets 90 percent of what the buyer wants. This will continue as the national market shifts. The fix is easy. Sellers will have to go back to wooing buyers again.”