‘The Trend Has Spread’ To Utah, Arkansas
Some housing bubble reports from smaller markets. The Salt Lake Tribune, “The Wasatch Front’s residential real estate market began to take off in early 2005, years after housing markets in other states such as Arizona, Nevada and California began to heat up. Those markets have now begun to cool while Utah is booming. ‘It’s amazing to see how much prices are increasing,’ Bryan Kohler, CEO of the Salt Lake Board of Realtors said. ‘We’re finally catching up with the rest of the country.’”
“And many buyers are willing to pay above the asking price. ‘Half the time you can’t get a home in the neighborhood you want because there are five other people making an offer on the same place,’ said Kohler. ‘Some homes are sold even before the sign goes up.’”
“Many Utahns are doing whatever they can to buy now. Some are taking out adjustable rate mortgages with low introductory rates or interest-only loans. Others are accepting smaller homes with fewer amenities or buying farther out in the suburbs or on the west side, where prices are more moderate.”
“‘There’s definitely a feeling among buyers that they need make a move now before prices and mortgage rates increase even further,’ said Salt Lake City Realtor Troy Burnett. ‘There’s some concern, especially among first-time buyers, that they will be priced out of the market if they wait” to buy.’”
The Arkansas Democrat Gazette. “Arkansas home sales declined from a year earlier for the sixth-straight month in June as the housing inventory and mortgage rates crept up, the Arkansas Realtors Association said Wednesday. ‘There is so much new construction that the buyer has so much more to choose from,’ Tom Rasmussen, president of the Rogers Board of Realtors said.”
“‘All markets have ups and downs and corrections,’ Rasmussen said. ‘Nothing goes up forever. This is just a normal economic cycle based on supply and demand.’”
The Morning News. “‘Huge price reductions! The agent will include a brand new side by side refrigerator with the purchase of any of these homes,’ a newspaper advertisement for homes in Spring Creek subdivision, along Arkansas 265 in Springdale, said.”
“Past reports on real estate markets in Benton and Washington counties have said the market was oversupplied with higher-priced homes, which were selling slower. The trend has spread.”
“The average Benton County home sold for $192,854 in January through June, a 9.51 percent increase from the same six months of 2005. Benton County’s steep price rise, coupled with the double digit percentage drop in home sales, left local economist Kathy Deck without a good explanation.”
“‘I would have expected that (price increase) to be a smaller number, because the oversupply should be putting some pressure on housing prices to go down,’ Deck said. She said home prices likely will have to come down in the future. ‘I sit in restaurants and I am hearing people say, ‘No, no, no, you don’t want to buy a house now. Six months from now, there are going to be some great deals,’ Deck said.”
“That soft market means buyers already can get some better home deals. Another newspaper ad indicated a home in West Fork was now listed at $259,900, ‘price reduced $20,000! Seller says sell!’”
“Builder Ron Payne said there’s no doubt there are too many homes on the market. He said builders are to blame. ‘I think that the builders are behaving like lemmings,’ Payne said.”
“What he meant was one builder constructed a subdivision full of large homes and made huge profits several years ago. Other builders blindly followed, and built more homes that were higher priced, and so on.”
“‘Instead of looking at the numbers and seeing that times have changed since that first builder built a big home and made a big profit, they (other builders) keep doing the same thing, until they all contribute to the oversupply,’ Payne said. ‘If the numbers did not back that up, it would simply be an opinion, but facts are kind of stubborn things.’”
“Payne said builders need to construct smaller homes that more people can afford and stop building large ‘McMansions,’ unless they are custom homes that already have buyers whose checks or loans have cleared the banks.”
“Banks who have made construction loans to builders or mortgage loans to home buyers don’t need to worry about a mass of loan defaults in the slowing market, according to Tim Yeager, the Arkansas Bankers’ Association chair in banking at the University of Arkansas.”
“He said construction loans tend to carry more risks for banks, because there are no federal entities like Freddie Mac or Fannie Mae to guarantee construction loans in the same way as individual mortgage loans. ‘Usually, when the bank sells the individual home loan, they get rid of the default risk,’ Yeager said.”
“Executive broker Brad Bruns based in Springdale, said the slowing real estate market does not bother him, because ‘people have to live somewhere. They may just have to live in smaller homes that cost less.’”
What does that mean? Did he say something similar before the S&L debacle, too? Or is he just trying to cover his [indirect] employer?
I guess I should read before I type. Yeager is saying that taxpayers will cover any loan defaults. Remember, borrow 100k, it is the borrower’s problem, borrow a few trillion, it is OUR [the taxpayers'], problem.
Everyone keeps talking bailout, and I keep wondering about this. So someone with more knowledge, please fill me in this…
My understanding is that the S&L bailout was only FDIC, right? That covers the depositors. But there is no way the lending money is coming from depositors this time. Hell, who has any money in the banks these days? It is all coming from REITs and MBS. There are no explicit guarantees for those things. Have those ever been bailed out in the past?
“Executive broker Brad Bruns based in Springdale, said the slowing real estate market does not bother him, because ‘people have to live somewhere.” —- Technically, don’t most people ALREADY live somewhere (homeless folks and new illegal immigrants aren’t in the buying market). Most buyers have the luxury of time being on their side, vice sellers who may not be able to keep up the payments on their overpriced house.
those stories from Utah sound very familiar (again) to what happened years ago in Europe. Wonder how long the Utah RE boom will last …
nhz –
You never heard a US real estate market story that did not ring a bell from some time and place in European economic history. Have you visited Utah? Because you would have to go back far into the past to find a time in Europe when there was a comparable amount of unbuilt land. Further,
in contrast to its western cousin California, Utah is a state notorious for a lack of zoning restrictions, so generally there is no problem with building new homes when the price is high enough to elicit a supply response. So a price bubble in Utah has an even greater tendency than the California bubble to self-extinguish due to new building (check out the St. George condo market for an extreme case!).
getstucco: ever heard about Friesland or Groningen in the Netherlands? Unbuilt land as far as the eye can see - these regions are famous for it with the tourists …
Don’t know about the zoning rules because they are different in every city over here (certainly they are less strict than in my area).
Prices in those Dutch rural areas are still climbing, 5 years after they peaked in the Amsterdam area. Prices are climbing on low sales volume but still …
I agree that a Utah bubble will probably be short-lived, if only because it will attract legions of speculators from most other US states where flipping seems to get more difficult now
Hi nhz,
I’m back home in the Florida bubble, was just in Holland for 6 weeks, have lived there for 25 years total.
I observed the Amsterdam (en omstreken) housing market, and yes it’s inflated, and yes it shows no signs of deflating soon.
But what’s going on here in no way compares to Holland, you can’t hold a candle to the crazy financing, speculation, level of fraud, lack of regulation, insane greed, and the way government does not come to the rescue. Consider yourself lucky… I think.
I suspect American readers may think government bail-outs are a big deal here, but compared to the the social welfare states of Europe….. you ain’t seen nothing yet.
OOooops, forgot to mention corruption.
bailouts (we have our own version of Fannie&Freddie) and corruption go hand-in-hand in the Netherlands. One of the biggest corruption scandals surfaced in the last years and of course it was in the building industry (the fines for companies involved were so low that I’m sure they will do it again). Mortgage fraud, same story.
I think the major difference with the US is that no one ever gets convicted for white collar crimes here, except maybe for some pro-forma sentences. If Ken Lay and his friends had their office in the Netherlands they would still be laughing all the way to the bank.
I’m with GetStucco on this. Nhz, did your account get taken over like ProfessorBear’s? There is no comparison. Houses in the Netherlands are built with bricks, mortar, stone and clay tiles, have been standing for hundreds of years, and will be there hundreds of years from now. Most people can walk or bike to work or the grocery store, and travel on trains if need be. The quality of construction and life appears to be worth a premium to the people. There is open land, but most of it is public parks or not suitable for building.
In Utah you can build pretty much anywhere, using plywood and vinyl most likely, and you will need cars to get around.
I’m not going to argue about the absolute price level because it doesn’t make sense; yes, there are many differences (also within the Netherlands itself).
But does it make sense that Dutch home prices increased by around 1000% in 15 years, while real wages and population size hardly increased? I don’t think so …
P.S., just to keep the record straight:
“Most people can walk or bike to work or the grocery store, and travel on trains if need be.”
that was 25 years ago, but times are changing. In many areas outside the Randstad (the big cities) public transport is horrible or even totally absent (they just closed another 3 railway stations in my area) and in most of the smaller cities and villages, shops and services have totally disappeared. So you really need a car just like in the US.
“The quality of construction and life appears to be worth a premium to the people.”
quality of new homes is usually worse than 15-20 years ago when prices were 10x lower … as for quality of life, well…
“There is open land, but most of it is public parks or not suitable for building.”
That again is true for the Randstad, but not for the rest of the country. 89% of the Netherlands is unbuilt area, and a big part of that (mostly agricultural areas, for collecting EEC subsidies etc.) is perfectly suitable for building.
Why would any sane person want to live in the Netherlands? Doesn’t it have the same risk that New Orleans had? I sure wouldn’t want to live in a place 44feet under sea level…
“Nhz, did your account get taken over like ProfessorBear’s? “
No, I was in hospital for nearly 2 months …
I hope you’re ok…
nhz,
Second Melody’s post…hope you are feeling well now.
Agree with what you say. We’ve had head-fakes in the past (fall 2004). Although it looks much worse at this point, there is still potential for a turnaround. The psychology hasn’t yet changed enough. Lots of people waiting for a 15% price drop. This could take a long, long time, IMHO.
Thank you, always, for your insightful posts! They are greatly appreciated!
“‘I would have expected that (price increase) to be a smaller number, because the oversupply should be putting some pressure on housing prices to go down,’ Deck said. She said home prices likely will have to come down in the future. ‘I sit in restaurants and I am hearing people say, ‘No, no, no, you don’t want to buy a house now. Six months from now, there are going to be some great deals,’ Deck said.”
Kathy, you should have taken more courses in probability, and fewer in econ. There is no contradiction between a rising sale price and falling sales volume at the end of a boom — in fact, this is what always happens. Sellers keep trying to get their 10%+ increase over last year’s price, and find a dwindling number of greater fools in the upper tail of the demand distribution who are willing to pay outlandish prices. Once the supply of greater fools in the upper tail of the demand distribution is exhausted, the market crashes.
“Many Utahns are doing whatever they can to buy now. Some are taking out adjustable rate mortgages with low introductory rates or interest-only loans. Others are accepting smaller homes with fewer amenities or buying farther out in the suburbs or on the west side, where prices are more moderate.”
I will make two predictions for future news from the Utah real estate market:
1) Lots of Californians will trade in small luxury condos for large Utah McMansions with beautiful views of the Salt Lake valley.
2) Many Utahns whose home purchases will force them to compete with liberated California equity will overextend themselves into bankruptcy.
This same nonsense is happening in Dallas. Greedy, smaller, undercapitalized “developers” putting up McMansions in every inner city lot they can find. Incredible how you see a row of 1940s era small ranches and then a gigantic 4000 square foot, towering monster priced way above anything else in the neighborhood. These guys kept Dallas bankruptcy firms working through the early 1990s and I would say it’s gearing up again.
The speculators are buying in Salt Lake because they drove the Southern Utah market prices too high. I live in Southern Utah, north of St. George and I have been watching the market here since 1992. The bubble here has burst. Homes for sale here have been sitting on the market for months. You see many “seller motivated” and “price reduced” signs around town and in the newspaper. However, the prices haven’t dropped that much yet. Over 2100 homes are for sale in Washington County, most new or less than a couple of years old. I have been told that another 1500 are going to be coming on line in the next 8-12 months. A friend of mine was talking to a local developer last week. The developer told him that he has nine homes that have been for sale for over 4 months and no buyers have shown any interest. He going to finish 4 more homes he has under construction and “hope for the best”. There are alot of ads in the local St. George Spectrum newspaper for brand new,”never lived in”, homes for rent with granite countertops and stainless kitchen appliances. Many of the phone contact numbers are out of state or in the Salt Lake area code. My guess is that most of these ads are placed by speculators that are in over their heads trying to slow down their blood loss.
St. George had their “Parade of Homes” in Feburary. This is a very big event where house builders, designers, developers, etc. showcase their skills. This event has been going on for years. The homes this year were the biggest, the best and most expensive ever. There were around 27 homes built this year for display. Prices ranged from $500,000.00 to $5.3 million. The average price was around $900,000.00. After five months approximately half are of these homes are still for sale and sitting empty.
“The average price was around $900,000.00. After five months approximately half are of these homes are still for sale and sitting empty.”
Wow — San Diego prices on homes located out in the middle of the blazing-hot Utah Dixie desert. That is truly incredible! Are they still building like there is no tomorrow?
Bankruptcy is already a way of life in the land of Zion. The highest rate in the nation. Supposedly it is because of large families, but there are an awful lot of bretheren who buy tons of crap they don’t need, then conveniently go BK as often as possible.
Those Californians that move in with a nice view condo are in for a horrid shock once they suck in a few weeks worth of winter inversion. Then non-LDS kids have to deal with ostracization as early as elementary school, which really bites the big one.
Pleasant irony it is that the Mormon General Authorities often lecture the fold on the evils of debt.
All aboard the Speculation Bus
I was chatting with flipper guy who was trying to unload a repaired cracked-slab house in San Diego. He said after the flip, he and girlfriend were headed to San Antonio to do it again, then on to the next “hot” town after that. Last I saw he had lowered his price from $659K to $599K.
Many folks have forgone their regular lives to tour like spec gypsies, it seems. Coming Soon to a town near you!
Same thing is happening here in Long Island, New York, It’s a “mature” market, which means any has-been flippers are now losing their shirts! I see a lot of price reductions, new listings that are really old listings with reduced prices, and for sale signs.
Inventory increases every day. And stores are closing shop.
Yep , it’s the equity locust . If the property is cheap ,the equity locust will find it .The lenders have to stop these gypsies ,make them put more money down ,make them prove the owner-occupy intent . Look at what happened in Florida and Arizona .
They should have a new category in loan underwriting called “speculation risk loans”,and act accordingly on lowering the risk .
Hey, nhz. Good to have you back, even if you tell it like we don’t want to hear. Where have you been?
I always think of your “rolling bubble” observations and regret not buying undervalued properties in yet to be overvalued areas.
Thanks for your posts.
The trouble is, I don’t want to move, so I can’t get to know a bargain in one of those few remaining areas without taking up residence in such a place. Oh well, I guess I’m just a bitter, jealous renter for now.
(With money in the bank, thank God!) 
as mentioned above, I had to go to hospital (because of a tick byte …).
I think there’s lot of ‘undervalued’ properties available in Lebanon right now, but you may have to wait a long time to cash in on those ;-(
Wow! I hope you’re feeling better, dear.
I understand there are probably going to be some pretty nasty price reductions in Haifa (sp?) as well..
Be well, and stop lurking in the bushes. There’s ticks in there.
Here is a article in my local newspaper, Valencia, CA, an “Upscale L.A. Burb”, the numbers are staggering!
http://www.the-signal.com/?module=displaystory&story_id=31650&format=html
It’s interesting how that article does not mention that houses in the 2500 to 3000 sq. foot range went down by a considerable amount and that was the price range that was selling the most in the last 6 months .
To have “The Signal” just print this article is an accomplishment. They usually print all the past record sales and prices on the front page, this article was burried in the back. This town was built by Newhall Land & Farm, (bought recently by Lenner) so they are very careful not rock the money train.
Desmo , have you noticed that the mid-range 500k to 750K houses are just sitting with the sellers refusing to lower prices ? The higher range 800k to 1.2 mil is the area that sellers are coming down on IMHO .
So, this is interesting regarding Utah. I can’t even begin to express the disdain that I have for the California Equity Locusts. I will just say that I hope they all lose their shirts. As for Utah, that is where I grew up. Even as a child and young adult, I noticed several rises and falls in the market. This is just another one of them (which will be worse than others). I guess those Utahns that are afraid of being priced out if they don’t buy now are not doing their homework and look at what has happened all around them (CA, Phoenix, Vegas, FL, DC, NYC, etc). It will have the exact ending and those folks will also lose their shirts. Another repeat of history. I hate to see that in my lovely home city. But there is NO lack of land to build within Utah. Most of it is quite empty. The Salt Lake Valley is pretty much developed and new homes will need to expand in other directions.
I don’t get St. George going up so high. ?
yes, those are sad stories and you can see it everywhere in the world. Maybe people in Utah are lucky because it might all be over within a few years, unlike in many other parts of the world like Eastern/Southern Europe where whole communities have been destroyed (probably for ever) by the equity locusts.
Executive broker Brad Bruns based in Springdale, said the slowing real estate market does not bother him, because ‘people have to live somewhere. They may just have to live in smaller homes that cost less.’”
Mr. Bruns - where have these type of homes been built lately. All I have seen in most area is mostly large, poorly built McMansions out in the outskirts. What is going to change that picture?
Executive broker Brad Bruns based in Springdale, said the slowing real estate market does not bother him, because ‘people have to live somewhere. They may just have to live in smaller homes that cost less.’”
Mr. Bruns - where have these type of homes been built lately. All I have seen in most area is mostly large, poorly built McMansions out in the outskirts. What is going to change that picture?
The Trib’s competitor, the Deseret Morning News, also has an article on the price increases. The News’ article, however, includes some slowdown talk:
“Debra Sjoblom, former president of the Salt Lake Board of Realtors, said she senses a slowdown. ‘We’re not seeing the multiple offers that we were seeing, unless the home is in the $200,000 range and then we are,’ Sjoblom said. ‘There has been a slight breathtaking, if you will. Anecdotally, agents are saying things are slower than they were 60 days ago. We’re still seeing brisk sales, it’s just not quite as crazy as it was a few months ago.’”
Sorry, link to the DMN article:
http://www.deseretnews.com/dn/print/1,1442,640196432,00.html
I’ve been tracking inventory in Utah for over a year now. Heres some interesting Inventory stats.
Salt Lake County Inventory 6/24/2005 - 3841 7/21/2006 - 2849
Utah County 6/24/2005 2558 7/21/2006 1743
Inventory has been on a steady decline from June 2005 through March 2006, but since March the inventory has increased at a much higher rate than the decline - especially for Salt Lake County.
Anecdotally, in my neighborhood, last year houses sold usually the first day on the market for over asking. Now houses are sitting longer, but prices do not seem to be coming down.
The investor inventory squeeze is on in UT.
Forget the bubble. I think Arkansas is getting so expensive due to Erik Estrada pimping real estate there in those TV commercials. Erik has the personality to keep prices up there for many years.
On a serious note, what happened to all the talk of the builders being so much more cautious this time around, having better business plans to prevent over-building? LOL.
“Many Utahns are doing whatever they can to buy now. Some are taking out adjustable rate mortgages with low introductory rates or interest-only loans.”
~
That figures. With all the Mormons (obviously people who will believe ANYTHING) there, they MUST be living with their heads in the sand to believe all the schlock being fed to them by the realt-whores. They’ve gotten soft with the times. Their ancestors who trekked west probably would have all dug their heels in and said, “We’re not paying these prices.”
Utah is known as the “scam capital of America,” which makes it a perfect killing field for the death throes of the housing bubble.
http://www.findarticles.com/p/articles/mi_qn4188/is_20050127/ai_n11497374
I actually think Salt Lake area won’t experience too much of a decline if the appreciation slows down to under 7% this year. Their prices have been flat for a number of years and it is a great place to live.
St. George’s values are way too high for an average person to afford while in Salt Lake City, most homes are relatively still affordable at 200-280k.
St. George will blow up big time. It is mostly a retirement community (for folks from SLC) and a small college town. But easy (2 hr drive) to Las Vegas.
I suspect St. George’s close proximity to Vegas has much to do with the condomania contagion which afflicts them.