‘Is The Party Over’ In Galveston?
The Galveston Daily News has this update from the coast of Texas. “When Jay and Stacey Torres put their island home up for sale in February, they expected to cash in on a market where prices were soaring and buyers were engaging in bidding wars. ‘We expected it to fly,’ Stacey Torres said. But nearly seven months later, their Market Street house still is for sale. The couple even reduced the price from $280,000 to $265,000.”
“After a giddy market last year, when some Galveston sellers were reporting profits of more than $200,000 on sales of $640,000 homes, is the party over?”
“With hundreds of ‘For Sale’ signs on the island, there’s no denying the hangover. And there’s no denying buyers have the upper hand. ‘It’s the slowest many of us have ever seen,’ said David Bowers, a Realtor in Galveston. ‘A lot of people felt like the market was so overpriced, and a lot of people have lowered their prices.’”
“To add insult to injury, existing Galveston homes are competing with new and less expensive homes on the mainland, where builders are upping the ante, offering everything from $10,500 off the purchase price to free media rooms and appliance upgrades.”
“So is there reason for alarm? ‘I would characterize it as a cooling, not as a catastrophe,’ said D’Ann Petersen, (at) the Federal Reserve Bank of Dallas. said. ‘More people are taking a little longer to look and make decisions. They’re asking for more things, and builders are giving it to them.’”
“‘In Texas, the ready availability of land and low entry costs attract homebuilders, creating a competitive marketplace that keeps a lid on price increases,’ Petersen said.”
“Galveston has never been like the rest of Texas. While Houston prices remained relatively stable last year, island prices soared. Out-of-state speculators were buying property, site unseen, and flipping to the next buyer. At the same time, land tracts available for development on the Texas coast are becoming scarce.”
“In 2005, the median price of a home in the Galveston MLS was $162,300 compared with $99,800 in 2000, a nearly 63 percent jump, according to Texas A&M University.”
“As prices soared, so did property taxes. Then came island flight. Hundreds of residents, either hoping to cash in on soaring prices or flee soaring property taxes, hammered ‘For Sale’ signs in their lawns and waited. Some are still waiting.”
“Between Sixth and 45th streets, there are 82 homes for sale with prices more than $200,000. But only two sales are pending. Year-to-date, for the same area and price range, 14 homes have sold compared with 26 for the same period the year before, Bowers said.”
“Sales also are lagging on the once sizzling West End, where there are 328 homes priced above $200,000 for sale, with only 15 sales pending. Year-to-date, 154 homes in that price range on the West End sold, compared with 182 for the same period last year.”
“Builders continue to push ahead in Galveston County, receiving 3,148 permits for single-family homes in 2005, compared with 2,235 in 2000, a 41 percent increase. Trophy Homes, which is building in League City, is offering 6 percent discount on the base price of a home, up to $10,500 on homes with prices that start in the $120,000 range. Buyers also can choose from a variety of upgrades.”
“Sellers of older homes, or even 3-year-old homes in new subdivisions, might have to offer incentives to compete with sellers of new homes. ‘If you want to compete in the market, you’re going to have to compete not on the list price, but on the net price, after you factor in incentives,’ said Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University. ‘Or be prepared to give incentives.’”
Playing out as anticipated.
We about at the point where the “Prices never go down nationally” mantra can be debunked.
OT. Good article by Bill Gross of Pimco. Chart 3 from the Fed itself, shows that real estate typically falls in value for an expected 4 years after the Fed stops tightening and values continue to fall thought the next easing cycle.
I’m sure once the Fed starts easing again the industry spin is going to be telling people to buy because lower rates are going to cause prices to rise. The chart for YOY appreciation rates shows that most of the price increases happened over the last couple years, during the tigtening cycle, while people were incited to “buy now before interest rates go up”.
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2006/IO+August+2006.htm
If the Fed cut rates to ZERO, would any sensible person borrow money to buy a declining asset?
It doesn’t matter where rates are. The market has to stabilize, both in terms of psychology and inventory.
If the trend in chart 1 continues, does that mean the next easing cycle will bring the Fed Funds to 0% and years of deflation(aka Japenese Zero interest rate policy)?
I believe that that was something mentioned as a distinct possibility, as early as 2003. Several smart people (I’m not one of them, and hence can’t remember who) said that the Fed could avoid it in 2003, but couldn’t postpone it forever. Lower highs and lower lows in the stock market is a stock market crash. Lower highs and lower lows in the interest rates leads to deflation. As the Fed lowers rates to goose the economy, if they go too low, they may trap themselves as the Japanese had done. If the 14-year timeframe that sunk Japan is re-visited in the US, housing prices falling from here won’t re-reach these prices until about 2020… A very long time indeed for any buy-and-hold people! More like buy-and-fold…
Won’t re-reach these prices?? Japan’s prices have not returned to bubble levels. They’ve only finally (perhaps) stopped falling,
and are currently at mid-1980’s levels. So a similar trajectory in the US would have us back at 1998 levels in 2020.
The great difference is that the Japanese are very thrifty, and have considerable savings, making deflation a long lasting proposition. We are more like the proverbial house of cards, where our debt has fueled our way of life for the last 20 years, as we stopped producing goods and services (excluding making war) that can be succesfully exported. I belive that whatever happens, (either hyperinflation, stagflation, or a deflation) will happen rather quickly, and extremely painfully.
I started off my career in international sales. It is telling that there are very few positions in international sales anywhere close, as manufacturing has stopped altogether, and we no longer export.
The hoped-for psychology involves a witches’ spell which leads the clueless into focusing on the ability to buy homes with 0% down, and ignoring the inventory debris flow which is about to bury price appreciation.
“I’m sure once the Fed starts easing again the industry spin is going to be telling people to buy because lower rates are going to cause prices to rise.”
I’m sure deception is a key ingredient in the recipe for dead cat bounces.
I spent many happy weekends in Galveston when I was a teenager and in college. I liked it so much I applied to UT Galveston medical school and got in (but that’s a whole ‘nother story). Of course, I was drunk and clueless most of that time. Galveston was a cool, sleepy little beach town with no jobs whatsoever that paid better than minimum wage unless you were a doctor or lawyer. I’m sure I wouldn’t recognize it anymore, and what’s funny about that is, the water is disgusting now and the whole place is a sitting duck for a major hurricane, which it hasn’t seen in over 20 years. It’s due.
Lou, I’m sure you’ll weigh in on that one. My family lives in the Clear Lake/League City area still. They spent over a week at my house last fall when Rita was threatening the Texas coast. What has the Houston/Galveston area done to avoid another disaster like that “evacuation” last year?
Another Rita traffic disaster won’t happen again. That was a freak occurence because people were were freaked out over Katrina a few weeks before. They heard “Category 5 headed this way” and 2 million people tried to flee at the same time, even though most of them should have stayed in their houses. (raises hand)
But the state did put into place contraflow plans for the highways, from Katy to San Antonio (I-10) and from Conroe to Dallas (I-45). They also say they’ll have emergency gasoline on hand.
We sold our house in Leage City near Galveston and Houston. So many new homes that are for sale now are substandard construction. In Galveston and League City area if you cannot get an independent inspection whic includes foundation inspection don’t buy.
All the name builders, Horton, Powers, etc, use transient and, many times, inexperienced labor.
Use caution
LOL…sounds like my college days/daze.
I’ve now been following this blog since about February… The scope of the slowdown, and the gloominess of articles is getting spooky now.
Yes, the crunch really is happening. The news is beginning to sound desperate, and nation-wide.
Sorry Mozo Maz….
“So is there reason for alarm? ‘I would characterize it as a cooling, not as a catastrophe,’ said D’Ann Petersen, (at) the Federal Reserve Bank of Dallas
You see - everything is fine. Just ask D’Ann Petersen.
No, the party is not over. In fact it’s just getting started. I wrote about this a few months back. The island is being overrun by McMansions on stilts. The disease is slowly creeping up the bay towards Houston, infecting Clear Lake and Kemah. Here’s some stuff I wrote, as well as some pictures:
http://louminatti.blogspot.com/2006/05/galveston-island.html
http://louminatti.blogspot.com/2006/05/galveston-real-estate-mania-throttles.html
There are many nice old houses on Galveston, but I can’t understand the prices.
Aren’t there though. Old Galveston is a throwback to the Old South, like Savannah, Georgia and Charleston, SC, even parts of New Orleans and Atlanta. I hope that a lot of them have historic landmark designations so the condo or McMansion developers can’t knock them down.
Lou, do you really see this eventually causing prices in Houston to increase substantially? I ask because my wife and I are fed up with Orlando and are currently looking to move back to Houston (lived in the Clear Lake area for about five years in the late ’90’s) very soon. We’ve been priced out of the housing market in Central Florida and don’t like it enough to be patient any longer. Thanks!
The national RE mania has already crested, so if the mania was gonna happen here it would have already occured. I can see prices drop here, though. Lots of new $100k houses are going up. No reason to see prices on used houses go up when 2 miles down the road is a subdivision filled with new houses for the same price. Which would you buy? I’d buy the new house.
Those are some beutiful old homes. I’d take one of those over the crap boxes they build these days.
“Galveston has never been like the rest of Texas.”
There is a very good reason for why Galveston is “different”:
http://www.noaa.gov/galveston1900/
If I interpret this accompanying graphic correctly, then all four of the major 20th century tropical storms to hit land near Galveston occurred in the first decade. This raises the question of whether the hurricane track is cyclical in the areas where major storms make landfall, and whether Galveston will face a similar decade of destruction at some future point in time…
http://www.srh.noaa.gov/hgx/hurricanes/gifs/1900s.gif
I believe thats only for the years 1900-1909. The upper Texas coast has seen major hurricane hits fairly regularly, most recently cat 3 Alicia in 1983, and before that Carla in the 60’s. Majors seem to happen about every 20 years so we’re due again, but we also seem to get devastating tropical storms about every 5-10 years which for one reason or another stall over the area and dump feet of rain over a period of several days. In fact the world record rainfall in a 24 hour period on was recorded in Alvin in 1979 TS claudette I believe, and everyone probably remembers TS Allison 5 years ago, the only TS to have had its name retired.
I remember Alicia and Claudette. Alicia filled my backyard with tree branches and neighbors’ lawn funiture. In Claudette, I assisted in evacuating a flooding nursing home and received a citation from the Governor (10 bonus points if you can name who that was!) This was in League City/Webster.
I wrote about Galveston real estate recently and tooke some pictures:
http://louminatti.blogspot.com/2006/05/galveston-island.html
http://louminatti.blogspot.com/2006/05/galveston-real-estate-mania-throttles.html
What you have down there are lots of multi-million dollar McMansions on stilts. The mania is far from over. In fact it is cranking up. The infection is spreading up the Bay, infecting places like Kemah and Clear Lake City as well.
It’s already been pointed out that most of these houses will be toothpicks and driftwood after the next major hurricane. But there are lots of very nice old houses on Galveston Island behind the seawall.
I’ve tried to post a couple of links about this but it’s not working.
Hope this works. Galveston RE photos and personal observations:
Here
and
here.
The Galveston real estate mania means that us taxpayers will be on the hook for additional billions.
How true.
The Torres family, who saw property taxes jump by nearly 15 percent in three years, intended to be among the flock of island flighters.
I’ve heard that property taxes on Mustang Island went way up too.
Realtors expect island homes to begin selling again as more prospective buyers tour homes.
The spin lives on.
“The buyers are weeding out the overpriced homes and finding some gems,” Bowers said. “It’s a buyer’s market.”
(Best Scooby Doo voice:) Hehehehehe!
Sorry for the dupes. I am not sure what was going on. After I posted the items I hit reload and the posts didn’t appear.
Isn’t the rising sea level from global warming going to be a threat to Galveston within a decade or so?
Also I would think Insurance companies would raise the insurance rates in Galveston also just like in Florida .
Corpus Chrisit- is it dying yet ?
wierd how some cities in tx perked up in 06
Galveston, you have got to be kidding me!!!
I was transferred to Houston TX from Huntington Beach CA in 1995. We spent about 2 days looking for a house in Houston before we decided that it was too polluted for us to live there. Smokestacks and petro-chemical plants line the coastal areas. We accidently drove into an east Houston neighborhood next to a bunch of chemical plants. Everything looked dead. There were no birds and the only people living there could not even speak English. It was sad.
So we moved out to the Brenham area in the country and loved it.
The one day (2003) we heard about Galveston and how great it was so we decided to drive down. On the drive down you could see petro-chemical smokestacks everywhere, the water looked muddy, the beaches were ugly, and the town looked like the poster child for urban decay. With all the petro-chemical factories within view you can bet the water is polluted.
Moody gardens was ok but it is the ONLY good thing about Galveston. A very sad place. When the article mentioned buying “sight unseen” then it sort of made sense….sort of.
Texas is not a bad place to live (relatively cheap, people nice, and nice weather the 7 months when it is not hot as hell) but Galveston….no thanx.