‘The End Of An Incredible Cycle In Real Estate’
A pair of reports on housing from middle-America. The Columbia Missourian, “Columbia has too many new homes on the market, which some builders and Realtors say might force anxious builders to cut prices. Some of that anxiety is typified by (builder) Rhonda Carlson. She said the new construction market is overbuilt. ‘In certain subdivisions, there’s just a lot of For Sale signs,’ Carlson said.”
“Carol Van Gorp, CEO of the Columbia Board of Realtors, said the MLS indicates that 437 of the 1,528 homes available in Columbia are new. Realtor Rob Wolverton said excess supply simply makes it harder to sell new homes. ‘It increases the amount of competition that there is for buyers that are in the market,’ Wolverton said. ‘People producing the product are going to have to do a little bit better job.’”
“‘The market will correct itself to some degree, but I don’t know that it will be without some pain,’ Carlson said. ‘Some builders won’t be around next year.’”
“Wolverton said selling a property for a reduced price cuts down on the costs of holding vacant property, including interest, insurance, utilities and lawn care. ‘If you get prideful and hold on to your product until winter, you should prepare for a significant haircut,’ he wrote.”
“Wolverton said the current market is ‘the most unusual market’ he has seen since he began selling real estate in 1995. He said ‘it’s unusual because of the amount of anxiety that is in the market.’ He compared Columbia’s situation with the correction in the stock market in 2000.”
“‘My advice to builders is to view 2006 as the end of an incredible cycle in the Boone County real estate market,’ he wrote.”
The Quad Cities Online in Iowa. “There are 1,338 homes for sale in the Quad-Cities, and with growing inventory, it’s a buyer’s market. ‘The problem is we have so much inventory. Our inventory is at a 17-year high,’ (broker) Caroline Ruhl said.”
“‘Where the buyers are coming from; that is somewhat of a mystery since our market is relatively flat, not a lot of people coming or going,’ (realtor) Bonnie Sparks said of new homes. ‘Upgrades and divorces account for part of the movement. But keep in mind as well, that not all of the new construction has been sold.’”
“‘Many new additions are going up and houses are being built without the structure being purchased by a buyer to date,’ she said. ‘There really is a risk of saturation and the risk of over-building.’”
‘Our inventory is at a 17-year high’
It’s interesting how many of these ‘localized’ markets are simultaneously hitting record or near-record inventory levels.
Interesting - yet predictable. This gloabl credit bubble has gripped every corner of this country and all the areas in between.
Right, for instance, why are they building hundreds of spec houses in Missouri?
Why build spec homes in MO? Come on…don’t you know that MO is the new CA…(NOT)…it is hot, hot, hot…just as hot as Wyoming, Montana, NC, SC, UT etc…all the areas the locusts swarm to.
I have to agree. MO is “different”!!!!!
like everywhere else, Missouri is the best place to live!
Was in Rollo Mo a few years back during the summer, it was the most oppressive heat & humidity I’ve ever felt and I’ve been in Texas. The caves were prett cool though and refreshingly cold.
What does a 3/2 cave cost?
Haha, you all think this is a big joke. I moved from Silicon Valley to nowheresville in MO, a “town” of 4,000 people whose biggest claim to fame is HiWay 44 runs thru it (and the local TA is one of the top 3 employers). The place is FULL of escapees from CA, AZ, and MA. All wonderful nice people, like me, but…if this out-of-the-way nowhere place has a lot of coastal refugees then the WHOLE DARN STATE MUST BE LIKE THIS. I went to a conference in Little Rock AR over the weekend and sat with 4 other people — a couple from MA (now living in Rolla, MO) and a couple from CA (now living in Mountain Home AR). Lots and lots of people who are not on this blog saw the writing on the wall, sold their overpriced coastal shacks and escaped to flyover country. Nice people, not equity locusts, just intelligent, educated friendly people who knew bad times are coming on the coasts.
Missouri loves company.
funny!
Ben,
Pardon my ignorance, what is a “Spec home”?
And my thanks to you, Ben, for such a great blog.
A “Speculative Home” - One that is built with the hopes of selling it once completed or during construction where there is no firm buyer before hand.
A home built on a house of cards, er… A home built on speculation. Normally they build the home after a buyer has been lined up, however, when demand seems to be never ending - builders will build homes without an end buyer “speculating” that the market will bring them a buyer prior to completion (kind of like manna from Heaven).
Builders who build cookie cutter houses speculating that an as yet unidentified buyer will emerge. It’s the “build it and they will come” mentality.
Thank You, Mort.
True the builder is speculating, but Mort, not all spec homes are cookie cutter houses. Many small custom builders build some beautiful houses on spec a few at a time.
Spec is short for speculation.
That is a home built by a builder for a buyer that has yet to sign on the dotted line to purchase said home.
I was under the impression that the “spec” in spec home referred to “specifications”, not “speculation”. As in, you’re signing a contract to purchase an as-yet unbuilt house that will eventually be built to the buyer’s specifications. Of course, what’s been happening all over the U.S. is these spec homes contracts were being snapped up and constantly churned & traded by speculators as though they were housing futures/call options. The ultimate owner-occupier basically did not factor in or did not exist –just the final bagholder/GF.
Funny, I though the spec referred to architectural “specifications” or builder specifications. That is “the standard house for that model in the development as opposed to pre-sale with contractual add ons. Sort of like the basic Ford. In building up a development for potential buyers to examine and buy entails a measure of speculation, especially in today’s market.
I have to admit that emerging stories of inventory gluts in Podunk, USA are somewhat shocking even to one who long believed the California market was out of control. But given stories of hairdressers and cabdrivers looking for untapped markets to invest liberated equity, I guess I should not be overly surprised…
It’s a bigger trend than the media realizes. There is a building boom in Page, Arizona. And Kingman. How about Utah?
The root of the matter is price. If anything gets artificially over-valued, the market will over-produce.
Didn’t I read something about a bubble in Eloy, AZ? That made me LOL. I stayed there both on the the way in and out of San Diego in the late 80s. I think there were 20 people and 30 scorpions living there, and that was about it.
Page Az??? I lived there. Nice views if you are not looking at the plant. Water level is way low in Powell. Basically beautiful country that got crapped on. No jobs really but as kid I liked it.
As far as inventory goes, what time of year does it typically peak? I’ve been watching in Montana only since December, and there was a little dip at year end followed by a steady increase, now up 50%. But I don’t know if that increase is typical or not (probably not that magnitude anyway).
Unfortunately, RE stats are nearly impossible to find here. Even sales history pretty much requires a trip to the courthouse (no luck on Zillow). So I don’t have historical inventory data or even current sales data.
Sad but true - I have been doing research on the Midwest and some areas have gotten very bubbled indeed. Another prime candidate is the town of Bloomington / Normal IL. Similar in many ways to Columbia.
I lived in a place called Round Top, TX before being transferred to Seattle. In 2002 CA “investors” bought the old Jack Josie estate (100 acres), carved it into 3 acre parcels and created a subdivision in the middle of nowhere. They were 20 somethings from CA. The wife was from India.
Everyone in town was pissed off that “fureners” came to ruin the town. Everyone expect…you guessed it….the local Realty team. They were picked to sell off the subdivision lots and people ended up hating them worse than the CA “infestors”.
And yes, it did cause prices to go up as well-off people from Houston (riding increasing oil profits) bought up the parcels.
This caused a lot of the old timers on fixed incomes to really tighten their belts due to the inevitable property taxes which really shot up quickly from 2002 to 2005.
This sad drama is playing out all over the country and people who just want to live peacefully and die in the town they were born in…end up getting screwed so somebody 1500 miles away can drive a Mercedes.
Last I heard the RE office was still standing but there was “talk”….
Columbia has too many new homes on the market, which some builders and Realtors say might force anxious builders to cut prices.
- Stop this maddness! We have been assured that no (anxious builders to cut prices) will be needed…soft landing, land in short supply etc.
‘Upgrades and divorces account for part of the movement.’
- There is the answer….rising divorce rates!
“rising divorce rates…”
i thought rising divorce rates was supposed to double the demand for housing!
There you go. No all we have to do is make sure that each laywer fleeces the other’s former partner for everything they’re worth. Wait, that won’t work. Damn!
Sure it will. Then the lawyer can buy THREE houses to flip.
Sorry to those who were hoping that rising divorce rates could save the bubble — it will not. It is actually far cheaper (in real household production and consumption terms) to live as a single household under one roof than to split up parents and kids and subsequently live in two homes. So the doubling of housing demand some of you (probably jokingly) are suggesting turns out to be more of a splitting of original demand into two pieces which sum to less that the original total, especially after the lawyers are paid off…
The comments appended to the Quad Cities article are very interesting, IMO–back-and-forth on whether a $150K home is affordable (several saying “no”). Five years ago I wouldn’t have been able to afford a $150K home either.
According to the census, the median family income for the Quad Cities is $52k and some change. Using the 3:1 rule, 150k for a house is not unreasonable.
http://censtats.census.gov/data/IA/390191960.pdf
Should be 2 to 1. I bought my house 10 years ago and it was 93k. I made $43k at the time, now I make 80k. I didn’t have a ton of money left over at the time. Good thing I knew how to fix old cars. That’s something people will have to relearn in the future.
2:1 is dirt cheap. Were you trying to buy a home and support a coke habit? Even with the highest rates I could find 10 years ago Jan 1996 your payments should have been about 25% of monthly take home.
Has anyone seen Paul Krugman’s article in the NYT today?
“Signs of a deflating housing bubble began appearing a year ago, but for a while it was possible to argue that eliminating a bit of “froth” in the housing market wouldn’t do the overall economy much harm. Now, for the first time, problems in the housing market are starting to seriously reduce economic growth: the latest G.D.P. data show real residential investment falling at an accelerating pace. The latest job numbers show falling employment in home construction, and retail employment has fallen over the past year, suggesting that consumer spending is running out of steam. (Gas at $3 a gallon doesn’t help, either.)”
Good reading from the man who wrote “The United States of real Estate”.
“that eliminating a bit of “froth” in the housing market wouldn’t do the overall economy much harm.”
- Isn’t froth on Root Beer?
Not according to Alan Greenspan.
It is my opinion that a majority of the priced out potential buyers of RE in this country will have their day and not to far in the distant future where they will be able to purchase a home with far greater savings than the money that was made on the increased profits that were made on the way up the inflated ladder. The best thing is you do not have to pay TAXES on the savings in cost that these poor suckers had to pay on the way up the ladder plus the property taxes will be lower.
There is a picture of some realtor guy in front of a model house in the Quad Cities paper. It seems that this house won the ‘Parade of Homes Excellence Award’ for the price range of $250,000-300,000. Of course, the house is now listed at $320,000. Somebody should make them give back the award.
http://tinyurl.com/rqbn6
Washington (Reuters) — Consumer credit rose by a bigger-than-expected $10.27 billion in June on a surge in credit card debt, a Federal Reserve Report Monday showed.
Analysts polled by Reuters were expecting consumer credit to rise by just $4 billion after increasing by an upwardly revised $5.88 billion in May.
——————————————————————————
A little OT, but YIKES!! You’d think people were charging their mortgage payments or something.
Yep! The read the average C.C. debt was now over $9,000.00 per household, and yet just about everyone (if asked) will tell you they pay their cards off in “full” each month. Well somebody isn’t!
I think some people misinterpret that as “make the full minimum payment”
‘Borrowing by U.S. consumers unexpectedly accelerated in June as credit card debt jumped, a Federal Reserve report showed today. Consumer credit, or non-mortgage loans to individuals, rose $10.3 billion to $2.19 trillion following a revised $5.89 billion increase in May. The two-month gain was the biggest since September-October 2004.’
‘ It looks as if consumers are relying more on credit cards now that other avenues of credit such as mortgage refinancing have been shut off to them,’ said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi.’
‘ A cooling housing market is reducing demand for home-equity loans. Mortgage Bankers Association’s index of applications to buy a home or refinance an existing loan dropped 1.2 percent in the last week of July to the lowest level in more than four years.’
‘Instead, consumers are turning to credit card debt. American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Citigroup all reported higher second-quarter profit from credit cards, partly because a new law making it harder for Americans to file for bankruptcy protection led to fewer defaults.’
Most CCs have a higher interest rate than HELCOCs, so it sounds like people are just digging the hole deeper and deeper. I owe $0k on my CC, so I’m bringing the avg down, which means others are bringing it up.
‘…American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Citigroup all reported higher second-quarter profit from credit cards, …’
Enter the “raison d’être” for the new bankruptcy laws.
I guess all those anecdotes a few posts back about people seeing others in stores charging up coffees wasn’t too far off the mark. Now the gentlemen who were posting that anecdotes do not data make can kindly validate the claims with the FED data.
‘If you get prideful and hold on to your product until winter, you should prepare for a significant haircut,’ he wrote.”
If you wait too long, you will end up with a burr cut.
or worse:
http://www.collegehumor.com/pictures/33624/
And a link off that site brings you directly to porn.
I guess we never really are that far away from it. =(
That is a picture of a guy with a bad haircut…You need to head on down to pearl vision…You can be in and out in an hour…
From the article…
“Some of that anxiety is typified by (builder) Rhonda Carlson. She said the new construction market is overbuilt. ‘In certain subdivisions, there’s just a lot of For Sale signs,’ Carlson said.”
>>> Have not the realtors been saying we have a shortage… demand is strong? So what gives now that we have new homes?
“Carol Van Gorp, CEO of the Columbia Board of Realtors, said the MLS indicates that 437 of the 1,528 homes available in Columbia are new. Realtor Rob Wolverton said excess supply simply makes it harder to sell new homes. ‘It increases the amount of competition that there is for buyers that are in the market,’ Wolverton said.
>>> Sweetheart see point my point above. Harder ! What about all that demand you been talking about??
‘People producing the product are going to have to do a little bit better job.’”
They (the builder) have done a great job of putting more homes out. After all you have been talking about high demand and multi bidders for how many years?
“‘The market will correct itself to some degree, but I don’t know that it will be without some pain,’ Carlson said. ‘Some builders won’t be around next year.’”
BAHAHAHAHA ! What pain… For who ??? Seller, sure ! Realtors, Sure! Builders, Think again… they are a corporation they can sell them self off like many others in other industries….
Im sure the Buyers are not feeling any pain but alot of JOY!!!!!
Typical dumb comments from realtors…..
““Wolverton said the current market is ‘the most unusual market’ he has seen since he began selling real estate in 1995. He said ‘it’s unusual because of the amount of anxiety that is in the market.’ He compared Columbia’s situation with the correction in the stock market in 2000.”
Anxiety! Take a pill Honey, its good for you…youll feel better…
mmmmm…anxiety, my favorite.
How can there be a housing glut? I thought we were running out of land.
There is a prince in Dubai who IS building more land. He’s building it out of the ocean.
““‘Many new additions are going up and houses are being built without the structure being purchased by a buyer to date,’ she said. ‘There really is a risk of saturation and the risk of over-building.’”
LOL! This cant be true after all … have not all the realtors been saying we have multiple bidders and high demand… not enough supply…. afterall we all trust realors.
I knew it was truly the end of the real estate boom when……
This friend of mine (a commercial real estate mortgage guy), with whom I have had numerous conversations trying to convince him we are in a bubble as he tried to convince me to buy another home, gave me advice to ‘not buy anything for at least two years because housing is going to go down’. I thought it was sweet of him to give me advice but I had to laugh inside at how quickly he forgot that I was trying to warn HIM for the last several years. I just thanked him for the advice as though it was the first I had heard of it.
Speaking of the midwest, here’s a couple craigslist ads from St. Louis. Any buyers looking to land a ‘93 Camaro to go with the new house?
http://stlouis.craigslist.org/rfs/190369506.html
http://stlouis.craigslist.org/rfs/191223232.html
I’m a potential buyer in the next couple years and have been fed nothing but “St. Louis is very stable” so heres hoping you guys have it right.
http://stlouis.craigslist.org/rfs/190369506.html
Buy my house, get a ‘93 Camaro free!!!
He’s going about it all wrong. He should sell the Camaro and throw in the house.
Columbia has a population of 91,000. Isn’t 500 new homes way out of line? Keep in mind, that 20,000 consists of college students.
Woot! I called it! BTW, QC area is NOT beautiful, oceanview, “everyone-wants-to-live-here” attractive. And yet, 4 in 10 house purchases last year were “second homes”, according to one local brokerage. 4 in 10! (As a matter of fact, the brokerage was going to open a new section just for dealing with 2nd home purchases.) And I KNOW they weren’t vacation homes.
Buyers in the QC know that they’re getting fleeced. Inventory has been steadily rising for a couple years, I think. It sounds wonderful if you’re from the Bay Area. But this ain’t the Bay. Rock Island actually lost net population last year. The area faces a BRAC closure/realignment. Real income, in IL at least, has declined 12% in the last decade. The prices should never have risen. Not even a little bit.
Wow its a small world after all. Columbia MO is my home town and Rhonda Carlson was in my high school graduating class. I guess I will have to eat my words as I have been boasting to my new Florida friends about how in MO the people are more sensible and the craziness I see here doesn’t happen there. I always say, “Now show- me”, how this house is worth $100,000 more than 6 months ago, AND it still rents for the same amount.
Columbia is a college town and so is a little more insulated economically as the majority work for the University of MO-good steady govt paychecks. Go 20-30 miles out of town and you can buy homes for next to nothing.
My ex and I invested in off campus housing in the 80’s and did pretty well. For instance we had a house we paid $75,000 and rented for $1,500 a month, the leasees were responsible for property taxes and any repairs under $500. Our mortgage was $800 a month so it cash flowed $700 a month. That is why I am amazed that people today will buy a $350,000 house and rent it for $1,200 a month.