“The Hangover From The Big Party Has Set In”: Arkansas
A housing report from the Arkansas Times. “Northwest Arkansas has grown faster than anyone could have anticipated. Sleepy pastureland overnight became subdivisions, office parks and strip malls. The lure of easy money proved irresistible to would-be developers.”
“‘There were a lot of people who jumped on the bandwagon,’ said Tom Terminella, a familiar name in Northwest Arkansas real estate for almost two decades. ‘Every hairdresser and fireman and a lot of people who were in banking got in.’”
“Ambitious developers joined with start-up bank executives to unveil high-profile projects at glitzy functions. Now, the hangover from the big party has set in. Despite a steady population increase of about 1,100 people a month, there’s a serious oversupply of residential and commercial property.”
“One economist estimates 112.9 months of housing inventory, more than nine years’ worth, at the current rates of absorption.”
“‘Houses were being built at such a pace that even the fantastic growth of Northwest Arkansas couldn’t keep up with it,’said Kathy Deck, at the University of Arkansas in Fayetteville.”
“That reality has sobered everyone. Formerly eager developers are scaling back their plans, and their once-trigger-happy bankers are re-evaluating lending practices. ‘I got the opportunity to see people jumping in the speculative market, more on the residential side,’ Brandon Barber says. ‘I jumped out there and built spec homes which sold at the time, just like everything else was.’”
“In early 2006, the residential market began to flatline, especially at the higher price points, as the supply of new housing stock outpaced the demand.”
“‘We were spread out too much,’ Barber acknowledges. ‘Now, as opposed to 50 projects, we can focus on seven or eight projects. … We’re definitely not as greedy, for lack of a better word.’”
“As for his existing properties that aren’t selling as well as he hoped, Barber says, ‘We have set up some more creative financing and we’re going to wait for the market to come back and let the grass grow.’”
“Tom Terminella is a little more circumspect. ‘In the last 24 months it’s been rather entertaining to watch this unfold,’ he says. ‘I watched a lot of development that didn’t make sense at the time it was happening. Now, with the correction in the market, it makes absolutely no sense.’”
“The problems are worse in Benton County than in Washington County. ‘I feel like the multi-family and the single-family residential home sites, pretty much at all price points across Benton County, are oversaturated with inventory,’ Terminella said.”
“The biggest problem, in retrospect, was the rush to build luxury homes priced at $200,000 and above. Part of that was due to the boom mentality, but developers also became entangled in market pressures that sent land prices up. Once they acquired an expensive lot, it seemed the only way to profit was to try to sell an expensive house there.”
“‘When we first decided to do it, there was zero availability,’ relates Travis Kershner, who started his development company two years ago, as the market took off. ‘Land prices went so high so fast, and people were buying lots like crazy. The more they would sell, the more prices went up. The homes needed to be at $250,000 or above to make a profit because of the price of land. People would pay too much for land, in my opinion.’”
“Betty’s Homes, based in Bella Vista, became the most prominent casualty of the recent market slowdown when it filed for bankruptcy on Oct. 20. Then, in late November, First Federal Bank of Arkansas foreclosed on another home builder, Calloway Investments, which defaulted on $4.93 million worth of construction and mortgage loans.”
“Nearly everyone involved in the industry believes the banks deserve some of the blame. ‘Credit has been easier than it should have been to get,’ said Brian Glenn, the chief lending officer at Legacy Bank. ‘There was a lack of what we would call solid pre-lending analysis. The market had been so good for so long, decisions were made to continue to make loans because of the assumption that things will continue to keep working.’”
“‘No doubt when you go from 10 bank charters to 30 in a two-year period of time, those institutions have to lend money to justify their existence,’ Terminella said. ‘Just to provide credit to anyone who has a reasonable idea is what got us into trouble.’”
“‘It was definitely not hard to get 100 percent financing,’ Kershner said. ‘Anybody could buy a spec home and get financing from a bank. Then the banks started getting stung and that slowed down.’”
“Glenn makes no apologies, however. ‘Really, if you want to play in the game up here, you have to be involved in real estate,’ he says. ‘We’ve done some speculative residential house loans for builders. ’05 did its thing, and in the first quarter of ’06, we felt the faucet starting to turn off. By summer it was off.’”
“As a result, there is speculation about more bankruptcies among land developers, which could set off a chain reaction that affects contractors, suppliers, and ultimately the banks.”
“‘It can’t be Mardi Gras every day,’ Terminella said.”
‘The forest products industry scales back across south Arkansas, partly for seasonal reasons, partly because of the decline in housing construction and partly because the entire industry is easing overseas. Whirlpool ever reduces at Fort Smith. Now Sanyo lays off 350 at Forrest City. Are we flush or are we in trouble? ‘Yes. You can tell I’ve been talking with economists.’
“‘There were a lot of people who jumped on the bandwagon,’ said Tom Terminella, a familiar name in Northwest Arkansas real estate for almost two decades. ‘Every hairdresser and fireman and a lot of people who were in banking got in.’”
It’s just a regional bubble though. Only Florida and California.
Wait, TX, you left out Arizona! Our bubble is feeling VERY neglected right now…
Here is another case of a regional bubble that you had to see to believe. I was in Rogers, Arkansas about 3 years ago. The pace of development was mind-blowing. The person from the company I had business with told me, “this is the second fastest growing area in the country behind Las Vegas.” It was all based on Walmart being in Bentonville. Even with Walmart just down the road, and the new Int’l airport, it was staggering. It could not be any easier to believe that this has blown up on Arkansas.
I can’t imagine what will happen to Northwest Arkansas if Walmart hits some serious hard times. The cyclical industry of real estate intertwined with the cyclical industry of retail. Five years from now this could look like Armageddon.
I wasn’t aware that Wal-Mart paid its executives well. And isn’t it getting a lot of flack because of its low wages for the store staff?
Buffalo, NY is what it may look like… or worse. Sharecroppers housing?
Northwest Arkansas did out grow like mad, it use to be a country drive from XNA airport, now it is traffic, stop lights and construction trucks everywhere you go. And I think it was all built in less than three years.
I can’t believe the amount of development going up around WalMart. The WalMart HQ is a dreary place to work - they monitor your every move (no email or internet, extensive regulations), it’s a crappy old warehouse, and they are known to fire/layoff for no cause whatsoever. I spent a little time working there and wouldn’t do it again for a penny less than $300k a year, which should allow me to buy a McMansion from some desk jockey who lost his/her job due to coming in 10 minutes late.
Oh yeah, should I mention they offered me a long term job for the paltry sum of $35k when the costs of living are similar larger cities (St. Louis) and the wages are $15k more a year.
Fayetteville was once the population center of NW Arkansas but it’s been eclipsed by the Rogers/Springdale/Bentonville area.
Arkansas bubble upgraded to hubba bubba from trident.
It cracks me up everytime i read one of these articles from one of the no-where states. Arent there still places you can buy land in the us for 1k an acre?
“Arent there still places you can buy land in the us for 1k an acre?”
There are a huge number of places where you can buy land for $1K an acre. But that begs the question, “What do you want to be able to do with it?”
I can buy some land in the South for $3K or less an acre; it is trees on a fairly sharp slope and I would buy it only to protect the main purchase (house with acreage) from the encroachment of further construction.
More direct — I doubt that any of Ben’s regular bloggers would be able to buy, for $1K an acre, land in the U.S. on which they would be delighted to build their primary residence.
Doesn’t anyone in Arkansas remember “Whitewater”?
Would have thought one, notorious, real estate fiasco would have longer lasting repercutions than, what? 10, 15 years?
You mean after everyone forgot about the ’90s stock bubble after only three years? Besides, “everyone” knows that Whitewater was just a policital wank like the Lewinsky scandel, right?
the catch-22 of this housing bubble for most people (unless you have a recession proof job like doctor, nurse, or university professor):
If the bubble doesn’t burst, then you are likely priced out forever.
If the bubble bursts, then you won’t have a job to buy the cheaper house (and will still be priced out).
I honestly admit that I’m rooting for Big Ben to break out the helicopters and keep the party going.
I’d rather be a flush renter than standing in a soup line wistfully looking at the houses that I still can’t afford (even after the 50 - 75% discount since my income has dropped 100%).
I’m not trolling, and this is a point that escapes many people IMHO. Is there a way for real estate nationwide to “crash” (drop the needed 30 - 50% in real terms) yet not take out the general economy as well?
Wouldn’t bother me. I’m a short seller and if that doesn’t work out, there’s always plenty of bankruptcy around
Don’t worry, you are exxagerating. Even in a recession, most people are still employed. if you lose your job, it may take a long time to find another. And you might have to take a job that you aren’t terribly interested in. But most people do find work.
Also, in a recession, a lot of people are simply underemployed, not unemployed. There are no bonuses, no one gets a raise, and business is slow. But you are still earning money.
Finally, it is very important to amass savings now becuase once a recession htis, money in the bank will be 10x as valuable as it is today. Suppose that two years from now, you’re undermployed and earning a modest salary. You have savings, but only a modest amount.
When you apply for a mortgage, banks will fall all over themselves to get your business. Why? Because even though you have a modest salary and a small amount of savings, you still look one heck of a lot better than someone in bankruptcy who just lost his McMansion and Hummer in foreclosure.
Someone with a steady job, reasonably clean credit, no credit card debt, and a small amount of savings, even if it’s just a few thousand dollars, will be in a far, far better position than 95% of the population once a recession hits.
Should we be amassing those savings in Euros or Pounds?
I’m thinking Maple Leafs and Kruggerands.
Euros….Pounds will weaken as the North Sea oil and gas deplete and the UK is at the end of a very long pipeline from Russia with lots of countries in between.
Dinars.
Maples are prettier but Krugs are cheaper. They’ll all be worth the same when the balloon goes up.
Eagles (or buffaloes) are a level safer, as I understand it. If Leviathan decides you shouldn’t own gold, it first goes after non-U.S. stuff. The apparently/supposedly safest gold is antique U.S. coins. Not likely it will come to that, though, assuming you’d cash back out and buy that house of your dreams on the cheap, before we go Argentine.
The whole sing song sales pitch about “confiscatible” gold is just a lot of hot air. Since January 1st, 1975 you can own whatever your heart desires and as gold is beholden to no country or creed, it trades very easily in any form.
The only difference would be a preference, in terms of purity. Kr’s and older American Eagle Coins are 22k, Buffaloes, Maples, Philharmonics, Nuggets and a few others are 24K.
Buy Chinese Renminbi…
Not to belabor Joe’s point, but the unemployment rate during the Great Depression of the 1930’s was roughly 25%, nationally. Very high, yes, but 75% were still employed.
One thing to ponder when comparing the 1930’s depression vs whatever might come down the pike, potentially, for us, is that Americans in the 1930’s were amazingly self sufficient, compared to us. A huge factor.
75% were under-employed.
Exactly. I just had lunch with a buddy who settled on his spec house today. Told him just don’t lose any money over the next few and you will be in good shape come time to buy.
Exactly. I just had lunch with a buddy who settled on his spec house today. Told him just don’t lose any money over the next few and you will be in good shape come time to buy.
Exactly. I just had lunch with a buddy who settled on his spec house today. Told him just don’t lose any money over the next few and you will be in good shape come time to buy.
Wahoo, have you had lunch with your buddy who settled on his spec house? Just curious…
bingo- you forgot gov workers
everyone else suffers and won’t be able to buy anyway- 20% off = recession in my book
Contrary to popular belief, gubmint workers are NOT AT ALL immune to layoffs.
I work as a scientist for the State of Florida and we have had a couple of layoffs over the last 4-5 years. One in 2001 and another in 2004. The agency that I work at reduced staff by 50% with the two layoffs.
Seniority offered no protection; we had people with 27yrs and 18yrs creditable service laid off as well as newbies that had been here six months.
Usually, however, the layoffs target people who have fallen out of political favor ( the highly-paid figurehead, coat-tail riding do-nothings ) and the Deadbeats ( people who are disillusioned with their own sense of self-entitlement : “I have worked here 30+ years and you ain’t gonna make me do sh!t” ).
Here in the state of Florida you CAN get laid off as a Career Service employee….I have seen it happen.
I expect civil service types to get hit the worst.
It’s not like government at any level has been running a surplus or has any savings; most are well into the red already. Once the economy tanks, there goes revenues. Finally, they all have growing retiree pension & health benefit payment issues.
LOL. The notion of everyone being “priced out forever” is contradictory in and of itself.
Let’s assume you’re right for a second, and “everyone is priced out”. Then what? What happens to the market (*any* market) when all the potential buyers are priced out of it?
The notion of a market pricepoint that exceeds the capacity of all purchasers breaks the fundamental supply/demand equation of economics. If all purchasers are priced out, then the price must fall. Its a scare-tactic used by sellers. It isn’t based in economic reality.
Everyone becomes renters and the very few, very wealthy own nearly everything. It’s called serfdom, and it can happen here.
It was forecasted before the central bank here existed that if we were ever foolish enough to let one fester here we’d end up “homeless in the land of our forefathers”. First they inflate your savings into worthlessness, then they deflate your equity away. It’s easy, and it’s “legal” (actually it’s not, but the Supreme Court is such a bunch of political hacks they don’t have the guts to say so anymore).
Yeah right. Why would a rich person buy a house that he could only rent out for 3% of the purchase price? Why do you think Warren Buffett sold his Huntington Beach house last year? Because he know he could get a much better return on the money elsewhere.
Serfdom existed because there weren’t free markets in anything - capital, land, or labor. If markets are working, if you can afford to rent something, you can afford to buy it. Like cars.
The rich wait until prices come down, then they buy. In the meantime they put their money in safe things like overseas accounts and tax-free foundations.
Are you serious? Maybe “some” rich people figure this out but maybe you should google “Hunt Brothers” and learn how easy it is to blow a vast fortune.
Happens all the time to the rich, trust me. I’ve met a few in my time.
The Hunt brothers had the rules changed on them by the boyz who weren’t happy with the game they were playing. We just witnessed the same changing of the rules when Nickel went into default a couple of months ago. The shorts were allowed to pony up a small penalty fee instead of being forced to go into the market and buy physical which would have exploded the price. It’s a rigged game as near as I can tell.
Like around 1982 Nelson Bunker Hunt was called into Senate to get a bit of a tongue lashing over his attempts to corner the silver market and if memory serves, some blowhard senator asked him “did he realize he’d lost a few billion dollars?” (back when a billion dollars was a BILLION DOLLARS)) and he replied:
“A billion dollars just aint what it used to be”
ha
Most people who have bought between 2003 and now actually **were** priced out. They’re just only now starting to realize it.
but but but Erik Estrada said I can’t go wrong
http://dirtsoup.tripod.com/homo
“One economist estimates 112.9 months of housing inventory, more than nine years’ worth, at the current rates of absorption.”
Holy Crap
Arkansas?!?
I never would have guessed that Arkansas would jump to the top of the bubble “roll of honor.” Holy Crap is right.
Not exactly where I would have picked over Detroit, Florida, California, Arizona, Las Vegas, or DC…
Ok, I’ve officially just gone from schadenfreude to damn scared.
Holy Crap… I don’t know why but this was like a gut hit… As much of a housing bear as I am… I’m in shock. After reading about location after location… Having Arkansas hit an inventory record blind sided me… Never would have guessed. Not at this level. Not in 2006.
Neil
Parts of it are really beautiful. I know it has this hillybilly reputation but if you can get past that (and have a full set of teeth, lol) it’s really quite nice.
Agreed. I took Hwy 7 North to 65 from Russellville and thought I was in a scene out of the Sound of Music. If it wasn’t for those refrigerators on the front porch…
“If it wasn’t for those refrigerators on the front porch… ”
You mean the Subzero stainless?
Jokes aside, rural Arkansas is indeed very pretty. Seems everyday there’s more news of markets that have been overlooked in the run-up but are bubbled as much as the coasts. So are there any cities where the bubble had little or no impact?
badger boy ….You bring up a good points . In a recession there will be people that will lose their job and assets . The people in the housing industry will suffer alot if we go into a long term slump . People will buy less and jobs will be shaved because of that . Companies do cut back during recessions/depressions .
If the lenders had really qualified people proper ,than they might of been able to hold on during a turn-down, but that option does not exist for many now .
It’s much better being a renter during down-times that’s for sure ,unless you have a iron-clad job .
I once talked to a stock broker who claimed that Americans can’t take recessions for more than 3 years, so they start buying again regardless . I don’t know if that’s true or not but psychology does play into markets .
Everytime I hear about refrigerators on the porch, I think “You have a porch?”
Or cars up on blocks in the yard, I think, “You have a yard?”
I don’t imply Arkansas isn’t pretty.
But I still can’t my mind around them having 9+ years of inventory! Who wrote that business plan?!?
Neil
“You mean the Subzero stainless?”
You might see a subzero in January, more of a whiteorangebrown finish though… and vented.
‘Everytime I hear about refrigerators on the porch, I think “You have a porch?”’
Some of the porches have collapsed. If more than 3 dogs were killed that’s a good sign your in Arkansas.
Dayum, invest3, that was cold-hearted. I love dogs (’cept Pit Bulls). It don’t help none that you’re prob’ly right about that.
The refrigerators-on-the-porch bit reminds me of West Virginia. Strange at first, but, as true Americana, it can grow on you. Like a pleasant but eccentric neighbor.
The Northwest Arkansas bubble was all about those 3 little words in real estate. Walmart Walmart Walmart. Anybody saying something different is lying. Bentonville anchored the boom and everybody thought they were going to get rich. Walmart would grow exponentially and everybody would be gazillionaires.
My favorite building in my neighborhood is just across from City Hall. It is the Woolworth Building. Google it and check it out. It is something else. It is also a monument to the fact that the kings of retail one day are the fond memory of tomorrow. Walmart is not bulletproof, as we are seeing now.
Kay - trying to wrap my head around Walmart as base for economic growth. (We’re talkin the place where my IQ drops when I walk in the door and the only stuff made in the US is the cash that flows into the registers, right?..)
Is the Walmart headquarters in Northwest
AK (Sorry for the ignorance)? The idea that everyone would get rich from working at the headquarters still seems a little far fetched considering the tales of I’ve heard of their cheapness, oops - I mean frugality.
I think Bentonville has, or had, a higher per capita of Redneck Millionaires than any place else in the world. The original employees believed in the company and benefited greatly from its stock price runup. Walmart is a huge employer in Bentonville. The Distribution Center near the airport is the largest single concrete pour in the world. It is unbelievable how big it is. It would take some time to try to count all of the truck bays in that thing. You would definitely have to pull over and stop and count.
Walmart headquarters is huge and a lot of other businesses grew up around it. Unfortunately, I think the area was building like the growth in Walmart would never end. Walmart stock hasn’t done anything but disappoint for years now. I wonder how much of the speculative building was financed by the promise of future wealth from stock and stock options. If stock price doesn’t increase stock options are worthless. I would love to see an economic report for the area that details the last 5 years of building and the rationale behind it.
Thanks - run up from stocks and general local economic activity sounding Walmart makes more sense to me..
“Walmart headquarters is huge and a lot of other businesses grew up around it. Unfortunately, I think the area was building like the growth in Walmart would never end. Walmart stock hasn’t done anything but disappoint for years now. I wonder how much of the speculative building was financed by the promise of future wealth from stock and stock options. If stock price doesn’t increase stock options are worthless. I would love to see an economic report for the area that details the last 5 years of building and the rationale behind it.”
There is no economic rationale. Every company from P&G to Nestle to Gerber foods and Oracle has built an office in Bentonville to please the WalMart gods. Next month will be the 7th consecutive year that WalMart stock has been flat ($69 in 1/00, $46 today). There aren’t too many millionaires being minted in Bentonville at this time.
It’s going to get worse too. As the pressure builds on WalMart’s poor sales there will be less procurement of goods from the exact companies that have built offices in the area. It will be a ripple effect as people are released and sell to move out of the area to find a new job.
The real reason for the runup was due to the first wave of millionaires in the 80’s-early 90’s. I worked with people who started as janitors and retired with $300k in profit sharing alone. That kind of feat is impossible today. Matter of fact, it’s often better to forefit the profit-sharing 7 year vesting time to quit the company multiple times to work your way up the salary ladder.
I can’t see any way in which the best days of WalMart aren’t behind it, and as WalMart goes so does NW Arkansas.
We in Chicago have Montgomery Ward. And the old Mongomery Ward office buildings and warehouses are all, surprise surprise, condos.
It’s localized mostly. Don’t get me wrong, the housing market is overbuilt everywhere, but traditionally Arkansas is more stable. We have ups and downs that generally seem to lag the national market and are less drastic. From what I see, that’s the case now in central AR.
NW Arkansas is the focus of this story, and it’s a local exception. Not the rule for the rest of the state by far.
I just left Little Rock after an extensive tour of homes in NW Little Rock and Maumelle. Although there are lots of houses on the market, it’s mainly the “dogs” that will not sell in any market; much less one that’s slow. We searched the CARMLS and found a lot of activity, houses selling for full asking price; some within two weeks of listing……amazing. One more item…..every single house we toured had a sign in the yard “100% financing” and the agent said that’s not true….you can get 103% for the asking.
Pulaski County is slower than last year, but nothing like the NW section of the state.
“‘It can’t be Mardi Gras every day,’ Terminella said.”
Nope, its the day after and you just woke up naked in the 9th ward with only a vague memory of where you hotel is. Bet you wish you still had cab fare!
Neil
The only non participants in this bubble have been our beloved rust belt towns…
Buffalonians: Stand proud that you resisted the temptation~
. . . . and of course, there’s always Flint, Michigan. Where they eat bunnies for dinner.
pets or meat?
Pets at my house. I ripped that tape out of the VCR and threw it in the trash.
Can anyone help me with a source for a stat? I read (I think on this blog) that for 90 years the annual pace of real estate appreciation was 1% over inflation.
Can anyone point me somewhere to back that up?
Thank you!
.7
not even 1%
with hud,fre,fnm,deduct,credit etc…………..
I think the rate was 1.8% appreciation over the years 1978 to 1998 or so.
I think Shiller had a graph that showed wages and housing appreciation tracked almost exactly constant from ~1978-1998.
20-year period isn’t nearly long enough to be meaningful though.
The 1890-current graph is good, though not very detailed at all. It’d be nice to see the data details behind the graph.
Here’s an article that contains the Shiller graph for US real estate from 1890.
http://tinyurl.com/jomro
he’ll never be good on the tube- I think they give him the wrong makeup and camera angle- face it he has to be the boogieman/bumbler
I caught Shiller on C-Span last night (was just flipping channels). You’re right, he’s too wonky and not a very commanding presence.
Anyway, 1% or .7% or whatever for RE long-term assumes you buy and hold, ignoring taxes and transaction costs, both of which can be substantial.
I liked how he looked — to me, more believable than others and no plastic.
“Despite a steady population increase of about 1,100 people a month, there’s a serious oversupply of residential and commercial property.”
Probably because a large proportion of those moving in are getting jobs building the properties and can’t afford to own what they are building.
http://photos1.blogger.com/blogger2/3451/1420/1600/27leon_graph2.large.gif
Markmax — not sure what you posted, but it comes up as a big “Forbidden” in my Firefox app.
Everyone wants to live in Arkansas. All those high paying Wal-Mart jobs and the weather is terrific.
9 years of inventory. No bubble here. Nothing to see folks, move along…
just ask Ponch, I mean Erik Estrada, Arkansas is an awesome place to live! You don’t watch late night infomercials??
Back in October, I took the family in the “big rig” out to Bentonville, AR for 3 days. We attended the annual fall craft show that is held at the “ole applegate farm” which is located behind the Wal-mart supercenter. I am just guessing here but I would put the farm size in excess of 40 acres but no more than 60 (hard to tell the northern boundary). Anyway, it consists of several outbuildings, barns, an old (and very nice) log hewn sided house and some infrastructure to support the craft show that has been installed throughout the years they have held the show (water, electric outlets, etc). Anyway, I was told this is the last year that the show is being held at that location because a developer bought the land. I heard unofficially that it was purchased for 6 million. A shame really because it is beautiful land with mature trees and a park like setting, not that I think it will actually get developed with 9 friggin years of inventory in the area. Hehehe.
I did get a chance to scoot around the area and can confirm that there are plenty of dolts trying to pawn off shitboxes that have been built in the most unlikely areas of that countryside. No more spectacular than what I’ve witnessed in other areas like Ft Myers but I’ve now become anesthetized to stupidity on a large scale and can no longer work myself up into a frenzy over what I see. Kind of like how the mind shuts down when it witnesses a massive tragedy.
Auger — nice on-the-scene. Thanks.
When I was in the Ozarks this summer the area was banking on whiteheads from Florida flocking to AR and MO to get away from the hurricane belt with moderate temperatures still and affordable price. A realtor told me most older buyers’ big question was how far away was the local Wal-Mart. Hell, why not just move to Mecca?
The crap they were putting up in NW AR and SW MO was amazing. What further amazed me were the condos on Lake of the Ozarks. Most were second homes.
My friend told me about the “condo packages” - entire rooms of furnishings that furniture stores would sell for people that didn’t feel like taking the time to decorate. Wonder how the Osage Beach condo market is holding up? It was beautiful there. Well, except for the 100-degree temps and humidity to match.
The “Lake” is being hammered right now along with everything else. For all the talk about it becoming a year-round haven, its still not much more than weekend condos for the St. Louisans interested in spending their extracted home equity on condos and speed boats. There is a small year-round population, mainly retirees and service workers who stay there year round.
I grew up in that area and recall when everything except the gas-stations and stores closed from Labor day to Memorial day.
I had the pleasure to spend a few days there in August and while it’s still a beautiful place, the St. Louisans have completely ruined it. Now there is too much shopping, all kinds of chain restaurants, a Lowes AND Home Depot, Target AND Walmart, Staples, etc. As recently as 10 years ago I the WalMart supercenter would only have 10-15 people working on a typical Janurary evening because there was ZERO shoppers.
Looks like a lot of St. Louisans will be crying soon; here’s a link to pictures of the 20″ snow they received last week that collapsed many of the boat docks.
http://di-vo.net/diozarks/
(yes, us locals are not very fond of the yuppieization of the Lake)
http://di-vo.net/diozarks/
Wow. We stayed at The Ledges for a few days. Right at some of those docks. My friend is one of the few year-round residents in her building.
A realtor told me most older buyers’ big question was how far away was the local Wal-Mart. Hell, why not just move to Mecca?
Actually, the closer you are to Wal-Mart the less you end up forking over to OPEC. More people need to think this way.
Just so it doesn’t get lost in the thread farther down, keep a close eye on this Ownit fiasco in the mortgage biz. All the default news and housing bust news hasn’t really “scared” the markets too much so far. But that could be changing fast. The Wall Street Journal … New York Times … and other big outlets are finally hammering home the message that subprime mortgages are performing very poorly. And CNBC has been running a few segments today on the Ownit blow up specifically. Maybe it’ll turn out to be nothing. But this COULD be the kind of thing that puts some fear back into the mortgage backed security world. Stay tuned.
Thanks for the help with the stat and the graph!!
I’m a little concerned about this investing in the middle of nowhere mentality. The reason being that most major metros including classics like SF, LA, NYC, etc all got caught up in the bubble big time. While this occured, the same cannot be said for areas like Knoxville, TN, Fayetville, AL, and countless other smaller metros all over the country. In fact, many of these areas have homes still priced way below 100k.
When I was home last time visiting my folks, I was getting the impression from the rampant building that there was sort of an investor spillover taking effect. The fact that places like SF are now easily as much as 15 times more expensive than say- Knoxville means that these contrasts might seem irresistable to someone that’s looking for RE and can’t fork over 700k for a cracker box in SF.
When I look at craigslist in many of these smaller cities, All you see are: “INVESTORS WANTED!!” in the title. If these areas become just as overpriced, then we really are screwed for there would be no more escape plans left for those not wanting to waste their time in CA waiting for the dust to settle.
Similar observations from my visit to Alabama. Plenty of homes priced 100-200K range. A few better properties at 200-300K and rare over that. Given interest rates it seemed they were still high but not insane. Raw land was easily affordable.
James — not where I was looking — in Gadsden, where the good stuff is priced at $350K+ and never sells. The steel industry left. The tire industry is under threat. Nothing new for growth on the horizon that I know of, but the sellers stubbornly hold on to their idea of a selling price. I finally realized that even if I could strike a reasonable deal on a house, I wouldn’t have any confidence I could ever re-sell it in a reasonable time frame. Nice small city, but as TxChick puts it, it appears “That’s where money goes to die.”
This bubble is nation wide and all the schadenfreude directed at the coasts like NYC, SF/SJ and LA/SD misses the point of how serious this problem is for the country.
There are NOT many places untouched except those that have been depressed due to the export of good paying manufacturing jobs e.g. Detriot, and Ohio.
A waning tide lowers all boats.
I expect civil service types to get hit the worst. It’s not like government at any level has been running a surplus or has any savings; most are well into the red already. Once the economy tanks, there goes revenues. Finally, they all have growing retiree pension & health benefit payment issues.
No, you’re way off base. At the Federal level there is a huge bubble of boomer-age federal employees who are closing in on retirement in the next few years with very few young workers in the pipeline to replace them. I’m not talking about clerical staff, but more highly skilled managers, scientists, economists, etc. At the same time, programs are becoming more and more complex due largely to the meddling and micromanaging by Congress. So I doubt any federal employees will be laid off in the next decade. Rather, I expect staff shortages will lead to a great deal more outsourcing and contract work (think FEMA and Haliburton) and that means the taxpayer will pay even more for less results.
At the state and local level it is a bit different. But most government jobs are not economy-dependent and in fact, many government services are more in demand during recessions than boom times. But regardless, government employees are likely to be the most immune to any sort of downturn unless they are in jobs directly related to the housing boom, such as building inspctors and that sort of thing.
Kent,
Yeah, right. All that takes money the government won’t have. If you believe deficit spending can continue -or- taxes can be raised ad infinitum, you’re certifiable.
By the way, it sounds like NW Arkansas is a fairly nice place to vacation. It’s less than a day’s drive for me here in Central Texas. Anyone who knows the area able to recommend a specific place that would be a good family vacation destination with lakes, hiking, that sort of thing? Someplace where this bubble created a lot of surplus vacation rental type of places that might be super cheap to rent next summer or fall? If I could find a nice Arkansas vacation spot where it’s possible to rent a posh resort rental for pennies on the dollar to escape the Texas heat next summer with the kids I’d be interested.
Stay on Beaver Lake. There are a lot of hiking and fishing opportunities and the area is beautiful. Plan on spending an evening or two in Eureka Springs, a very nice romantic small-town getaway with street bands and quaint shops. While you at it, plan a couple days in Branson, Missouri (about 1 hr drive), hit the Silver Dollar City which the kids and wife will love (a historic 1890s recreated village), and check out the sights around Hwy 76 in Branson. Typical mini-golf, go-carts, and hotels are plentiful and cheap. Plus Table Rock Lake and Lake Taneycomo have very nice hiking and boating excursions.
Good luck - I love that area and wish I was able to get away for a couple days.
I smell spam.
No, it’s all good advice (that was asked for). I second your advice Moman. I just went to a X-mas show in Branson the other night. We saw several large developments that were getting started there that should bust soon. It’ll be interesting to see what happens to Branson area with the recession since it all is tourist dependent income there.
Thanks for the advice. Mapquest puts it at 460 miles and about 9 hours drive for me from Central Texas to Eureka Springs which is closer than New Mexico. The only Arkansas I’ve ever seen is what you can see from the freeway driving through on I-30 to points further east.
I was a graduate of Rogers high school in 1985. My parents still live in Bella Vista and work in Bentonville. I managed to escape their bubble and land in Southern California (their bubble wasn’t big enough for me).
Wal-Mart is the driving force behind the economy, and they did recently institute a policy requiring their suppliers to come to them in Bentonville. The perception was that this would create perpetual growth in commercial and residential real estate. Everyone felt like they had a green light. Combine that with “loose” lending practices and you have the makings of an epic bubble.
If you want to see crazy land use patterns, fly into the Northwest Arkansas Airport and note what you see as you drive into Bentonville. There are hotels surrounded by pastures with cows grazing. A few miles later you will see isolated residential and commercial subdivisions interspersed with more cows. I’m not talking about the occasional infill site used as a pasture; I am talking about the occasional pasture developed as real estate. There is not sufficient public infrastructure to keep up with the pace of private development, and the land use regulations haven’t managed this growth efficiently. The place is a mess akin to the Houston suburbs.
Maybe the bubble bursting will be a good thing. They should have time to review their mistakes and manage growth better.
Wal-Mart is the driving force behind the economy, and they did recently institute a policy requiring their suppliers to come to them in Bentonville. The perception was that this would create perpetual growth in commercial and residential real estate. Everyone felt like they had a green light.
If you want to see crazy land development patterns, fly into the Northwest Arkansas Airport and note what you see as you drive into Bentonville. There are hotels surrounded by pastures with cows grazing. A few miles later you will see isolated residential and commercial subdivisions interspersed with more cows.
(I posted this earlier up too, but it’s relevant here)
Every company from P&G to Nestle to Gerber foods and Oracle has built an office in Bentonville to please the WalMart gods. Next month will be the 7th consecutive year that WalMart stock has been flat ($69 in 1/00, $46 today). There aren’t too many millionaires being minted in Bentonville at this time.
It’s going to get worse too. As the pressure builds on WalMart’s poor sales there will be less procurement of goods from the exact companies that have built offices in the area. It will be a ripple effect as people are released and sell to move out of the area to find a new job.
The real reason for the runup was due to the first wave of millionaires in the 80’s-early 90’s. I worked with people who started as janitors and retired with $300k in profit sharing alone. That kind of feat is impossible today. Matter of fact, it’s often better to forefit the profit-sharing 7 year vesting time to quit the company multiple times to work your way up the salary ladder.
I can’t see any way in which the best days of WalMart aren’t behind it, and as WalMart goes so does NW Arkansas.
I posted a couple of weeks ago about my mom and dad having sold a vacation home in Bella Vista 3 years ago. Another factor that might have added to the commercial and residential real estate bubble in NW Ark is that one of the big banks (Arvest) in the area is owned by a member or members of the multibillionaire Walton heirs (at least this is what I’ve heard from hearsay). A potential pool of multiple tens of billions of dollars looking for a home can create a heck of a local credit bubble, Fed or no Fed.
Oops, I guess I should have read the article before posting. It confirms Arvest is owned by the Walton family, but says they didn’t participate in the “riskier lending.” Yeah, right.
“Mark Ryan, the executive vice president and loan manager for the Rogers branch of Arvest Bank, the largest bank in the region (it’s controlled by the Walton family), maintains that Arvest anticipated the slowdown and did not participate in the riskier real estate lending.
“We started becoming a little more aware of the increasing supply in the residential market,” Ryan said. “This was 12, 18 months ago. … We did change our lending approach fairly early on to be a little more selective as far as the areas we were loaning money, in different subdivisions. There were some of the other banks that were more aggressive after those types of loans than we were.”
I hope these developers go down in flames. Yeah, greedy people bought these places, but the developers are the ones that recognize cheap money first and do a “build it and they will come”, and in the process eff up really nice open spaces and totally overbuild places that were once nice and relaxing. That’s one of my big reasons for saying bring it on. That and the fact that savers always get screwed in these instances, even though savings in the only real way to create wealth on an economic scale.
Only problem is we’ll still be left with these eyesore developments all over the country.