“In The Midst Of A Correction” In Massachusetts
The Worcester Telegram reports from Massachusetts. “In times of tough housing markets, the remodeling industry has historically seen a boost as homeowners tap into their equity to fix up their properties to sell or meet their changing needs. But after years of double-digit home price appreciation, the market is in the midst of a correction.”
“Area home prices have dropped more than 4 percent since the first of the year, and Central Massachusetts remodelers say their jobs have slowed down or been scaled back from what they were even a year ago.”
“‘I’ve seen everything since the early 1980s,’ said William J. Morin, owner of Bill Morin Construction in Northbridge. ‘I’ve been through three recessions. I haven’t seen it this bad. I would average almost a call a day, but now I’m not getting a call a week.’”
“Guy A. Webb, executive director of the Central Massachusetts Builders Association, said some homeowners who would pay for remodeling projects with their home equity have probably already used it for other things.”
“In his own contracting work, Mr. Webb said, more than half of his customers used the equity in their homes to pay for their projects. ‘Tapping into equity is very common,’ he said.”
“‘I think my membership is pretty well-prepared for this,’ Mr. Webb said. ‘They scaled down their operations already. I assume some let go of some employees. A lot of builders and remodelers…just use subcontractors now. They’re just calling them less.’”
“Kenneth R. Gaumond, owner of New Surroundings in Auburn, said the housing market correction has not resulted in more home improvement spending, as it had in the past. ‘Spending is down everywhere,’ he said. ‘People are still more likely to adapt their home to their needs. It’s not scaring people away from projects, but they’re scaling down their wish list.’”
“During the housing boom, homeowners took advantage of their growing equity, using home equity lines of credit for college expenses and purchases that could be paid off more cheaply than with a credit card’s higher interest rate.”
“‘They’re continuing to borrow, but at a slower pace,’ said Gus Faucher, director of macroeconomics at Moody’s Economy.com. ‘Price growth (in homes) has come to a halt. People have been borrowing against their equity. And there is less equity. People are strapped. There’s less ability to borrow.’”
“George Yacik, a VP a New Jersey firm that studies the home mortgage market and home equity lending, said the dollar volume of home equity borrowing in the Worcester area is about half of what it was last year. Dropping house prices have an effect, too, he said. ‘That certainly plays a role. Their equity is not growing like three to five years ago. People have been tapping their equity all along.’”
“Walter Plew, owner of Gemini Home Improvement in Worcester, said that with the slow market and oversupply of houses, there is evidence they may be doing less. ‘Last year and before, with the market up, there was more money available to spend,’ he said. ‘They’ve dropped doing the big kitchen and bathroom. For now, they’re doing painting.’”
“‘The lumberyards, Home Depot, the subcontractors, they all say it’s dead. Builders are going into the remodeling business. That was always the golden egg when home sales dropped off. There’s a lot more people in the business now,’ Mr. Morin said. ‘Mr. Morin, who has been in business 21 years, said the volume and scale of his jobs now are less than in previous recessions.”
“‘In the past, when new construction slowed, home improvement increased,’ Mr. Morin said. ‘Now, new construction and sales of existing homes are in the gutter. Values are dropping as well. Home improvement is off. People have less disposable income than they had five years ago. I make less money now than I did five years ago.’”
The Salem News. “People continue to flee Massachusetts and men are increasingly leaving the work force, trends that threaten the long-term health of the state’s economy, a new report says.”
“Massachusetts lost 233,000 people between 2000 and 2005 to other states, according to the report by MassINC. Massachusetts’ high costs, particularly its high housing costs, are driving many people out of the local work force and into other states, Bowles said.”
“‘Affordable housing is a critical piece of the puzzle,’ said Ian Bowles, CEO of MassINC. ‘Housing is a big issue.’”
“Laurence Gross, an economic geographer at Salem State College, said Essex County, because of its proximity to Greater Boston, has seen home prices rise. And rising home prices discourage businesses from locating in Essex County and creating new jobs.”
‘The Worcester Telegram reports from Massachusetts. “In times of tough housing markets, the remodeling industry has historically seen a boost as homeowners tap into their equity to fix up their properties to sell or meet their changing needs. But after years of double-digit home price appreciation, the market is in the midst of a correction.”’
Too bad the remodeling money was already spent at Starbucks and Walmart…
You mean a latte costs that much these days?
No, I mean a latte a day costs $1000/year these days, and the home-equity-cashout-financed junk which fills homeowners’ garages costs many $1000s.
That’s it, Starbucks is to blame for the bubble!
Seriously, we all know people overspent. I use Starbucks as an inducator of true economic health. Guess what, they’re profits weren’t so hot last quarter. My bets for this quarter…
Let’s just say I’ve noticed my line get shorter.
Neil
Lines in NYC still out the doors and these lines move quickly. I don’t know, I am starting to feel this will never end. You know how laughable “taping my equity” sounds. It is debt and people don’t get it - when did this happen? When did increasing your mortgage and debt become the norm? I am stunned.
“During the housing boom, homeowners took advantage of their growing equity, using home equity lines of credit for college expenses and purchases that could be paid off more cheaply than with a credit card’s higher interest rate.”
Question for those with long memories: Was home equity cashout-ATM financing allowed in past booms? Or is it different this time?
Could it be that the reason there is no remodel ‘golden egg’ this time is that the work has already been borrowed from the future? Many posters here in 2005 complained about not being able to get contractors to return calls, etc.
The guy who (finally) did my contracting work in 2000 is desperate for work (we even searched around for projects for him, a good guy). But he’s been in scrambling mode for over a year now and had a property he rehabbed on spec foreclosed.
Ben, from my experience a lot of money has just been blown. In the last few years I have beek given so much furniture by customers who change it on a whim because they are buying it with what seems like monopoly money.
Latest was a $4000 leather sofa that wasn’t wanted anymore because the leather faded and didn’t match the room anymore.
waahoo,
I read this weekend that remodel/additions is much larger, dollar wise, than new construction. Is that true and if so, have an idea of a ratio?
Ben,
If you are asking if remodeling is more expensive than building new on a sq/ft basis then generally yes it is depending on the job because in a remodeling job of any size you are paying to take something apart in addition to paying for what amounts to new construction. Invariably you run into something old, faulty, or no longer in compliance which just adds to the bill.
If you are slapping a coat of paint on a house like they do on tv then remodeling is cheap. If you are going to do it right and bring the entire structure into the 21st century then it can get expensive.
Don’t have a ratio as it really swings from job to job.
I would believe it. Everyone is getting their sh*t ready for the spring sale!
Speaking of desperate for workers, last year we came home to a message on our answering machine from a stranger from a town over. They asked if we would supply a quote on their addition. I have no idea where they got our number. We do our own work on our house and my husband was in construction 12 years ago but really….they must have just seen the work on our house and asked the neighbors. Now that’s desperate!
Hey CA,
Over the past few years on every job we have 2 or 3 neighbors coming over looking for bids. But most were the type that were looking to quickly put X amount of dollars into there house so they could get double X on their next refinance.
If it was it wasn’t anywhere near as easy. When I last refinanced, in 02, Countrywide threw in an unsolicited 50k line of credit. Can it get any easier than that?
I have to believe it is faster and easier with today’s online access than it was in the 90s. I don’t recall being able to initiate a loan without having to go to a bank and spending a fair amount of time and effort just getting things started.
big blue- biz flee blue states and folks with $ head to the red states daily - I’ll never return to the NE
And those “red” states are progressively turning blue….
Perhaps a factor in the election last month was the amount of liberal blue staters that made their getaway, downsizing to the red states and changing voting patterns there?
The red-turning-blue phenom is definitely happening here in Arizona. It’s due to the influx of people from California and other blue states.
At least some good will come from this.
One can only hope.
This might help explain things. Unless one is pathological of course.
http://www.cedarcomm.com/~stevelm1/usdebt.htm
Great article RJ. I’m always amazed how republicans find the most evil kind of tax increase perfectly acceptable (hidden tax via borrowing plus interest), and turn right around and demonize those who are more closely aligned with their values.
Strange world.
Yes. Anecdotes confirm the little Boston housing market study done here:
http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=51443639&blogID=203867416&Mytoken=1CCFE906-E494-4CCF-B84CFB4C2F5211BA6803341
Sellers need to lower prices! Serous disconnect between asking price and bid.
““Massachusetts lost 233,000 people between 2000 and 2005 to other states, according to the report by MassINC.”
Using 2000 population figures, MA has lost 3.7% of their population, although that percentage probably contains a larger than proportional concentration of the educated and youthful workers.
The info seems to be growing more and more dire as we move forward….just as predicted.
I live in Massachusetts. You are correct, the segment of the population leaving is young, educated people struggling to start families. The loss population is offset with a tidal wave of illegal immigrants from Brasil. Other posters to this blog have made mention of the incredible wealth these immigrants bring with them and their desire to purchase homes here has kept the housing bubble inflated. Yes I am being sarcastic.
I think the young, educated 30-year-olds leaving to start families are replaced by the 22-year-olds from New Jersey and Georgia who come up here for college and stay for the lifestyle. It’s the undereducated folks who have no hope and are leaving for the south, and they’re not getting replaced.
That’s not a net number for population growth, because it doesn’t reflect births, international immigration, and possibly even the smaller number of people moving here from other states. Massachusetts’ population is up 50,000 since 2000, which is a pathetic increase but not a decline.
“‘The lumberyards, Home Depot, the subcontractors, they all say it’s dead….’”
Rippling carnage — the cold pond of housing pain is rippling wider and wider.
When you read the first article about past “cash-outs” of equity for spending on everything under the sun, and how it is hurting home remodelers now it makes you realize just how foolish people were with the equity in their homes.
This economy is slowing rapidly, just read the comments from Mr. Morin above. The stock market doesn’t see it yet, but the bond market does. I am very, very bearish right now. If we see a dislocation, maybe starting with the sub primes from last week, there will be a ton of hurt out there, much of it will be deserved, sadly.
the stock market is blind ?
it sure acts like housing is a pimple -popped and forgoten
That phenomenon is a result of Bernanke’s super-special-secret trading account that is set up to buy the s&p index like a m-fer whenever the market even thinks about slipping.
big blue- biz flee blue states and folks with $ head to the red states daily
I agree with Tarzan
“the housing market correction has not resulted in more home improvement spending, as it had in the past.”
This time is different. In the past, downturns meant “move up” buyers remodeled instead.
Perhaps late 2007/early 2008 is a good time to look into that remodeling project I’ve been putting off.
My explanation would be that an awful lot of the remodeling that took place in 2003-2005 was connected with flipping. Since flipping has lost its luster (at least for the sane), a large segment of remodeling demand is gone gone gone.
Agreed. I’ve been wanting to fix up my place. A few months ago I couldn’t get anybody to even return my calls, much less give me an estimate.
A few weeks ago a contractor I spoke to at a home show started calling me about my kitchen remodel. I told him I’d wait until prices dropped.
It’s happening… let the tax payer bailouts begin. Congress just passed a new tax law that allows mortgage insurance premiums to be tax deductible. For now, this new law is only for 1 year, tax year 2007. Also, it has somewhat strict income limits. Who wants to bet that this will end up being extended and income limits raised within the next couple of years?
http://money.cnn.com/2006/12/09/pf/taxes/tax_extenders_passed/index.htm?postversion=2006120910
i work in sales of brick and building materials in ny, my company has a home office in mass and they have much slower than my office.
we have seen a slowdown except for a few of the lines we sell which are very popular in the asian and russian communities
the mass office is very slow on the commercial and residential side
In the course of my business, I am inside a GE sealants plant almost once a day. Nobody has ever seen it so dead. Most employees are kept busy doing odd jobs cleaning up the plant, pulling weeds, etc. It has been like this for about 3 months now with no end in sight. The place used to really boom for the last six or seven years. The plant produces silicone caulk (in tubes) used mainly in construction and the products are distributed nationwide. Not looking too good from that perspective
Busy work. That sounds just like Texas as the 80’s bust set in.
Just wait. GE is a very numbers driven corporation. They will lay off.
In a way, this is like 1929. Companies had struggled for so long to catch up to demand that they weren’t willing to let employees go for fear they couldn’t replace them once the uptick returned.
Sadly, they won’t hold onto the employees as long this time. We are in for a really bad recession.
Neil
Having grown up in the Salem area, I was almost schocked when I visited a few years ago. The old triple deckers in Salem and Lynn, which were worth $40 or $50K back when I was a kid, had been retitled as condominiums and were selling for $250 to $300 per unit.
I lived in Salem for a bit in the late 80s. Three young professional women renting the 2nd and 3rd floors of a nice, gigantic Victorian. A merchant marine and his girlfriend owned the home and lived downstairs. I could look down the street from the front yard and see the boat I learned to sail on in its slip, the harbor about 10 houses away. I only paid $350/mo for that memorable location (’course that was in ‘88 dollars!). It is really pretty sad that the specuvestors came in and took those opportunities away from today’s young workers.
I live in Central Mass and the prices are Outrageous. They are coming down but still too high for a first time buyer. My wife and I have been thinking about moving to a more affordable state, seriously , if MA housing does not come to its senses and become affordable again people flee here in greater numbers. One problem : all-knowing sellers will have to wait longer/indefinetely until their FB prince on a white ass shows up again.
It is very frustrating.
Hang in there. Someone posted the median YOY numbers from Florida this weekend - down 20% in many places, a whopping 44% in Ft. Myers/Bradenton. When the dyke breaks in Massachusetts (again), you will be shocked at what happens. Be patient.
The 44% in Ft. Myers was a statistical anomaly resulting from Hurricane Wilma’s effect on filings in October 2005.
So, my HELOC balance and cash flow are healthy and we’d like to redo our kitchen next year. How do we take advantage of this situation?
Negotiate. Whatever price you’re offered for the remodel, cut it. Not by a little, but by a lot. If you offend the contractor… go to the next one.
Neil
They could make housing more affordable by giving subsidies to the homebuilders. I’m sure the HB’s would pass along the savings to their customers.
Another option is to start handing out option-ARMs to the poor and working class.
How about more innovative and creative financing such as the 100-year mortgage? We could even go with the 200-year mortgage for immigrants and non-whites to make up for our racist past.
I posted this comment (somewhere recently)
I think the only buyers left in the Boston area are the young professionals. As a 26 year old engineer, I don’t make enough money to buy a decent home, all I can do is rent and save that little extra for a downpayment. And whats even scarier is that I know most of my friends (20-30 people) are doing the same thing, sitting by the sidelines.
Rents are surprising dirt cheap but with starter home around $350k-400k, we will rent till it we spend 2-3x our salary, not the current 6-10x levels. And the way things are going in Boston (13% YOY price decrease), its going to take a while and you know what, we are ok with that. During my open house visits, I would say 75% of the people looking are young professionals.
With every real estate bubble, you see generations driving that market. The 80s it was the baby boomers (like my parents), making good money and spending it on housing. The 2000s it was generation x, spending everything just for a piece of the American dream (and make some money on the side). And now my generation, the late 70’s and early 80’s kids, the last batch before the “catered generation”. Trust me, I can’t stand that generation but maybe because im getting old. Alot of my friends are getting married soon and starting to have families but honestly they cant afford to raise a family here and probably move somewhere more affordable.
They can go and build all these active senior communities to take care of the baby bommers but when are they going to start building “young professional” communities?
“They can go and build all these active senior communities to take care of the baby bommers but when are they going to start building “young professional” communities”
they all ready have built these places, you just have to a professional idiot to buy one
6-10x income is standard these days, just think in 10years it may not be that much of a payment, i know you want to spend 10yrs in a 600sq ft box with granite counter tops,they can double as a changing area for jr.
prices have fallen a bit in boston (about 10%) but seem to have halted for a moment. i think we might go down another 10% before we see sales pick up again.
RCG drops project plans:
http://www.boston.com/news/local/articles/2006/12/10/rcg_drops_project_plans
Background: RCG is a developer that originally bought the old Salem News building (empty for nearly 20 years) and then bought up other buildings downtown. They then wanted to make a *huge*, tall complex in downtown Salem, out of all their properties. Nobody liked the idea. Since we didn’t roll over, we’re now NIMBYoids and they are out. “Economic conditions”, sure.
If they hadn’t been such greedheads and stuck to developing the Salem News site, they would have been fine (IMHO that property SHOULD be redeveloped.)
Instead they should thank the residents of Salem for saving their asses, keeping them from going Chapter 7 with a half-built monstrosity over downtown. (Salem had a half-built strip mall off Highland Ave. in the last recession, not that the current gov’t wants to remember that…)
Here is something interesting
http://www.wtop.com/?nid=111&sid=911314