“Sellers Cut Prices While Buyers Bide Their Time”
The Capital Times reports from Wisconsin. “Talk about a tough term as president of the Madison Area Builders Association. Chad Wuebben has spent the past 11 months as front man for the industry trade group as builders suffer through the worst period in over a decade.”
“Just 1,321 permits were issued for new single family homes or duplexes in Dane County through the end of November. That’s down 39 percent from last year and barely half the number of housing starts during the 2003 peak. In fact, 2006 is shaping up as one of the toughest years in memory. And nobody seems to know where the bottom is.”
“Not that a lot of people weren’t warning the housing bubble was going to eventually burst. Madison proved that it wasn’t bulletproof after all and Dane County is now among the most stressed markets in the upper Midwest.”
“Wuebben is convinced the worst is over. ‘I’m not just blowing smoke,’ Wuebben said last week in commenting on the dismal construction numbers. ‘Honestly, I’ve been getting more calls in the last three weeks than in the last three months. I really expect this is going to turn around by spring.’”
“First, however, the real estate industry must deal with a record number of homes for sale, or ‘excess inventory’ as the professionals put it. There are more than 5,200 homes listed for sale in south central Wisconsin, more than twice as many on the market as two years ago.”
“So why do economists worry so much about a slowing housing market? It’s all about consumer psychology. When home values are falling, property owners feel less wealthy even if they are not buying or selling in the near future. So they tend to spend less.”
“Bruce Bittles, chief investment strategist at Robert W. Baird, in his 2007 outlook warns that if the housing plunge continues it could cause ‘a highly-leveraged consumer to significantly reduce spending.’ In other words, there is real risk to the U.S. economy since many Americans are already living beyond their means on money borrowed against inflated home values.”
The St Paul Business Journal from Minnesota. “The housing market continued to sag in the Twin Cities in November, as sellers cut prices while buyers bided their time.”
“Pending sales remain stubborn for the year, down 14.61 percent from one year ago. The change in pending sales from October 06 to November 06 was minus 11.14 percent, the lowest reported month-over-month decline since November 2000.”
The Associated Press reports on Illinois. “It was a rare occurrence in a community with a national reputation for tearing down old houses: A developer bought the historic cottage at 327 S. Oak St. but didn’t bulldoze it into oblivion.”
“The norm in this leafy Chicago suburb and affluent communities around the country has been to allow builders to demolish older homes to make way for far larger, far flashier houses, dubbed ‘McMansions’ by critics.”
“But a teardown tide that surged for a decade has begun to turn, largely due to a housing-market slump.”
“As a five-year real estate boom fizzled this year, teardowns plummeted by at least 20 percent nationally, roughly corresponding to the drop in housing starts, said Stephen Melman of the National Association of Home Builders.”
“National teardown figures are not compiled and difficult to assess, but the National Association of Home Builders has estimated that 75,000 houses are razed and replaced with larger homes annually. The National Trust says Chicago’s suburbs, California’s Bay Area, Palm Springs and neighborhoods around Washington, D.C. are among the hardest-hit areas.”
“The potential profits of teardowns simply are too attractive to dissuade developers for long, said Daniel McMillen, who heads the Center for Urban Real Estate at the University of Illinois at Chicago.”
“‘I think some people might argue that the teardown market was a bubble and now that bubble has burst,’ McMillen said. ‘But I don’t think that is the case. I think the teardown market will bounce back.’”
‘Honestly, I’ve been getting more calls in the last three weeks than in the last three months.’
Somebody should tell this builder that starting up a bunch more houses isn’t exactly going to solve anything.
‘When home values are falling, property owners feel less wealthy even if they are not buying or selling in the near future. So they tend to spend less….In other words, there is real risk to the U.S. economy since many Americans are already living beyond their means on money borrowed against inflated home values.’
Sounds like they need to spend less if they are ‘living beyond their means on borrowed money.’
Many posters from the Chicago area have complained about the tear-downs there. Glad to have found some good news for you.
‘When home values are falling, property owners feel less wealthy even if they are not buying or selling in the near future. So they tend to spend less….In other words, there is real risk to the U.S. economy since many Americans are already living beyond their means on money borrowed against inflated home values.’
There is also a real risk to buyers of catching a falling knife.
I don’t have a problem with teardowns per se. There’s certainly some stuff that deserves to go. What bothers me is when perfectly good, well-built stock is torn down in favor of overpriced, featureless boxes that take away from the character of a neighborhood rather than add to it.
A really nice, 25 year old house was just torn down a couple of blocks from me because it could just barely be made into two lots. Lots are for sale.
They really don’t have land in Flagstaff, so maybe your prices are going to hold better than others. I had an account that was a small builder and he said (about 2 years ago) that he was going to have to start building out of the area because there weren’t any lots left.
You wanna see some revolting teardowns, try the Lower Greenville/M Streets area of Dallas. Houses in that neighborhood never exceeded the high 300s on the very top, ultra-renovated end. Now you have the smaller houses being torn down and replaced with what I can only describe as monstrous housing mongrels of unknown origins (easily 2-3 times the size of the original and surviving houses). The Heinz 57 of residential architecture. And these eyesores are marketed at double the highest prices ever seen in that neighborhood. I am seeing some come back on the market now and my guess is, when they finally resell, it’s gonna be pretty ugly. People who live in that area (younger professionals with small kids, if any, because the schools are awful) aren’t the market for 600-700K houses.
Maybe someone in construction can explain why there is so much profit in teardowns replaced with McMansions?
Ben, when you renovate something you usually end up with near the same sq/ft but with cost of demoing it gently (which takes time) added to the cost of replacing with new. + you are stuck with an older layout which generally isn’t the open variety now in vogue.
For the cost of a few dumpsters you get a clean slate which you can max out in ugliness for max sq/ft selling price.
For the cost of a few dumpsters you get a clean slate which you can max out in ugliness for max sq/ft selling price.
lol
Lately I’ve started actually looking at the new construction in my area…from the outside, anyway. Teardown, or no, some of them are massive homes…6000sq ft.+. The home I sold last year had 4000sq. ft. of livable space, and it was more than adequate for my small family. This weekend we looked at a development of HUGE homes, plopped down in an area of established normal sized SFHs. My SO and I wondered how many people actually lived in those places. In other words, the American Family is shrinking, but we require more sq. footage per person? BTW, the median income in that area does not support the carrying costs for those dinosaurs of the future.
I was always in the more ground, less house camp anyway.
In Dallas a fad in the “more money than sense” crowd is the “gift wrapping room.” Can you imagine the wastefulness?
Seriously? That is INSANE! A “gift wrapping room”? C’mon you’re kidding right? Is it just down the hall from the “fudge packing room” they’re going to need when their IO goes re-set?
txchick, at least it’s a nice gesture to wrap outrageously expensive gifts you bought with your HELOC in a specially done room. Here in California, some people CAN’T LIVE without a media room.
cassiopeia,
Well exactly. I have a “media room”. It’s called my “home office” and it’s where I work…… for a living? Besides the avg. guy in CA is spending so much time working 2 1/2 jobs and commuting when would they ever be able to enjoy it?
Phillygal,
In my opinioon these 6000 sq/fters were built tomeet the demands of flippers looking for the biggest bang for their flipper buck. Even if it was a person who didn’t openly plan to flip their house somewhere in the back of their mind as they gave the nod to the architect was the rationalization that it was going to cost them money in lost potential if they built too small.
As for the specialized rooms, don’t they say that in nature, over-ornamentaion is the first sign of impending extinction?
Out here in Venice, you’ve gotta have a “yoga room”.
And that in a nutshell is the difference between LA and Dallas. Not to say one is more worthy than the other but it is funny to think about.
A lot of these tear-down artists do this over and over again, so once you have your Home Depot Mediterranean building plans in place, your crew of illegals, and once you know where to get all the materials as cheaply as possible, you might as well maximize square footage because, for all the bluster about quality and style of housing, square footage is, unfortunately, what people ultimately pay for. For the same lot, where your building costs are 250/SF and sale price is 350/SF, that extra 1000 SF or whatever puts a lot more green in the flipper/investor’s pocket. To hell with the neighborhood.
next year’s trend - suicide room
Panic room. LOL
Out here in Venice, you’ve gotta have a “yoga room”.
Here in Van Nuys, the call it ‘the back yard’…LOL
Seems that people in Westside L.A are doing their level best to shoehorn 6000 sq ft monstrous ‘Tuscan Mansions’ on lots that formerly had sweet, if slightly rundown Californian Bunglaows/craftsman.
I sigh sadly as I scroll over them on ZipRealty. They’re uniformly hideous.
Bring back the refurbished 1200 sq ft cottages with all the original fixtures, and for the love of all things holy, stop tearing them down to build faux-chateaux that no one will ever be able to live in.
BTW: I wonder if ZipRealty will ever have a ’square footage LESS than’ search tool…
Out here in Venice, you’ve gotta have a “yoga room”.
Here in Van Nuys, they call it ‘the back yard’…LOL
Seems that people in Westside L.A are doing their level best to shoehorn 6000 sq ft monstrous ‘Tuscan Mansions’ on lots that formerly had sweet, if slightly rundown Californian Bunglaows/craftsman.
I sigh sadly as I scroll over them on ZipRealty. They’re uniformly hideous.
Bring back the refurbished 1200 sq ft cottages with all the original fixtures, and for the love of all things holy, stop tearing them down to build faux-chateaux that no one will ever be able to live in.
BTW: I wonder if ZipRealty will ever have a ’square footage LESS than’ search tool…
appols for double post
Well, it also is useful for putting a massage table in and doing massages, acupuncture, energy healing, etc… at home (which Venecians are frequently trained in or have friends over who are trained in), and you can also use it as a shrine room/meditation room. I’m a Venecian and my girlfriend and I have frequently wanted such a room ourselves. We have to squeeze into our guest room/office for these things and it is difficult…. Well, we do have our priorities here!
I think the high profit margin has something to do with stupid people buying more house than they can afford and lenders giving them enough rope.
“isn’t the open variety now in vogue”
Well I have to agree with that. At least for the short term. I get a feeling that owning an early American “masterpiece” such as a McMansion will fall out of favor A LOT faster than we fell in love w/them! With all the debt, taxes, maint. + utilities “small spaces” will be all the rage in NO time!
I can understand doing tear-downs where it really is needed, after all no house will last forever. What we’ve seen in OR though is bulldozing perfectly livable homes simply b/c they HAVE fallen out of fashion and of course to maximize profit.
Hey DinOr,
I see alt of these being divided up into multi family house once someone actually hast to heat and cool them with real money just like the Victorians around here are.
Plus. At least in my neighborhood, there are a lot of rules that demand expensive upgrades to new codes once you renovate a certain % of a structure which gets expensive quickly and really doesn’t increase your sale price as most buyers wouldn’t know the difference.
Typical of my neighborhood:
1. Purchase old 1700 ft scraper on 7K ft lot for %1.7 million ($1K/ft)
2. Tear down scraper, build 4K ft McMansion on lot.
3. Sell McMansion for $4.0 million ($1K/ft). Profit!
Before 2005, in an older, ‘high-end’ town, you could buy a house for $800K on .5+ acres, tear it down, and build a $2.5M+ house.
Lots of profit, if you’re in the right part of the market cycle (i.e., before 2005).
Saw a bunch of these sell (not McMansions, but mansions) in the last few years, but now see several builders who missed the market, and are sitting on wallet-sucking debt (carry costs, taxes) for many months.
They may eventually break even, if they’re lucky, having worked a year for nothing.
A friend of mine just got out from underneath one. Figures he made about $8 an hour.
In places like Newton Ma its simple. You have a relatively tiny or simple home on a reasonably big plot of land built in the 50s. The land is worth far more than the humble house and trying to make additions to a funky structure isn’t worth it.
Now, of course, even this can be taken to an extreme and I know of one, very smart, builder who deliberately got out of this business (after making a fortune doing it) this spring. Most people see something “work”, imitate it, and then get bolder and bolder until…..”pop” the game ends. Few are able to pick their heads up and get some perspective in the midst of making a bundle. Those that do (like that one builder now on the sidelines) will simply pick up the pieces and make another fortune…a few years down the road.
Ben, good news will be when those McMansions are selling for .50 on the dollar.
median price reductions: should we multiply by 2 or 3 to get accurate results ?
SFH off 4%
where ? I’m off 10-12%
4% is nationwide
“Wuebben is convinced the worst is over. ‘I’m not just blowing smoke,’ Wuebben said last week in commenting on the dismal construction numbers.
Ok, Chad, what else *are* you blowing?
There’s also money to be made in teardowns in places where there aren’t a lot of empty buildable lots–a lot+house may actually cost less than an empty lot. Just recently, a guy here in Brooklyn paid $11 Million for a house he promptly tore down and replaced.
Peruse the “for sale” listings on the National Trust web site, and you’ll see some old houses that people are literally giving away if someone is willing to pay to move them to another location. Norfolk, Mass., is offering historic houses for $1 if someone will move them and save them from the wrecking ball.
Link, please?
Thanks!
Meanwhile the Fed left rates unchanged. They’re paralyzed by conflicting forces: lower interest rates to save housing, and they’ll tank the dollar. This is going to get ugly. Time to buy gold and silver.
Yep - we’re headed for something pretty nasty. And slightly OT, but gold did go up in after hours once the fed news came out.
“Wuebben is convinced the worst is over. ‘I’m not just blowing smoke,’ Wuebben said last week in commenting on the dismal construction numbers. ‘Honestly, I’ve been getting more calls in the last three weeks than in the last three months. I really expect this is going to turn around by spring.’”
If “they” keep saying it will turn around, then maybe it will happen?
But I doubt it. GFs must be extremely scarce given a collapsing subprime lending sector plus growing awareness that prices are falling in almost every place in the USA where new homes are built.
When I sold my Madison house in 2005, there was a huge condo development going up nearby. I loved that neighborhood (walk to library, walk to groceries, walk to hardware store), and if the job deities smile I’ll live there again soon — but I wouldn’t buy there on a bet unless I was looking at 40-50% off current prices. Not until the supply and the socioeconomic changes involved in urban infill shake out.
“So why do economists worry so much about a slowing housing market? It’s all about consumer psychology. When home values are falling, property owners feel less wealthy even if they are not buying or selling in the near future. So they tend to spend less.”
It ain’t just that — there’s nothing psychological of cashing $100,000 in bubble money out of your house for plasmas and Hummers.
$100,000? That’s child’s play. Try $190,000, like our poster-boy for busted boomer FBs, Will Hertzberg
I like that he’s only going to start worrying when he goes YOY negative. Looking at the LA times zip chart on dataquick, all but one zip code in Corona (3 out of 4) was already YOY negative in October. Best of luck there, Will. On the other hand, I do feel for the guy. He doesn’t seem to have gone quietly into the night. He does seem to be paying attention to his bescrewededness and puzzling appropriately over a solution.
This guy is a complete ass. First he blames his mortgage broker and then hopes for a 50 year loan to let his kids pay off.
There is no sense of responsibility. He is a poster child for older people that demand their social security and medicare in full while fighting any reform that would give a decent break to their kids and grandkids. This selfish mentality is one probable reason for depressions. It cleans out this kind of dead wood. We had them in 1780’s, 1840’s, 1890’s, and 1930’s….2007-12? Perhaps war and depression have been banned due to the wisdom of government?
metalinguistical ponderance: do people ‘bide’ anything other than time?
bide your dongue? -
From Clark Howard’s Message Board,
“Our bank has been shopping mortgage rates for a couple weeks now. Due to my husband’s short credit history, and FICO score of 536, the best our broker could do is come up with a short term deal:
For the sole purpose of getting us in our home asap (this is our first home, we’ve been renting), she wants to set us up on a 50-year mortgage at 10.75 APR. She tells us that this is only going to be temporary, and within 6-12 months, after establishing a payment history, his credit score will go up and we’ll be able to refinance at a lower, more conventional fixed rate.
I should also note, we’re being financed 100% as the seller has agreed to pay closing costs and our insurance is included in the mortgage payment.
Is this a wise decision, or should we have her pull the paperwork (already been sent to underwriting) and cancel our closing date while we continue to shop rates and/or lenders?”
Another 1st time buyer genius…….
I have a dream…I want to tear down one of those montrous, gaudy, McMansions and build a cozy little Craftsman in its place.
Recently went on a business trip to Springfield, VA. It’s garish to see neighborhoods of 1940s shotgun shacks punctuated by huge, gaudy McMansions in various faux-pretentious styles.
‘Honestly, I’ve been getting more calls in the last three weeks than in the last three months…’
Okay then, but you shouldn’t count the calls you’re getting from your creditors - that only confuses the issue.
dd
LQQKS like Madison, Wisconsin finally milked the sheep..$-#! Ooops my Bad !.. COWS Dry !