Looking For Housing Bubble Gold In Middle America
The LA Times reports Californians are still looking for housing bubble gold. “Californians, unable to afford the already mightily appreciated residential property market here, are taking their investment dollars elsewhere. Small investors are heading for the plains of Texas, the coasts of the Carolinas and parts of Georgia and Idaho in search of tomorrow’s realty geysers.”
“Killeen-Ft. Hood, Texas. For $80,000 to $100,000 and nothing down, you can buy a three-bedroom house and rent it out for about $800 a month to one of the 8,000 transfers coming to the Army post, thanks to base closures elsewhere, says Realtor Ann Elizardo-Shreder. But before you don your camouflage fatigues, take note. Although 8,000 soldiers are being transferred in, 9,000 are being transferred out.”
“But is it a good investment? Housing in Killeen is very inexpensive, and if you can hold on for the longer term, it eventually could become a bedroom community of Austin. Remember, Riverside County wasn’t always considered a bedroom community of Anaheim.”
The Kansas City Star reports on one market in middle America. “After years of record-breaking home building and surging sales and prices, the Kansas City-area real estate market is awash in homes for sale.”
“Inventories for new and existing homes are at historic highs while demand is reverting to historic norms. The result is that homes are sitting on the market longer than they have in years, price appreciation is ebbing and stealthy incentives increasingly are becoming part of the negotiating process.”
“On the supply side, there were a record 21,104 new and existing homes listed for sale in April, a 30 percent increase from a year earlier, according to the Kansas City Regional Association of Realtors. That figure did not include homes being sold privately by owners. On the demand side, the Realtors reported 3,090 closed sales, down 13.5 percent from a year earlier. The average sale price for a new or existing home in April increased 2 percent, to $180,128, from a year earlier.”
“Some industry experts have warned that sales competition would make it tough for people trying to sell larger, recently built homes near outlying subdivisions where similar larger houses continue to be built. That appears to be what is hampering the Kings in selling their home in Shawnee. ‘There are so many new spec homes sitting out there, which I think is hurting resell,’ Joey King said.”
“Tim Underwood, executive vice president of the Home Builders Association of Greater Kansas City, said builders had noticed the shift in the market. So far this year, permits for future construction are down 13 percent from last year, but inventories remain high. The local industry is coming off four consecutive years of building more than 10,000 houses annually.”
“‘The number of finished unoccupied homes is 35 percent higher than a year ago,’ Underwood said.”
“The local real estate market is adjusting to the new supply-and-demand equation. One early indicator is the appearance of stealthy incentives to attract buyers. Homebuilder Bruce Rieke, for example, is offering buyers a free two-year lease on a BMW 325. ‘There’s more competition than before,’ said Rieke.”
“Some see that as a buying opportunity, if would-be buyers can sell the houses they already are in. ‘Some of the consumers who haven’t bought the past four or five years will find better values, but their challenge is getting out of their existing houses,’ (researcher) Dan Whitney said. ‘Many have taken cash out of their houses by refinancing, and they don’t have as much room to negotiate a price.’”
“Real estate agent Teresa Booker detects a growing nervousness among some colleagues. ‘Some agents feel they’ve already hit a summer slump,’ Booker said. ‘People are best served by talking to agents who are candid, honest and realistic about the condition of their property. Then they’ll get accurate and competitive pricing.’”
“Kathy Copeland, the president-elect of the local Realtors association, said how well the local housing market does this year may depend as much on psychology as supply, demand and mortgage rates. ‘We need to be very positive,’ Copeland said. ‘If we believe it will slow down, then indeed it could. I’m telling agents it’s a very decent market.’”
Trouble looming as ARM increases kick in
http://www.dailynews.com/business/ci_3872887
Thanks for siting this article. I was especially interested in this:
” … the Washington, D.C.-based Mortgage Bankers Association released its weekly report showing that home loan and refinance activity fell 6.2 percent from the week before and 23 percent from a year ago.
The refinance share of mortgage activity increased to 35.7 percent of total applications from 35 percent the previous week. And the adjustable-rate mortgage (ARM) share of activity increased to 30.5 percent of total applications from 29.9 percent the previous week.”
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Hmm…Powerful stuff! Mortgage activity down over 6% in ONE WEEK! Wow!
And since about 2/3 is new purchase, that translates into home sales being down 4% in one week.
It is getting ugly.
Regardless of location, i think the FUEL to keep this fire burning (LOW RATES) is on EMPTY.
Especially SHORT term interest rates, which the speculators used to flip. Now adjustables are about the same as the 30 yr fixed. Hence, another flipper advantage has disappeared. Ben Bernanke to the rescue!
The LA Times is going to get people to thinking Californians are dumb. Check out these quotes:
‘The market in Boise is so hot that the local ReMax’s website allows buyers to make offers for properties online. OK, maybe it’s just potato-state optimism. As for his California clients, Phil Hoover, associate broker in Boise, says: ‘They think everything is a bargain when they see what we have here.’ The median price last year was $151,000, up 14.3%. So hurry.’
‘The government is the biggest employer, led by Ft. Gordon’s 16,000 military and civilian workers. An additional 27,000 retired military personnel and their families call Augusta home. The five-figure prices here will make a Southern Californian gasp like a guppy out of water.’
‘May, who has been selling real estate for 13 years and sees many Californians, Floridians and New Yorkers relocating here. They are priced in the mid to upper $80,000s for 1,200 square feet and rent for around $700. ‘These town houses aren’t even in the multiple list system,’ she says. ‘They sell out before they start building them.’
I would like to know who told the reporter that people may commute from Killen to Austin.
was hearing a bunch of californian transplants this weekend complaining that it is so much harder to profit off their house flips here in NC than it was in San Fran.
In my decade of living in Austin working at many different hi-tech companies, I know of just *one* person with that type of drive… his longtime family home is in Temple and he makes that drive everyday.
Before Austin suburbs spread out anywhere near Killeen, they’re going to expand out further to the east, the south, and the west. Unlike LA, there’s isn’t an ocean limiting growth to one direction.
Indeed. Just a few miles east of Austin it’s wide-open for development.
And straight-up against the prison system out there. Flat and boring as hell out there.
Hey there… I may have run into you at some point during my decade in Austin.
In order for Killeen to become part of Austin, it’s going to have an economy of some sort, not just sex work (cough, cough, excuse me, I got something in my throat). What happened when the oil bust came through? When the tech industry vomited? I recall that some of your buddies turned to pest treatment and building chimney mantles in houses that were going up by the hundreds in what was once beautiful country straight west of Austin. What’s there now, besides state employment?
Stephanie in Houston
“I would like to know who told the reporter that people may commute from Killen to Austin.”
Actually, I had an employee that commuted from Copperas Cove (Killeen suburb to south Austin for work everyday…90+ minutes one way. Ex-military who couldn’t bear to leave Ft. Hood.
Yeah, and I knew a lady who commuted 4 hours a day into and Dallas and back. Guess what? She couldn’t take it and quit. As one who had the pleasure of commuting on I 35, I can say that a 90 minute drive could be two or three hours, depending on how many wrecks happen that morning. And if ones boss expects a timely arrival, better leave early, every day.
This is so ludicrous as to be unworthy of discussion.
What’s next? Beaumont? Orange? You can get something REALLY cheap there if you don’t mind living next to an oil refinery or chemical plant that could explode at any time!
I hear you TX Chick,
There are probably a lot of real reasons (change jobs,etc.) that people end up with horrendous commutes, but the notion that a 3000+ sf Mc Mansion in BF Egypt is better than a 1500-1800sf house in town is a fool’s bargain. Sounds great until you do it year after year, winter, summer,etc. I have heard of people with nice commutes on busses or trains, where they can do something else (read the paper, wrap up work) but driving 2-4 hours a day seems crazy, unless you absolutely have no choice. Besides it screws up the countryside for everyone else in BFE. Don’t want to walk into the SmartGrowth buzzsaw here, but these sorts of commutes seem to just suck all around. Personally, economically, ecologically, socially (imagine how safe it is to share the road with some haggard viagra salesman trying to make a few last calls at the end of a 12 hour day), etc. Maybe $4/gallon gas will put the kybosh on such insanity.
I’m take 35 to work at 5:30 a.m. and I’m on my way home at 2:30 p.m. 90% of the time, it’s a fairly smooth ride, except for the insane I35/I30 mixmaster (what genius thought that up?). Of course, the other 10% of the time, some idiot has caused a 5 car pile-up and I have an unpleasant time. Remember, however, that I’m commuting on off peak times. If you happen to be traveling anywhere from 7:00 a.m. to 9:00 a.m. in the morning or after 4:00 p.m. in the afternoon, the traffic is almost as bad as L.A. - almost.
Yep, I am involved at hiring at my employer.
The quality of work with greater than 1hr commutes degrades significantly.
It is a hiring criteria, length of commute.
We noticed our neighbors up past midnight last night. They have no curtains on their new McMansion, and we noticed they were folding laundry. They have three kids ages 5 and under. He commutes to D.C. from Culpeper County, VA, which is 60 miles each way, on D.C. roads. (I am sure it takes 3-4 hours a day). She packs the kids up in the morning, drops them off at the babysitter, and teaches Kindergarten all day at a school about 45 minutes away. Also, they still haven’t sold their old house. It’s been on the market, oh, about four months.
But, they feel so wonderful, living the good life in their new McMansion. Every time they feel a little down, they can go in to their kitchen and stare at the granite counters or stainless appliances and all will be right with the world. If not, there’s always alcohol and prescription drugs.
Too much talk radio withering the brain on long commutes?
I see a major ass-whoopin coming for many of these ARM holders. These bozos cant afford a 27-year reg amort loan at 6.5% when their 3-year ARM comes due. There is no product that can save their stupid asses for long.
I agree, they won’t be able to refinance.
And judging from all the layoffs I’m hearing about in the LA and OC mortgage originators… even those that would profit off of issuing them a new mortgage seem to agee…
Neil
ps so many good new topics this weekend I’m having trouble going back and finding all of my old posts!
now Trump is running RE seminars informercials on TV - anybody see these?
http://www.trumpreg.com
That site only gives me a blank page. Trump should be smarter about the market outlook. But I guess if people are willing to pay good bucks to make him say what they want to hear, then why not take their money? Just be sure to include the fine print that past results do not guarantee future returns so he is not liable.
I saw some evidence this weekend that the out-of-state “investors” have come to Ithaca (Upstate NY). I was getting an oil change and this guy had a business card that he buys houses. Plus a lot of questionable properties that have been on the market for years are getting sold.
Poor, poor investors. Ithaca is death trap for out-of-town investors. Unlike Syracuse, the prices are not depressed. In fact, these days, they are down right ridiculous; no 3/2 for less than 200k unless you go way out of town. Hell, they only people that live in town work at either of the two universities. Everyone in the service industry commutes in from Elmira or Horseheads (think about that — commuting 30 minutes to work in area of
i hear Rochester is and has always been FLAT. and with NASTY property taxes. any comment?
Rochester is only a little better than Buffalo. And you all know about Buffalo.
Ithaca is the liveliest area in upstate NY. What the investors don’t know is that this is already factored into the price.
… less than 50k).
More importantly, because of the two universities, Ithaca is 60% rental properties (yes, you heard me right). Every other professor has a rental property. And they are very old buildings. So only people stupid enough to rent at the last minute will rent from non-professionals (when something breaks, I want the maintenance guy there in 30 minutes). No one will rent from a landlord that has no maintenance service (either professional, or the landlord himself). There is just too much choice in competition.
Finally, there is school tax. That’s an additional property tax on homes that is ridiculously high. Renting in older buildings is cheap, because their assessed value is so low, and so these taxes are low. New purchases, renovations cannot compete.
I have known parents to buy for their children in the Ithaca area thinking it was a great investment while junior was at Cornell. That’s a lesson you learn the hard way.
The equity locust scourge will continue to devour crops (small towns) until the lenders put the brakes on them.
Most of you have read the SDCIA board, many of these bozos have 10,11…14 houses and they GET the money to speculate with. This has to stop, it will take a financial dislocation of the magnitude of a couple of lenders going under for this to happen.
If it doesn’t happpen, this nonsense will continue.
I’m with you , the lenders have to stop it .
I agree, also. No end to the bubble until lenders apply the brakes. Question is: When will that happen? My fear is that it might not be for a while. I don’t see the Fed withdrawing liquidity, which means the banks still have lots of dough to lend. Why would the non-regulated mortgage lenders care how risky the loan is? They don’t, as a rule, hold the loan, and instead offload it to Freddie Mac or Mae, who in turn offload it to the Chinese, who still feel compelled to keep our economy afloat. Last month, the Chinese purchased $30 Billion in Freddie Mac/Mae securities. I thought to myself, “how dumb is that?”, but then came to realize it makes perfect sense.
Actually, upon further thought, there may be an alternative. Not all ABS go to the Chinese or overseas, obviously. Indeed, many ABS products are bought by municipalities and pension funds. Maybe when one of THOSE collapses, the boom will be over. But, how long? Foreclosure rates will have to go significantly higher than they are now, which might not be seen for another year. Sure, the rate of foreclosures are rising significantly quarter-to-quarter, but are still historically low, far from being economically significant. Very frustrating. I want to short the equity markets with both fists, but it would be easy to get killed on the timing. DOW 12,000 wouldn’t surprise me one bit.
Short the homebuilder stocks. They just erode and erode and erode. But they have a long, long way to go.
No. I agree with you that they are crap but this is not the time to short them.
No. I agree with you that they are crap but this is not the time to short them.
ooh, ooh!
The business section of the Ann Arbor News ran a big ol’ front-of-section piece on foreclosures being way up, and they gave a national stat too, showing Dallas and Atlanta and Indianapolis all in the top rankings as well! So, those areas where coastal bubblezone folks are looking for more ‘gold’ are already having affordability problems presumably. The piece mostly blames funky loans and the souring economy when speaking about MI itself, but I’m guessing that wouldn’t be the reason why Atlanta is tanking, or Dallas/Ft. Worth?
The piece blames resetting ARMs and such, but gives no numbers on how much of this huge increase in defaults is due to re-sets and how much to simply being too much payment for people even sans surprises.
This has been the one article that seemed to really chill hubby, hearing about 10-20 auctions a week at the Washtenaw County Courthouse, instead of the one a week the sheriff recalls being typical until recently.
here’s the link:
http://www.mlive.com/business/aanews/index.ssf?/base/business-4/1148811320191200.xml&coll=2
Here is another one of MSM idiocy from the OC Register.
Sorry no link only on the front page of the Sunday paper.
They break down the financials of a Toyota Prius compared to a Corrolla.
The article takes up 75% of the front page to studying the breakdown on a $25,000 Prius purchase with a $3,260 premium for hybrid after taxes and a 6 year simple payback at today’s gas prices.
The difference between the 2 automotive alternatives is roughly 13%. It is relatively easy to dig out of a $3,200 hole over a period of 5 years.
The OCR just ignores people are spending $1M on 50 year old tract homes that represents a lot more absolute dollars and the differential is greater too since I rent for an 81% discount to buying.
Some people will never dig out of the RE hole.
The excuse that financials bores the readers doesn’t hold water when they spend 75% of the Sunday front page to the payback finanicals of a Toyota Prius.
These guys are asleep at the wheel and about to hit a brick wall.
The hope in OC is that collectively all of the joe-sixpack dumbasses are too big to fail.
Like Ithica, my town is about 60 % rental, according to a recent housing study. Speculators have discovered it and are building rentals, primarily 4-unit buildings, at a rate I estimate as twice the rate of population growth. The listing of apartments for rent in the newspaper grows longer daily.
Ben:
I had a post on the PR barrage that this weekend brought from the RE industrial complex.
There were a couple of OCR links to RE puff pieces.
It hasn’t been posted.
Would you e-mail me privately the guidelines for posting with links so I don’t gum up your system.
Thanks.
OT a bit, but I think you guys will like Mike Shedlock’s (Mish) most recent post on his blog…I hope Liareah is out there lurking somewhere…
http://globaleconomicanalysis.blogspot.com/
They’re turning up in Portland, Maine more than I ever would have guessed. But they’re moving here and as far as I know they’re not coming here to flip. I’m thinking they made their money in their California careers and added to it with real estate investments and now the’ve come to a comparably inexpensive place to live on it and enjoy it. I’m a little surprised as you can’t beat California’s weather and you have to really be a four season type who dives into the weather, whatever it serves up to enjot Maine. A lot of consultants who work from afar. And many up here simply go south for a couple months in the winter.
I don’t think they’ll get rich on Maine real estate. But if this is the end game, what does it matter?
I saved a copy this Bay Area sale activity report from last July. As you can see from the current:
http://www.dqnews.com/ZIPSJMN.shtm
prices are up a tad yoy, as is the sf pricing:
San Mateo then : $559 sf, now $573
Santa Clara: then $444 sf, now $469
Santa Cruz: then $536, now $526
However, not only are sales down, but the mixed of sales has totally changed, and is more skewed toward new (which typically cost more than resales):
sales all three counties: then 3,782, now 2,980
new: then 225 (5.95%), now 282 (9.46%)
apples to apples prices look flat or even down yoy.