Speculators ‘Want To Get In On’ Boise’s Boomtown Buzz
The Idaho Statesman reports on the continued speculation in housing. “The number of landowners with proposed planned communities in the works south and southeast of Boise has nearly doubled in the past few months as word spreads that this area is Ada County’s next hot spot for growth.”
“Landowners and developers are working on 11 planned communities covering about 23,000 acres south of Boise. Land prices have doubled in the past year or two.”
“I’ve done more business there in 2006 than in the last five years,’ said broker Jerry Van Engen. The area has been stagnant for years, ‘until we ran out of dirt in the west,’ said Van Engen.”
“Buyers are both local and out of state, and Boise’s boomtown buzz is still going strong. Van Engen’s office gets about a call a day from someone outside the area who heard about Boise and ‘wants to get in on it,’ he said.”
And Investment News has some financial advisors who think it’s a bad idea. “For years, advisers have warned their clients not to rely on the equity in their homes to make up the bulk of their retirement portfolio.”
“Many have not heeded those warnings. Investors with investible assets of between $100,000 and $1 million have 37% of their total assets tied up in real estate, 23% in principal residences and 14% in investments, according to a recently conducted survey.”
“Now, in the face of a widely anticipated real estate collapse in some regions of the country, advisers have no choice but to craft strategies to help their clients cope if home values crash.”
“‘There’s no question [a downturn] is going to hurt people’s retirement,” said Neil Hackman, an adviser (at) a Stamford, Conn. firm with $180 million in assets. ‘People are banking on the equity of their home. If that $1.6 million home goes down to $1.1 million, then they’re in trouble.’”
“Those boomers who are counting on snagging quick cash from their homes anytime soon could end up in trouble, said George Walper. He said that the key is to try to wait out any real estate problems.”
“But that may take patience on the investor’s part. ‘We think the U.S. real estate is dead money for the next 17 years,’ Mr. Hackman said.”
From the Statesman article:
‘Last week, Vision First, an Eagle development company, applied to Ada County to build a 1,507-acre, 4,000- to 5,000-home planned community. The county is reviewing the application. Ralph Perez is working with landowner Dennis Baker on a 5,880-acre planned community along the I-84 Isaac Canyon interchange.’
‘The other planned community developers have just begun preparing applications or are in preliminary concept design.’
This is how they plan in Arizona. 8,000 homes here, 20,000 there.
All I can say is … “absolutely tragic” … that is how I think of the scum equity locusts emanating from any inflated market, mostly CA.
It is too bad the mortgage bankers association doesn’t release metro level data on the loans they are pushing out. When I read articles like this I always have a hard time trying to interpret how much damage the I/O no downpayment loans could really cause.
Maybe I will try to assemble some metrics on this tomorrow or this this weekend for my blog. Getting my hands on the data will likely require a lot of phone calling though.
Hovnanian Enterprises Inc. (HOV : Hovnanian Enterprises, Inc.
on Thursday increased its unsecured revolving credit facility to $1.5 billion from $1.2 billion and extended the maturity through June 2011. The Red Bank, N.J.-based homebuilder said the facility contains an accordion feature that allows it to be increased to $2 billion subject to the availability of additional commitments.
___________________________________________________
This is how they will meet their per share earnings. Take on debt, buy back stock (decreasing the o/s) with the cash and capitalize the interest on the debt (no decrease in “earnings”).
Boise Idaho??? What is next, Billings Montana, Casper Wyoming, Pierre SD??? This guys will never learn. My favorite comment is that he gets one call a day from an out of state investor who wants to “get in on it”. Why don’t we all buy properties in Boise Idaho, and we will never have to work again.
I think part of this is because of the plethora of idiots that are fresh out of “how to be a millionaire with real estate” course.
They see an area, that they hear is “HOT, HOT, HOT”, like jerkwater Boise (no offense to Boiseites) and they jump to exploit it. No research involved, if the HEAR it is HOT that is good enough.
The sad part in all of this is “who the F@#@@CK” lends them the money to throw into far away markets that many of these “investors” have never seen. Another sad part has to do with the regular people in these towns that are going to see their tax bills jump because of these assholes.
No one “lends” them money. They liberate it from their equity!!
the answer is EVERYONE that considers themselves in the mortgage lending industry. i get emails, flyers, and reps coming into the office touting 100% ltv investor loans, low ficos, stated income, blah, blah, blah. until the money flow stops, these idiots on the margin will continue to buy. imho.
So far no real indication of out-of-state investment in Billings (whew!). However, homes are moderately overpriced (median price 6x median income). Now inventory is up and sales are trending down. And thanks to the new HPI numbers, annualized appreciated based on QOQ figures looks to be under 5% now, down from a high of over 13%. Bring on the downturn! Maybe normal people will actually be able to buy a house now, and I will stop hearing about “throwing money away.”
A side note, once home prices take a decided dip or slowdown, I think sales will drop off until prices really tank. Anticipated returns have gotten so many people into house-fever these last two years. Anecdotally, a girl I know who makes $28k (about median here) bought a $110k so-so starter house needing roof repairs and various little things. She only plans to stay in it two years (but wasn’t sure why when I asked her!?!). Reasoning being that housing is a good “investment” and she wants to “build equity”. OK. While she builds $2500 in equity next year, I’ll be renting and (on the same salary) putting $10,000 away. There’s my equity!
The best part is that I hear my buyer friends talk about how poor they are, how much central air costs, sprinklers, water heaters, blah, blah. Me, I work, come home, relax, pay off my debts so I can save for a downpayment (hopefully they’ll be back in fashion when I’m ready to buy). Truly, the life of a renter is a life of ease now. Call me irresponsible if you want.
Idaho? Hot real estate market? You must be kidding.
Are there any jobs out there to support a bunch of people moving there? Or is it aimed at retirees, who don’t need job markets?
I’ve thought about living in Idaho at some point, but the whole selling point of Idaho sure ain’t living in a planned community, which would entail a HOA. My plan would be to get cheap land, a small house, and a fortified underground bunker for my gold, silver, ammo, and MRE’s.
If Idaho’s the place for HOA lovers, I can build my bunker somewhere else.
Actually Boise is home to several large companies…Micron, Albertsons, Simplot, HP has a large facility there, Boise Cascade… so they have a decent job market. But not enough to support all the flippers.
OT: I plotted all the latest OFHEO data released today:
http://www.housedata.info
Pugue — nice charts, easy to follow. Thanks very much.
I second Chip’s comments…
Thanks pogue!
A very nice service. Thanks
Pogue,
Great charts. How are you calculating the “deviation from the 8 (and 20) quarter moving average”?
Thank you.
They aren’t making any more (Idaho mountain views).
They do that in Arizona, too. ‘Views of Mingus Mountain,’ or the ‘San Francisco Peaks’ like that isn’t availble on millions of acres in every direction.
‘We think the U.S. real estate is dead money for the next 17 years,’ Mr. Hackman said.
Statements like this are just as bad as “it’s different this time” and “we’re in for a soft landing”.
Real estate is a LOCAL and INEFFICIENT business. If you look hard enough, you can find a good real estate investment. It may not be a residential condominium in San Diego for a while, but when there is distress, there will be opportunities–you simply need patience and experience to find them.
And I might add–I’m considering commercial properties in “real estate”.
RW;…Good luck fining anything that makes sence…Your better of in a CD…
Saying that Real Estate will be down for 17 years and there are no good pieces of property to buy is like saying that the stock market will be down for 17 years and that no stock will be a good buy for almost 2 decades.
That’s ridiculous with patience and experience, you can find gems.
Well located commercial real estate with a story (corporate seller who wants a quiet transaction, family partnership that is breaking up and wants certainty of a close, changing the use of a property to a higher and better use, new commercial development in growing areas, etc.) will be money makers in most markets, up or down.
This is not for the retail investor, but professional real estate investors who look every day for deals will find these opportunities, and will (unlike CDs) kick off 10%+ per year in leveraged cash flow, AND be a hedge against inflation (unlike CDs).
For full disclosure, I currently rent because I feel that housing market is ridiculous. And personally, I would never buy a home as an investment–even in average times, the yield on costs isn’t attractive. If I had a choice between buying a home to rent or keeping cash, I’d keep cash.
I only thought it would be dead for 15 years! 17 Years is unfortunately very easy to foresee. The biggest problem investors have in dealing in bubble markets is knowing how and when to get out this is why it will take over a decade. For an example look at Japan - an island - there is no more land, etc. and it still has not fully recovered from 1990.
Japan hasn’t even [i]started[/i] to recover from 1990. Prices today are 1/2 what they were then.
Friend (renter) moved from CA to Boise in 2005 so he could buy. Paid $235K for a really nice place. Now thinking about bailing because he liked CA better… family plays a big role in that. He wants to sell next summer, but I told him to get out now.
Good advice, hope he takes it. He’ll be underwater next summer.
and of course he’ll expect (deserve, insist, require) a $400K price for his trouble…but no speculator he. Just a man who needs to move, as long as it’s priced right.
No, he is actually quite rational. It’s too bad he purchased in the first place, but he left San Diego rather than buy a $600K Oceanside dump. He knew my thoughts on the bubble and that’s why he left… Boise looked reasonable… he’s not looking to be a mogul.
I pulled that move in OR. Got out last year with 30% appreciation in one year. Sold FSBO.
Actually he may be better off waiting 2-3 years if history is a guide. I moved to Boise in 1993, and real estate had been escalating there for about 3 years due to equity-rich Californians fleeing their declining market. Well I stupidly bought in and the market peaked in 1994 and started declining/stagnating. I ended up selling my $200K house for $170K, factor in the realtor fee and I took one h$ll of a bath. This time could actually be worse due to the California speculators who don’t even bother to visit but just call up realtors to buy houses. Back then at least it was being driven by people actually moving there.
“Those boomers who are counting on snagging quick cash from their homes anytime soon could end up in trouble, said George Walper. He said that the key is to try to wait out any real estate problems.”
“But that may take patience on the investor’s part. ‘We think the U.S. real estate is dead money for the next 17 years,’ Mr. Hackman said.”
And these guys presumably said this with a straight face. “Hang in there, Gramps, just 17 more years and your ‘investment’ will start to pay off for ya!”
The phrase “dead money” could turn out to be a dark double entendre.
Is “17″ a typo in the original article? How could they come up with that long-term, arbitrarily specific number?
My thought exactly. It’s tough enough trying to predict how the market may behave at the end of the year. 17 years? Ridiculous.
That’s what he said. Maybe he just meant, a heck of a long time.
Does anyone here ascribe to a specific length of time for real estate cycles? I read recently that a guy who worked for FDR (sounded a little kooky) thought real estate cycles were 18 1/4 years long. If so, that 17 years might be close to the mark.
But that would be from peak to peak, I think.
I think he retires himself in 17 years. In which case he’s sure his own investments will be positive by then.
I just got married here in Boise and had a lot of family from Cali in town. Most remarked how cheap the houses were and thought it would be great to buy for an investment. I told them all they were too late to the party and they would be stuck with the place and maybe rent it out with neg cash flow.
Brandon;…Thanks…I was hoping someone in Boise would comment…
My parents tell me the same thing is happening in my hometown of Syracuse, NY. Californians flip through real estate guides, notice that you can get a good house for $150,000, and load up on properties. The local newspaper had an expose on how crappy they were as landlords, too.
to clarify: I believe that people who bought at current peak prices might have to wait a decade or more before prices return to those amounts in real dollar terms. And increasing energy costs in future decades may mean that some housing (i.e. McMansions) never returns to current real prices. However, you’d need an Ouija board to come up with the specific number “17″. Maybe they meant “1 - 7″…?
The one I know of (but dont subscribe to) re: 17 years is related to wave theory based on long valuation waves - which claims that valuation moves in 34 year cycles, 17 yrs bull, 17 yrs bear. As with any investment theory, consult your accountant or/(and preferably) use your good sense.
Dead money for the next 17 years? Shh! Don’t tell that to this person wringing their hands about how to avoid capital gains on the *next* 500K !
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/26/AR2006052600807.html
Q: My husband and I have owned our home for more than five years. We purchased it at $460,000, and find its value today is around $960,000, putting us at the $500,000 gain mark. We are not interested in moving to a different home now, but likely will want to sell our home in 15 years when our children are grown and we are getting ready for retirement. I dislike the idea of having to pay taxes on any gain we receive, assuming our selling price in the future will be more than $960,000 . . . If, however, we do not move and we sell our current home in 15 years for $1.46 million, assuming the tax law does not change, we would owe capital gains tax on $500,000 of our $1 million gain.
Real estate always goes up. It’s one of Newton’s laws - A scientific mathematical formula that has withstood the test of time. How else could this genius possibly have come up with $1.46M figure in 15 years? She simply applied Newton’s Law of Real Estate that’s taught in NAR Economics 101.
That’s nominal appreciation of just 2.8% per year, a bit less than half of the historical appreciation rate. That seems like a conservative assumption in terms of a nest-egg but an aggressive assumption in terms of tax planning. The transaction she asked about to defer capital gains is off the beaten path.
Where did you come up with 2.8% per year is less that half of the historical appreciation rate. I thought Robert Shiller researched and found around 1% historical appreciation?
That’s real, not nominal.
This whole globalization movement has me wondering though…if there’s global wage arbitration and the U.S. is supposed to continue to lower its wages for an extended period of time it seems possible in theory that we may see no appreciation for decades.
Don’t forget the changing demographics!
Still total nonsense. It does not account for where we are in the housing cycle nor does it account for the insane run-up and its likely effects… a 40-50% NOMINAL drop. Then inflation will shave off a bunch more. Who knows… in 15 years the interest deduction may be history along with the tax free gains?
All black magic 15 years out…
I agree there is a huge amount of uncertainty 15 weeks out (especially now), let alone 15 years. Real estate cycles in this country seem to last about 17 years. While the next few years may see price declines in the out years the foundation for the next bubble (higher than normal appreciation) may begin. In other words real estate may run through another full cycle before this lady sells her house.
Great — she gets her wish, everyone’s happy. In 15 years, her home could still be worth $960,000 and she wouldn’t have to pay any capital gains tax — if the laws don’t change. Win-win, lady! Your kids will be so proud of your math and logic skills, too!
Boise, ID
Homes on MLS: 4,119
Median Asking Price: $269,950.00
Total Asking Price (all homes): $1,427,724,561.00
Census(2000) Median Price: $125,767.00
It look’s like buying sight unseen in Bosie is a “no brainer!”
To quote the 0% down mortgage advt. I hear on radio : “Biggest no brainer in the history of Mankind”
“Buyers are both local and out of state, and Boise’s boomtown buzz is still going strong. Van Engen’s office gets about a call a day from someone outside the area who heard about Boise and ‘wants to get in on it,’ he said.”
I wonder if any of the speculators have actually *been* to Boise. No offense to Idahoans, but it doesn’t seem to me like the best “sight unseen” territory. But with this current bubble, a cardboard box in Compton would attract uneducated “speculators”
This local RE radio Wanker and his cohort out of Santa Cruz were shamelessly promoting themselves once again under the guise of helping out you the buyer. One caller which IMO is nothing but a flipper using their air time (although they may be locked stepped together somehow) claims to be an attorney in Carmel Valley who just bought in Wyoming or Montana and will be up there next week. In fact he cares sooooo
much that he’ll call the show from there to tell you about all the great deals. I wish that someone would listen in and check out the true facts after the show airs. Anyone can get it on line.
Just came back to CA today. The FOR SALE signs all have ‘reduced’ on them. Don’t know how much. But a nice site.
They usually lower it $4 bucks from $899,999 to$ 899,995. Occasionally they lower it $10 and a free shoeshine since they bought in 2002 for $120,000
Looks like the SFH speculators are looking for an exit.
http://www.benengebreth.org/housingtracker/location/Idaho/Boise/
But now we can look into land speculation!
I went to some open houses here last weekend, both places were empty and both agents said traffic was light. One agent told me that she expects prices to drop a little here this year and that the market had “normalized”.
As I mentioned earlier, I just was in Boise for business last week; believe me, the California speculators are still at work there. In fact, it even seems like home purchases in Humboldt are up…people really think RE is always up…I have to admit that this thing is taking longer to unravel than I thought it would.
My replacement at my old office in Visalia moved from South Carolina and bought a house within a few days of getting to town. Poor bastard paid $399K for a house in a neighborhood that cost only $125K in early 2002.
As long as there are dumb a$$es like these still out there, this thing will be painfully slow.
I don’t know, anyone ever see that dot com documentary on Kosmo (eDreams) — the market cratered while they were filming it. Just like that the whole dot com era ended. Poof! Nothing!
That link is about “Startup.com”, still an excellent documentary about the dot.com boom/bust (in which I was lucky to get a very educational front row seat). The E-dreams link is here.
It takes a while for the “euphoria” to break-down (especially in Boise/Idaho). But it will. The US Dollar will continue weakness (84.79 USD Index-6/1/06) because of current economic dynamics. When all is said and done, the FOMC will protect the dollar.