The Housing Bubble And ‘Flyover Country’
Several readers suggested a discussion of the housing bubble and ‘flyover country.’ “How about a topic about large cities in flyover country that are NOT part of the bubble? Where you can still (today) get the dream home for under $300K. I’m thinking say Columbus,OH, Memphis, Fort Worth, Houston, Albequerque(?), Pittsburg, Richmond, Charleston, etc. Plenty of places other than DC/SF/NYC with all the quality of life you could want.”
“I moved from DC. When my previous employer asked me what it would take to make me stay I said, ‘Double my pay or pay off my mortgage.’ They declined (obviously) and I moved. Kept the same pay, dropped the state and local taxes (even my real estate taxes dropped (rate up, how much I pay way down)), commute went from 1 hour to 15 minutes and got a much better house.”
“Most big companies do not adjust pay scales for differences in cost-of-living (at least not enough). I pay my engineers the same reguardless of them living in LA, Fort Worth, or Atlanta. My last company payed their people almost the same (within 5%) no matter if you lived in San Antonio or DC. You don’t have to take a pay cut, or much of one, that’s a myth.”
“‘Plus I get to go to my kids soccer games, swimming lessons, and put them to bed. Something I missed a lot of working in DC, spent that time stuck in traffic. Can’t trade that time for money. ”
One replied, “Agreed. A quality of life decision vs. staying in the rat race. Does the Cost of Living adjustment b/w cities justify the monthly mortgage payments? Are you a richer person on 50k/yr in MI than you are as a 100k/yr person in San Fran?”
Another said, “I live in NJ. My brother pays $11,000/yr. in property taxes alone. I think it’s time to leave, even if the home prices do go down.”
From Boston, “Good to hear. My wife and I are considering a move from Boston to near her family in MI. I don’t know if I want to wait 2+ years for things to bottom out here…” From California. “I doubt there is any place in the US that is not part of the bubble. And as goes California so goes the nation.”
From Ohio, “Ohio IS bubble central. They have done nothing but build new homes over the past several years. My family in Ohio actually believes there is a bubble, unlike most people I know in CA. I keep a close watch on Ohio because I want to move back there (Oakwood in the Dayton area specifically). I’m waiting for this GM thing to play out though. I have an agent in Columbus (my other area of interest) who calls me constantly with ‘investment opportunities.’”
Another agreed, “Ohio is also one of the most lax states when it comes to lending regulations, and leads the nation (I believe) in foreclosures at the present time (due to lax regulations and job losses in manufacturing).”
A reply, “I don’t think you’ll find 2+2 condos, like the one up the street from me, on the market for $1.3 million in Ohio. Your family in Ohio doesn’t know how good they have it.”
From Tennessee, “I live in Memphis, and there is a housing ‘bubble’ on the outskirts; places like Germantown and Southaven (technically in MS) where houses are going for a million change, but these are huge houses, usually on a good bit of land. I still think that there isn’t enough granite countertop in the world that would make living in houses that all look alike worth it, but then I’m one of those ‘crazy’ people who believe that a house is a shelter, not an investment.” ”
‘We just purchased a house for 96K, 4bd/2bh, 2300sqft, on 1.68 acres of land, less than 20 minutes away from downtown and from both of our jobs. *smiles* we took out a 100% loan, but it was a fixed 30 yr, despite my friends and coworkers advice to take an an I/O Arm. I politely told them they were out of their damn minds, but I don’t think my message really got across.”
‘I live in Memphis..We just purchased a house for 96K, 4bd/2bh, 2300sqft, on 1.68 acres of land, less than 20 minutes away from downtown’
I am curious; how much would a similar home rent for?
Ben,
I did a little searching around and this is all I could find. It doesn’t have the acreage noted, though.
http://www.offcampusnetwork.com/rentalprops.asp?cid=14609
BayQT~
Honestly, I’m not sure. I suspect that it would actually be hard to rent this house, BECAUSE of the amount of land around it. The link that you found is high for rents in Memphis - but that is because of the location of the place (near U of M)
To put it in perspective, the apartment that we moved out of (2bd/2bt duplex in the ‘hip’ part of Memphis known as Midtown) was 875.00 a month - no land, almost in downtown. A house up the street from us sold at 375K - and it was directly NEXT to train tracks - ACTIVE train tracks, I might add.
From WSJ (subscription required) http://online.wsj.com/article/SB114989642419176725.html?mod=rss_markets_main
“The new option mortgage from American Home Mortgage offers a fixed rate for five years. A longer fixed-rate period makes the loan less sensitive to rising interest rates. In addition, borrowers typically have to start repaying both interest and principal once that preset balance cap is met. But IndyMac’s new option-mortgage product allows borrowers to defer repayment of principal for as many as 10 years, even after the loan balance hits the 110% trigger for recasting.
The new option mortgage, designed to provide borrowers additional buffers to handle payment shocks, has become “the fastest-growing new product we rolled out,” says Frank Sillman, head of IndyMac’s mortgage business.”
No fear, just increase the velocity of the credit bubble!
There are two things to fear with exotic mortgages.
The first and obvious is the recasting date and what interest rates are at that time.
The second is market valuations. IO and neg am borrowers are betting that appreciation will be greater than the payment shock and they will sell with a tidy little profit for their option.
If someone has a 10 year IO, how will they feel 7 years into the IO period when market values are 10-20% less than they paid.
Talk about a millstone around your neck. No thanks.
10 to 20% less? You’re such an optimist!
Also, who is issuing zero-down, 30-year loans?
We went through a local lender - Delta Trust Mortgage.
There are some serious “bubbles” going on in flyover country. That does not mean that properties that will seem like relative deals won’t easier to find. For example, I grew up in Central Illinois. I live in San Diego, and have owned a modest house since the bottom of the last dip. You would think I could cash out here and move there and buy a palace? Sadly no. I considered just this scenario and did the research. To my horror there has been some rather aggressive speculation / overbuilding going on in the Bloomington / Normal and Peoria areas.
Is it possible to buy a wreck for a song? Sure thing. To buy anything as nice as what I have now is not a significant reduction over what I could quickly sell for here ($350K).
The disease is wide spread, numbers below. If you say – Median price of $175K? Remember this includes little farmer shacks that need a lot of work. The price for a 3/2 in a reasonable part of town is typically $250K – $400K. Sad.
Bloomington, IL
Homes on MLS: 878
Median Asking Price: $174,900.00
Total Asking Price (all homes): $192,511,946.00
Census(2000) Median Price: $116,500.00
Cincinnati, OH
Homes on MLS: 17,731
Median Asking Price: $174,900.00
Total Asking Price (all homes): $4,269,694,259.00
Census(2000) Median Price: $118,311.00
Cleveland, OH
Homes on MLS: 16,029
Median Asking Price: $164,900.00
Total Asking Price (all homes): $3,675,640,945.00
Census(2000) Median Price: $80,264.30
Des Moines, IA
Homes on MLS: 4,178
Median Asking Price: $197,900.00
Total Asking Price (all homes): $962,234,820.00
Census(2000) Median Price: $84,091.00
Kansas City, MO
Homes on MLS: 20,803
Median Asking Price: $179,900.00
Total Asking Price (all homes): $4,634,131,937.00
Census(2000) Median Price: $95,839.00
Madison, WI
Homes on MLS: 4,117
Median Asking Price: $259,000.00
Total Asking Price (all homes): $1,296,884,571.00
Census(2000) Median Price: $132,192.00
Memphis, TN
Homes on MLS: 10,852
Median Asking Price: $172,500.00
Total Asking Price (all homes): $2,382,905,393.00
Census(2000) Median Price: $77,342.90
Oklahoma City, OK
Homes on MLS: 8,017
Median Asking Price: $163,500.00
Total Asking Price (all homes): $1,642,292,747.00
Census(2000) Median Price: $71,132.50
Peoria, IL
Homes on MLS: 2,104
Median Asking Price: $135,000.00
Total Asking Price (all homes): $361,203,887.00
Census(2000) Median Price: $85,400
Wow, interesting numbers. Thanks for posting this information.
Sounds like your assertion depends on what you mean by ‘as nice as I have now’. If you can’t find something nice enough in a sample search like this one (http://tinyurl.com/lp6oz , realtor dot com, zip code 43016, prices up to $350k), then you may not be able to find anything anywhere which would suit you.
I will agree with the idea that all the new builds here are priced into stupidity, and many of them will sit idle for a significant time (imo). The houses I see in my realtor-provider listings are only selling when the price is reasonable, and usually in the lower end of my search range.
Looking forward to others who live here in flyover territory to comment on this thread.
I think you misunderstand. I have been running this kind of comparison since I started living in San Diego 20 years go. Up until around 1998 the bias was highly favorable towards the Midwest. Now that has essentially eroded, largely due to agressive building driving up comps. If I had a need to move there I would have no problem making things work out well enough for me. Honestly I am not that picky, and enjoy working on homes. However I also understand I am not quite “average”.
Don’t think you can still get the “house of your dreams” in the nicer areas of Ft Worth metro area for 300k or under anymore.
My estimate is that it would be 400k or over for the same level as 300k was only 3 or 4 years ago.
Not a big rental market for houses of that level here, as those are end users and almost always buy.
You just beat me to it, podner. For newer readers of this blog, do not be bullshitted by comments about Texas being some sort of great value. It is not. It is far more treacherous than California, Phoenix or Florida IMO. Those places will crash and burn but there is some value there. TX is valueless. The four major cities of TX have also had their own version of the bubble, just as pernicious as that in the better known bubble areas and yet will crash harder because the desireability (topographic, climate, culture, whatever attracts people to the coasts) is not there and never will be, all local cheerleading aside.
You will find no bigger TX housing bear than me, a 15 plus year former resident of the state.
Nonsense. I”m sorry you hate Texas so much, but not all of Texas is in a ridiculous bubble.
Austin is a great, fun city. Why do you think so many movie stars love to live and hang out there? Dallas has the largest arts district of any major city, good sports teams (Mavs are going to win the finals this year), some of the best shopping in the country and cheap hub airfare for when you want to get away. We have mild winters, beautiful fall and spring weather and hot summers (but nowhere near as bad as Phoenix). San Antonio has historic sites, great food, the riverwalk. Houston has jobs. They all have housing that is far more affordable than anything on the coasts. Yes, CA locusts have run up prices in some areas, but it is still possible to find a good starter home in any of these Texas cities for well under 200k, and for a million, you’ll still be living pretty large. Plus, our property taxes have just been lowered. What other state can boast that?
Whatever you say, Cowboy.
The attitude you display is one which I think led to the coastal bubble. A lot of people somehow convinced themselves that their coastal communities were the only places in the country worth lving in and “everyone” else was dying to move there, or at least somewhere on the way (Las Vegas, Phoenix). The truth is, not everyone wants to live in CA or in the desert. There are other desirable areas of the country. I happen to love DFW, for the reasons mentioned, plus I’m a pianist and I like being involved with the Van Cliburn Foundation as well as one of the finest music schools in the country, UNT in Denton.
Not everyone is dying to move out of “flyover country” and into LA/SF/PHX/LV/NYC. Don’t get me wrong, they are all nice places to visit, but the negatives outweigh the positives for me in all of them. I feel the opposite about Dallas. There is plenty of culture around town, and I’m sorry you never took the time to find it. The fact that you would refer to me as a cowboy just says it all.
“Austin is a great, fun city. Why do you think so many movie stars love to live and hang out there?”
They don’t. They live west in the Hill Country. Austin is sweltering traffic-clogged hellhole, devoid of culture. This is a fact that zombie Austinites don’t seem to understand.
Agreed. The Austin cheerleaders don’t have any idea of what “culture” actually is and are blissful in their ignorance as they roast away in the outrageous summer heat as overleveraged 30-thousand-dollar millionaires drive by in their leased Hummer H2s.
Oh give me a break. I live in Dallas and I stay here for two reasons. 1) Outrageous pricing on the west coast where the weather is actually decent and 2) I have several businesses I am operating here so I can’t leave yet.
Nobody stays in this craphole hot as hell city because of a crappy sports team like the Mavs (and I hope they lose just so I can watch the sweet tears of lame-o dallas residents fall down their sweaty cheeks).
I’ll be out of here as soon as the west coast crashes.
You got it. You don’t truly appreciate the unique “benefits” of Dallas, which may be the most miserable city in America until you’re out of it. I don’t even want to fly though it again. The place gives me the creeps.
the only thin in tx is steers and quee
Put down the aerosols and step to the window….:)
Oh come on, Texas is not “valueless.” Yes, there is room to fall in certain pockets (Uptown condos, the M streets, etc.) and out of state “investors” have been buying entry level houses in West and North Ft. Worth, but one cannot compare TX with CA, FL, AZ, Vegas, etc. I know you are happy in Tucson, but there is no way houses in Tucson should sell for 2-3 times a similar house in Dallas.
I lived in the M Streets 15 years ago. Those houses are all asked 3-4x what they were then.
In times of a RE BUST, people can simply walk away from their mortgages, rather than try to pay off the upside down loan. Morals aside, I want to document the viability of this action. Can/Did people actually do this?
eg: Moals aside, if your $700k house is now worth $400k, one option is to just stop making payments, let the bank take it back, and you just buy the house next door for $400k. Viola! The $300k deficit is “erased”. They lose their $70k downpayment, and lose their credit rating for 7 years, but it may offset trying to pay back that $300k deficit.
Does anyone have internet artlce or examples when people did this en masse?
In California generally, purchase money loans are non-recourse. I.E. the lender cannot come after you for the difference, but the IRS still will for the taxes on the “forgiven” amount.
80/20 piggyback loans are recourse and any refinancing eliminates this protection.
All in CA, other states aren’t as liberal for FBs. However, most people have refinanced or taken piggyback loans.
http://www.wwlaw.com/forecl.htm
Also, this little search took me less than 5 minutes on Google.
GFE…
This is a great topic that deserves it’s own thread.
The reason people who make $30k/year have two $2M flipper properties is…the risk/reward is great. The free money gravy train keeps going, they make $300k for doing nothing. It ends, they play these NAR-sponsored games and end up deducting the loss against their tax liability and the bank has to eat the mortgages. Given the choice between greed and morals, I’d say it’s 99%+ that greed is the winner here.
Shawn,
Based on my limited understanding (I am NOT an attorney and what follows is NOT legal advice):
1) Losses on sales of residences are NOT tax deductible.
2) Based on comments on this blog, CA apparently has an “anti-deficiency” clause which prohibits the lender from going after the owner in the case of a default for any amount due that can’t be recovered in forclosure. But this is limited to first mortagages only (re-fi’s, HELOC’s, 2nds, etc) kill this.
3) The lender WILL send you a 1099 for imputed income. So your $600K mortgaged house nets $300K at auction. You just received $300K in “imputed” income. At an approximately 40% Federal tax rate, get ready to pony up $120K to Uncle Sugar.
4) Apropos of nothing, I think that it was Bernard Baruch or Baron Rothchild who said in response to the secret of his success, “Alas, I always sell too early”. I suspect that there are millions of people who will learn this wisdom in the hardest way possible.
Apropos of nothing, I think that it was Bernard Baruch or Baron Rothchild who said in response to the secret of his success, “Alas, I always sell too early”. I suspect that there are millions of people who will learn this wisdom in the hardest way possible.
My folks “sold too early”, like about 1.5-2 years ago. I’m glad they did. Now they enjoy lower taxes, cheaper utilities, cleaner air, and nicer neighbors.
Even if you get the 1099, why would you pay tax? Isn’t it proceeds from the sale of your personal residence? (assuming it is your personal residence)
How are you going to buy the house next door when your credit’s just been trashed?
The housing bubble may have only become apparent these past few years, but the credit bubble began not long after Greenspan took office. Used to be only the best risks were afforded credit of any kind, especially credit cards. Now they offer everything to everyone, even immediately after bankruptcy.
Where am I headed with this? Very shortly bad credit will become the albatross it once was… no mortgages, no car loans, no financed furniture, no cards, no sub-prime credit of any kind. The new bankruptcy bill will only exacerbate the pain. Welcome to the new, virtual “debtor’s prison”.
Proofread and reposted:
Report from Oklahoma. Open house Sunday 2-5 at Summit Lakes (ponds). New quality homes and townhomes. This is one of more than a dozen new developments in my town alone. Simultaneous open houses there for 3 new townhomes (well, they were new a year or two ago anyway…) and over a dozen newly completed SFH. All between 200k&300k. Oh and lots of lots available also for only 38.5k each. Come one, come all, flippers, investors, students (yes students!). They are building all across central OK like it is some kind of race to see who can build the most crapboxes. Damn flippers! Come on down before you miss out on the opportunity of a lifetime. Be sure to get yourself some of this action. You know you want to. It’s a sure thing and real-estate only goes up and there are so many advantages to owning. You can buy whole neighborhoods all at the same time. Oh housing bubble, oh housing bubble, wherefore art thou housing bubble? You know all the boomers will be moving here soon and you can get in on the ground floor. Hurry, don’t delay, these little puppies won’t last long…
Why would anyone want to live in Oklahoma?
Well it’s got barley, carrots and pertaters, pasture fer the cattle, spinach and termaters!
I visited Edmond OK last year for the first time. I was damn surprised. Nice place!
From the real estate site http://www.buy-utah.com
Jaren Davis, president of the Utah Association of Realtors, says Utah has become highly attractive to out-of-state buyers. “The country went into fast appreciation while we were stagnant,” he says. “We were identified as one of the most affordable housing markets in America.”
And while 20-year real estate veteran Davis says 2005 has been a record year for him, the word “bubble” shouldn’t be applied to Utah or anywhere else in the country. “If there were a real estate bubble—and there isn’t—it absolutely does not exist in Utah,” he says. Since growth in the market can be attributed to good-value properties—“nice homes in great neighborhoods”—Davis doesn’t see a boom that could lead to a bust.
To late for UTAH , the flippers discovered it . Another State bit the dust . The swarm of locust will be going to Memphis next …you watch….
Yes, hooray for the equity locusts from Cali. Leave no city, state, clime or nation untouched.
News is Costa Rica is over-bubbled because of Cali people.
Yep, it is.
There is a backlash brewing from the Costa Rican middle class that they can no longer afford vacations on the coast due to all of the expats.
Costa Ricans once they get fired up are not to be messed with. They beat the Nicaraguans with pitchforks during the Nica aggression.
Correct. The new Costa Rica is Panama…..
:-/
Believe it or not - I’ve been told New Zealand has been “over-bubbled” by Californians.
The population of Russia is experiencing a negative growth rate (i.e. deaths outnumber live births by a growing margin). Places like Siberia are practically empty and losing people. Congress should pass emergency legistlation criminalizing all California equity locusts and shipping them to Siberia. We’d kill two birds with one stone.
I really should run for President one of these days….
Utah may have come late to the party, but it’s almost as drunk as LV, it just showed up 3 years late.
I have been looking at properties there, and they have easily appreciated 40% in the last year. It used to be you could buy a luxury home for $350K 2 years ago, now those same houses are $550K.
In-laws bought a very nice 3500ft home 2 years ago for 242K. Same ones are now selling for 420K.
Austin is quickly turning into a bubble area…I just sold my house to an investor from CA sight unseen. A coworker has been outbid 4 times on houses…all by CA investors.
There’s still plenty of deals right now…I purchased a 4/2, 2750 sq ft single story on 0.8 acre for $220K in a very nice established subdivision. But lots of folks are starting to ask $50-100K over their tax appraisal value. It’s definitely not maintainable since salaries suck and there’s more new construction than you can count.
We left the Bay area where we all know is beyond insane. In ABQ, got a 2700 sqft home on adequate lot, wife’s dream house, for $299K. My thought is market price is around $330K - but Zillow just put it at $413K. 2 mos ago, they had it at $320K. I think Zillow is a little off. ABQ, much better quality of life. Just as a few poster put, and less likely for a bubble fall
A receding tide sinks ALL boats.
The question is will your boat come to rest on the sandy harbor bottom only to be re-floated with the next high tide.
Or, will your boat come to rest in the surf zone, with razor sharp reef and a 10 foot swell pounding your boat into oblivion.
Neither is pleasant but sandy bottom harbor is survivable whereas the surf zone the chances are significantly lower.
ABQ, OR, UT and CO may be sandy harbors, but LA, Bay Area, PHX, LV are in the surf zone and the forecast is calling for a big swell.
Things are still selling very quickly in ABQ. A house a few doors down from me was on the market just a few days. A friend of mine who works only as a buyers agent is still doing very well, but expects things to slow down.
I do expect prices to come down here, though. A huge amount of the demand here has been driven by CA speculators. When I was looking for a place to live last fall I ended up being harrassed for weeks by a property manager who took care of some guy from San Jose who owned 20 properties in just one devlopment and the manager is still trying to rent them out.
For the above Utah comment. If the idiot flippers from CA are going to Salt Lake, I hope they all lose their cumulative BIG FAT A$$es. SLC is my hometown. Property values can drop fast, and was hearing about too many flippin’ floppers up there. They will ruin a very beautiful area.
Yes,
Wife and I looked at a 4000 sq ft house in Daybreak for 400K 1 year ago. Same house now selling for 650K. It’s out of control once the Cali locusts found out about the area.
I’m an Elect. Engr. now living (renting) in Camarillo (ventura County), CA. Have a pending job offer in Longmont, CO. Does anyone have any negative comments on Longmont? I was out there for an interview recently. Looks good to me. Between housing, and schools, I can’t find a compelling reason to stay here in CA.
I did the math on housing cap(italization) rates:
Current rental: 1.85k/mo = 22.2k/yr
Current asking price for same (~1500 sq. ft duplex) = 565k
22.2k/565k = 3.9%
Assumes no futher appreciation (reasonable assumption going forward for the next 5 yrs., I think).
This is less than current “safe” 10yr U.S. Gov’t bond. Does not include maint., taxes, etc. One would want 8% min. return on an investment. This property doesn’t work. Cap. rate calc. says property 2x overpriced. Seems hard to believe. Housing is more reasonable in CO.
Any reason I should not buy now? Should we rent another 2-3 yrs? I would not like to buy at the top.
Thanks.
socalrenter
Grew up just outside Longmont and loved it. However, when it came time to pursue a serious career there was absolutely nothing to be had, so I left. Haven’t been back in over 20 years (most of which I’ve spent in CA).
The job market in CO is always either boom or bust, so evaluate the company’s prospects carefully.
p.s.: Don’t even think of taking any Raider’s gear there!
Thanks for the tip! I’m “checking under the hood” as far as the job goes.
If I were to look at leaving So Cal, Colorado would be one of the places to look. The others, SLC, UT (skiing), NM and maybe even NV if Reno keeps busting.
With all of the foreclosures in CO and a flipper friend saying that they are earlier into the correction/bust you should be able to find a deal to buy.
However, my hard learned lesson from moving for a job is to rent for 12 mos to get a handle on the area and make a wise purchase for your situation.
Particularly since there will be no appreciation to bail you out if you end up not liking the area.
I escaped from my RE purchase in Portland, OR by the skin of my teeth with a small profit due to CA equity locusts causing 20% appreciation in one year.
Good advice. I’m not keen on buying a house now anyway, and so will consider renting a while longer. BTW, I think that as long as credit remains fast and loose (i.e.: exotic/funny money/toxic RE loans), the housing mks. will stay supported. That being said, I think easy credit is finally beginning to become less available, as the global liquidity worm (a la central banks) is finally turning.
why not offer to stage in a high price house?
rent cheap and move if they sell
CO is cool, rent for a year they’re tanking pretty hard
buy xmas eve 2007 on the court house steps hehhehehhe
fiat - Thanks for the tips. We’re sort of staging now (CA), and get a break on the rent. Seems like renting in CO might make sense also. BTW, the Fed is sure doing a great job of mis-managing the econ. From one bubble to the next, and back again. Central bank = road apple (IMHO).
I’ve lived in MI my whole life, but have traveled throughout the country so I’ve seen other places. I have to admit that when I read the discussions on here re: what people are willing to pay for a house, taxes, etc. as well as the ghastly commutes, I honestly cannot see where the “quality of life” and the “quality of location” exceeds where I live (Grand Rapids) that much that I would EVER consider living there whether it is CA, NY, NC, TX, AZ, or any of the other “hot” markets. I do think prices are slightly inflated here, but certainly not on the scale seen around the country. IMHO West Michigan is one of the kept secrets in the country and I’ve been told that by more than one coworker or friend who has moved here from out of state. I’ve lived in Grand Rapids now for almost ten years and with the exception of desring to buy a place in the NW lower peninsula (Traverse City, Petoskey, etc.), there is honestly nowhere else I would rather live.
I grew up near Grand Rapids, in Fremont. I agree Grand Rapids is an excellent place to live. I would love to live in GR again. I also enjoyed traveling to Grand Haven and Sagatuck in the summer months. Grand Rapids has great housing values as compared to the Southwest.
But you’re saying that in June when the weather’s good. Michigan summers are wonderful, but I don’t miss the years when it seemed like I saw the sun four times between October and April.
Grand Rapids is a nice place with a good quality of life, and home prices are very reasonable right now because of a soft economy. My parents are talking about selling their current house and building a year round home on a lake near Howard City. 2500 square feet if you count the finished walk-out basement, built in the early 1980s by a good quality builder and well taken care of since then, and on an acre of land with a creek in back.
They’re probably going to ask $225K and settle for anything over $200K, which is pretty much the same as they would have asked five years ago.
“This is less than current “safe” 10yr U.S. Gov’t bond. Does not include maint., taxes, etc. One would want 8% min. return on an investment. This property doesn’t work.”
Doesn’t work as an investment even if you have that much in cash. I recently got a CD from Bank of America paying 5% (a few years ago it was hard to find one paying half that).
If your financing such a house, you’d be seriously cash flow negative. Great investment, it’ll take you straight to the poor house. In DC area a typical studio closet condo goes for 180-200K, rents for 700-750/month.
What I don’t get is how the seller uses the rental income as a selling point. If it was me I’d be embarrassed to admit I was getting such a low yield.
Here are some quotes posted further down in the topics thread:
‘The fact that you can buy homes in these cities for less than $300K doesn’t mean they aren’t part of the bubble. If that $300K home in Memphis was selling for $150K three years ago, you’re in bubble territory. I have relatives in Minnesota, Nebraska, and Tennessee. They have all seen prices rise in the last few years to levels that are “ridiculous” by local standards and they all know people who quit their jobs in the last few years to become house flippers (investors).’
‘I agree, but the bubble has barely(if at all)inflated in some of these cities. I look at median house price/median income. If the ratio is under 3-4 there is not much of a bubble - none if under 2.5. When it nearing 10 (DC) or higher your in a bubble’
‘IMHO the ratio does not take into account the unrecorded inflation of oil, food and tax increases. In many markets what was an affordable market is now bubbled.’
‘Exactly! Just because it is cheap to you doesn’t me it isn’t a bubble price.’
I live in Northern NJ. Even if prices come down by 30%, it’s still really expensive, plus we still have crushing property taxes that go up 5%-7% per year with no sign of letting up ($10k per year is not uncomment for a slightly-better-than-average house). If you don’t work on Wall Street or you didn’t buy your house 5+ years ago, it doesn’t make much sense to stay.
My wife and I are going to check out Raleigh/Cary NC this summer. I can get a comparable job, but can buy a house for $300k that would cost $750 up here with $12k/year property taxes.
…and, as stated previously on this blog, prices don’t have to have risen to fall.
That is very obvious for anyone who lives in the Detroit area.
Does anybody kow what the deal is with Queen Creek, AZ. I heard it mentioned, looked it up on Realtor.com and it’s looks like they have more listings than Carter has pills.
Is this a new burb or an expanding existing town?
Looks very Bubblicious.
Used to be cotton fields, unattractive stucco tract homes that all look alike, murderous commute to anywhere to work, hot as hell, full of smartass real estate geniuses (re-fi) with Lexus and Hummer in the garage (both leased), no restaurants or culture beyond Applebee’s and nail salons. Lovely.
Here in my little town in the Ozarks (SW MO) there are lots of CA refugees. Not flippers or investors, but people that just couldn’t take the CA madness and/or wanted to cash out before the crash. Most of the ones I know bought a house quickly, even sight unseen, because the prices are so much less than CA that it seemed like a real bargain. The locals are laughing all the way to the bank, but everyone is (still) happy. I decided to rent and look around first, the real estate agents here had never met a CA transplant that didn’t just buy the biggest, fanciest house available, and right away.
There is LOTS of building going on, from the big “ciites” (e.g. Springfield, Joplin, Branson, Fayetteville, Rogers) down to the very small towns. The builders in my small town are all small-time builders — some of them are real estate agents that got into building spec houses to suck off more of the profit. Most of the houses are mini-McMansions — try to picture a house with 4 different types of outside surfaces (brick, two kinds of stone, and vinyl siding). Yikes. What’s worse is most of them don’t have basements and we are smack in the middle of tornado alley.
I really don’t understand how the local economy can support any increase in prices and all the new housing construction.
My simplest measure (which is very difficult to measure) of whether there is a bubble in your market is whether the average person buying the average house, with a 20% down payment can afford to buy that house with a 30-year fixed rate mortgage without it being more than 35% of their salary.
The farther you get out of whach with that, the farther you are in bubble territory, IMHO.
I have said it here before - 35% is too MUCH! Why? People buy all kinds of crap they feel they need to keep up with the Joneses. Sheople- you really have 2 options here:
1. Do not go over 25% of your income and continue to spend somewhat freely.
2. Go ahead and do 35% or more and spend freely (see you on skid row)
Only a few years ago lenders would not go over 28%…or 36% total debt to income. I agree 35% is just too much.
I guess I’m a bit jaded. I live in an area with higher incomes, so that 65% is a more significant number than in most places in the country–
If you’re making $35,000 a year, then yes, you should be more conservative on how much you spend on housing, but if you make $150,000 per year, that $60,000 after tax ($5,000 per month to spend) can go a long way.
But I make over 150k a year and I can tell you, the old adage IS true: you adjust your spending to your income. Yes - you just buy better things and more and you are not so concerned when you write that check….
I still want to keep my fixed costs low. Fixed costs that are high is where people get into trouble.
-Ed
Karen> Only a few years ago lenders would not go over 28%…or 36% total debt to income.
Precisely the numbers quoted by our mortgage broker. This was in late summer/fall 1997, when we bought our current house in MA. Oh, and we had to bring 20% down to the table - from savings of course, what a novel concept! Buyers who didn’t had to settle for an 80/10/10 (10% down, 10% piggy-back HEL) with a less attractive interest rate.
Lending standards have been tossed out the window since. When numbers like the above reflect common industry practice again, we will know that some semblance of sanity has returned to the market.
Talked to a realtor I know last week about a section in the L.A. County real estate market . The realtor in essence said :
(1) Sellers won’t come down in price ,so the properties are just sitting .
(2) Buyers have backed off and the market is dead .
(3) The gas prices are a factor in the slow down .
(4) The realtors blame the interest rate increases of BB This realtor claimed that if BB would just say he wouldn’t increase interest rates anymore the market would get active again .
(5) The realtor claimed that sellers have even turned down good offers .
(6)Inventory has increased 500%
So , based on what this realtor said , it seems like the sellers and buyers are still at a stand still in sections of L.A. County . I wonder what all these sellers are going to do in Sept. 2006 .
From my POV, it sounds like you got good information. A lot of stuff is just sitting on the market. While the rental market seem quite healthy, the sales seem to have dried up.
The LATimes publishes a monthly listing of sales in their RE section. In the zip codes that I watch (90401 - 90405) you can see that very little is moving, some of these zips had only 1 or 2 SFH sales in April, some as many as 15 or so. Really not enough sales to be statistically meaningful as to price information. I’m waiting to see the May sales, but I’m betting it doesn’t look much better. But there are signs on all of the street corners on weekends, and RE section of today’s paper set a new weight record for a Saturday….
I’m not betting that it falls apart by September, though. Next spring should be when the bloodbath starts around here, and it should run for some time. I also think that a lot of the current listings are sucker bait, wherein the owners are not particularly inclined to sell, but would do so if some carp actually hit the lure at their price.
Isn’t that Santa Monica? I wouldn’t think that Santa Monica would have the income problems that other areas have, though I realize housing costs quite a bit more over there. I also don’t see Santa Monica as being much of a flipper’s paradise. The property is just too expensive. You’d either need to be a builder buying a rundown property to put up a completely new house or a person who actually wants to live there.
Claudia,
Yes, thats Santa Monica. The flippers here mostly operate on condos, doing the granite countertop thing. We also have “scrapers”. As you may know, SM is an older community, pretty well built out. But a lot of the houses (still) were build back in the 1940s and earlier, and many of them are now shacks sitting on some very valuable land. The same is true for a number of cottage triplexes. In 90402, you see big holes in the ground where scrapers are putting in underground parking in preparation for building a mini-mansion on an undersized lot. In 90403, you see the cottages and triplexes razed to make way for new condos. Typically they build seven or so condos squeezed into a space where there was once a triplex and a postage-stamp lawn.
Income problems are relative. If you pay $4.5 million for a 5,000 ft 3/2 on a 7,500 ft lot, you had better be pulling down some serious income and it had better not stop suddenly. If you buy a house 2 doors down that was built in 1923 for $1.5 million, scrape it, and put another $1 million into construction, you have a chance to make $2 million for a year’s work. *If* you can sell it when you are finished.
It’s flipping for high rollers
“(4) The realtors blame the interest rate increases of BB This realtor claimed that if BB would just say he wouldn’t increase interest rates anymore the market would get active again .”
That flies in the face of statements from the industry “experts” last year that the slight increase in interest rates would have no effect on the strong housing market. These folks shamelessly change their story whenever it suits their objectives.
When are realtors going to understand that it is the liberal lending causing homes to sit on the market. All the trading equity purchases have happened and first time home buyers just do not have the down payment to get into these homes. Even with an ARM negative amortization loan first time buyers will not be able to make it. Real wages have been stagnant in this Country. These market is going to tank badly. When it does tank its going to hurt worse because all these people thought they could include a huge portion of their fake equity into their retirement portfolio. I hope they saved a little bit, probably not that new SUV with the dvd player was just too attractive to pass up with all their new found equity line money.
I visited and spoke to a Realtor (TM) in Lexington, KY two weekends ago, who suggested their used home inventory was up about 50% YOY. I also noticed a very high density of “For Sale” and “For Rent” signs in every residential neighborhood through which we drove. I don’t recall hearing that Lexington, KY was one of the “locally frothy” markets, but the evidence to that effect was rather compelling.
Don’t know much about Lexington, but Louisville is one of the few cities to escape the bubble. I lived there until 2000, median was probably around 120. Now its still in the 130’s. Visited not too long ago and some friends had bought a 4BR/2.5bath/garage/basement home for around 150. That home in the DC area would be anywhere from 400K to 1 million, depending on neighborhood.
I might regret posting this, as I’d hate to see the California locusts decsend on my old city.
Just purchased a one-way tix to the home of The Greatest! LOL.
California locusts? Maybe from even further :).
Lemme see now. The Oz Dollar is about 75 US cents, so 150K US$ is 200K A$. For a 4BR/2.5bath with garage and basement?
Holy dooley, where do I sign?
On the subject of location and quality of life, having spent the last 6+ years living some 2400 miles away from my family, I have to say that it sucks. I have nieces, nephews, and cousins that I see maybe once a year, you always have to think “what time is it there” before you pick up the phone to call anyone, and airfares are going up just like everything else.
If you care about having an actual relationship with your family members, you have to factor all of those intangibles into the caculation alongside proximity to schools, culture, and housing. Sending my niece an e-mail is not the same as spending a few hours with her face to face.
Yeah, living where I am is cheaper than the area where most of my family lives, but I’m giving up a lot of human connection for it. Eventually I’ll suck it up and move back. I’m hoping that the end of the bubble with help facilitate that.
‘I live in Memphis..We just purchased a house for 96K, 4bd/2bh, 2300sqft, on 1.68 acres of land, less than 20 minutes away from downtown’
I am curious; how much would a similar home rent for?
Replying to Ben up there at the start of the comments: I’m guessing about $800. More if it’s maintained/updated better than average. House rentals, at least, are not a bargain in the parts of Memphis area where you might not be in mortal terror to send your kids to the public school. I believe I mentioned in a comment on another recent post that there are also a lot of speculative landlords out there, who I guess didn’t fare well trying to flip and have got to be basing the asking rents on anticipated house appreciation - I think maybe the smart renters are the ones who go for the lease purchase scams here (do you really want to buy in a half-built development where every third house is for sale or rent, and the roads are already getting potholes?) but hold the line at a contract that will allow them to walk away no worse off than they would be as a “traditional” renter.
I’m not sure what relatively high rents/low prices here that means for the future, in terms of that “sinking tide” metaphor. I do admire the guts of the quoted Memphis poster - even in “bargainland”, we’ve been relocated enough times due to changing employers that we wouldn’t want take the bet that if the house value declines, the work situation will still be stable (no layoffs or corporate upheaval), or vice versa.
“I know you are happy in Tucson, but there is no way houses in Tucson should sell for 2-3 times a similar house in Dallas”
I agree. Tucson is what Dallas metroplex would be like if it was 1/10th the size, had no good paying jobs, no culture, no big city attractions, no professional sports, no international airport ect.. This TXChick person will soon be whining about Tuscon too…lol
Does she know spanish yet?