Housing Boom Stalls In Middle America
A trio of reports on housing markets that don’t get much attention. In Texas, “There was a time when multimillion-dollar oil transactions were as routine as burgers and fries. Then the boom went bust. The wheeling and dealing went away, as did the Midland Savings cafeteria and everything else in the 14-story building, and several others.”
“Now the boxy blue eyesore has a date with the wrecking ball. Midland is counting on tax dollars, creative investors and the desire of residents to live, eat and shop downtown.”
“‘No one wanted to be first. That’s what held them back for the last five years,’ said Colleen Fuglaar, a Midland High School graduate who now works for California-based RTI Properties. She and developer Robert Abbasi successfully bid $1 million for the vacant Vaughn Building, which they plan to convert to loft-style condominium units with retail space on the ground floor.”
From the Billings Gazette. “Amid talk of a plunge in real estate prices after several years of steep appreciation, a real estate agent and a local economist say that’s not likely to happen here. ‘There are probably areas of the country that have had some changes, but we certainly don’t have any busting bubbles in Cheyenne,’ said the Realtor, George Short.”
“Short, president of the Cheyenne Board of Realtors, said the local housing market has been cooling but isn’t likely to sink.”
“Dick O’Gara, director for the Wyoming Center for Business and Economic Analysis, said Cheyenne went through escalation and depreciation in housing prices in the late 1980s and early 1990s. But there is little talk of a real estate bubble in the Midwest.”
“Short said more homes are on the market now than at any time since he went to work in real estate in 1992. He said, it’s a buyer’s market. ‘When someone has 20 houses to look at versus the two or three that they’ve had in the last couple years, they’re going to look for the one that is the best deal,’ he said.”
“‘For Cheyenne and Laramie County, we’re not looking for the bubble burst to where prices will suddenly plummet 10, 15 or 20 percent in a matter of months,’ he said. ‘We’re apt to see some price declines, but they’re not going to be severe.’”
“He said sellers aren’t panicking. ‘It’s a matter of being realistic and realizing that if you have 1,200 houses for sale versus 600 houses for sale, it’s probably going to take you twice as long to sell your house,’ he said.”
The Birmingham Business Journal. “A pair of high-end residential projects are about to see whether Birmingham residents are ready to live on the southeast edge of downtown. Seaboard Yard townhouses, with units priced at more than $317,000, is beginning to market itself to buyers. And across the street, The Carroll & Green Group Inc. is about to break ground on a $5 million live-work building that will house luxury condos.”
“Developers are banking on the prediction that the area will become a residential hotspot and that property values will rise. They already are. Land prices have gone up three or four times in the three years since the developers bought their property. Land that sold for $2 to $3 per square foot in 2003 fetches $10 to $20 per square foot today.”
“The Seaboard Yard marketing team hopes potential residents will soon see the value of a $300,000-plus investment. They plan to market the property by handing out fliers and holding a cookout for Realtors to show off the just-completed model unit.”
“And the price for one of the units has been lowered to $299,000 in order to grab the attention of people searching listings in the $300,000 and less range. So far, three townhouses have sold, two to investors.”‘
“‘We’re just not getting the response we thought we’d get,” says Lauriello, blaming the sluggish response in part on the project’s being nearly a year behind schedule.”
“Developer John Lauriello says it’s a good sign that investors have purchased two of the units. ‘These are pretty prudent real estate people who feel like once that project and some other projects in the area are completed, that a year or two from now there could be a substantial amount of appreciation,’ he says.”
Downtown Midland is a ghost town after business hours. Good luck with that. The last time I was in Wyoming (2001) they were building like crazy. Thanks to the readers who contributed to this post.
See, it is *different* in Midland. Time for ‘mon back on Midland Real Estate.
Downtown LA is a ghost town too but that’s because people don’t live there. I believe there is a pent-up demand for condos in city centers, particularly in areas like LA where traffic is horrendous. I know someone who bought into the first downtown LA condo nearly 20 years ago. He couldn’t have been happier. Living 5 minutes from work does have it’s benefits.
I believe there is a pent-up demand…
Why? What’s been keeping it “pent-up”? Demand usually begets supply, and that just hasn’t been happening. Given that there are condos downtown and their prices did not skyrocket prior to the bubble, it’s pretty safe to say that the supply has kept pace with demand.
I think there are some limits to the demand. I lived in a city center when I was still im my teens. Being in the heart of the city was fun and convenient, but crime, noise, traffic and crowdedness precluded me from wanting that lifestyle when I was ready to start a family.
I have to disagree with this too. There is demand for cheap housing in LA, so if downtown condos are affordable, they’ll sell.
There is no demand for “luxury lofts,” however, IMO. Until last year I worked in downtown LA and was intimately familiar with the area. You’d have to be out of your mind to want to live there. Homeless people urinated on every corner. The air was piquant with smog from busses, trucks, and cars. Movie shoots are always blocking off the streets. Between 5 and 6:30 p.m. it can take you 30 minutes to traverse downtown by car.
There were, however, a fine variety of restaurants in the area — from Carl’s Jr. to the Mako Chicken Bowl.
There are no grocery stores. There are no parks. There is nothing to see or do. Downtown LA is bordered by South Central/USC on the west, the gritty industrial corridor next to the 10, on the south, Hillside on the east, and Koreatown/the El Salvadorian neighborhood without a name on the north. There are no scenic areas adjacent to downtown, you’ve got to drive at least 10 miles to get anywhere fun.
So why are the developers building condos in downtown? I have three theories. The first is that they are getting tax breaks to do so. Not a single one of those conversions would have happened if our tax dollars had not factored into the equation. Second, it’s cheap. The office buidings are already built; all the deveopers need to do is put in some bathrooms and granite countertops. They’re much cheaper to build than subdivisions full of SFH’s. Fourth, they are selling them to speculators. Fifth, and this one is just a guess, the units built there won’t remain “luxury” units for long. Rich people aren’t going to live downtown. Soon the buildings will become affordable housing with granite countertops, all of the speculators who bought in will be foreclosed upon and the banks will resell for far lower prices. The county may even take over some of the buildings and turn them into Section 8 housing.
BTW, if anyone is really interested, my old firm had to find new offices in February becuase our its office building, the AT&T Center at 6th and Grand, is going condo! Buy now, real estate only goes up!
get out of here - ATT bldg going condo???????
It’s true! The upper floors, anyway — it is supposed to become a “mixed use” building. We were on 20 and had to leave. I don’t know if any of the building’s other tenants are still there. I drove past the other morning and the whole thing appeared to be closed.
Can you imagine living there? Or paying $700k, or however much they plan to ask, for the privilege?
I mean, some condos are going up in Century City too. I wouldn’t buy one, but at least the Century City buisness district is adjacent to some awfully nice areas. But downtown?!?!
Yes, and you can use the excrement the winos leave on the sidewalk outside to fertilize your window-box garden. Nice try, Troll Boy.
i like wyoming great hunting no speed limit and drive thru liquor stores.that is one desolate place more antelope than people nice place to visit but you would not want to spend a winter there
You are 2/3 right - hunting and drive thru liquor stores. WY has a speed limit, enforced. Montana was the state sans speed limit; they’ve put in a little one right now. In both states, winter separates the men from the boys.
“Short, president of the Cheyenne Board of Realtors, said the local housing market has been cooling but isn’t likely to sink.”
Every RE industry member who makes public comment on the cooling real estate market seems to feel compelled to add that the market is “not likely to crash”, “not likely to sink”, or “there is no bursting bubble.” So much denial belies the fear that the worst case scenario of a hard landing is playing out pretty much everywhere in the USA where houses are built, bought, and sold…
It seems that nobody is expecting a housing crash except those pesky bloggers. We’ll see who is right and who is playing spin the data.
“nobody is expecting a housing crash except those pesky bloggers”
Those pesky realtors, nothing bad will ever happen as long as you buy what they are selling today
Pesky bloggers are right. You can see the cracks everywhere in the US. This thing is like a snow avalanche. At first only a couple of snowflakes fall. And suddenly because of the weight and instability of the snow, everything comes crashing down. Or it is like le levees in New Orleans. The bloggers will be right.
I think Getstucco has narrowed it down just right: the only places likely to see a crash are those where houses are built, bought and sold. Everywhere else will be just fine.
“Developers are banking on the prediction that the area will become a residential hotspot and that property values will rise. They already are. Land prices have gone up three or four times in the three years since the developers bought their property. Land that sold for $2 to $3 per square foot in 2003 fetches $10 to $20 per square foot today.”
Is it safe to conclude at this point that the high end of the residential construction industry represented the new Gold Rush of the early 21st century? In the original gold rush, those who got there first made lots of dough, but the crowding effect of new entrants resulted in rapid dissipation of profits. I think something like this has definitely transpired in the “luxury” segment of the US residential construction industry — too many high-end homes have been built relative to our two-class (upper / lower) socioeconomic structure, and there are not enough rich guys to support the high prices of so many luxury condos and McMansions. This is why I think Toll Brothers stock has only begun to tank at this stage…
Yup, someone the other day was complaining they couldn’t rent a nice “little” 3bed/2bath. They could only find condos and over-priced McMansions.
Once people decide they don’t want that anymore we will have a housing shortage… of properly sized, well spaced single family homes.
When it comes down to it, there’s more of a market for the modest 3BR/2BA than for the McMansion, especially for singles or couples with no kids. For one or two people, 3 BR/2BA is all you really need - the pets don’t need their own separate bedroom, and if you have more stuff than will fit into a 3BR, it’s time to think about getting rid of some of it.
And now that oil prices are going up, McMansions are going to be even more of an albatross. Big house, high ceilings = $$$ to heat and cool. Big house = much too much time spent vacuuming, dusting and mopping.
We have 1800 square feet 3/2 in our main house. We also have an 850 sqft added on “granny flat” in the back. Up until 2 months ago the entire flat was rented, but then that renter moved out and another person is renting just the half of it with the kitchen/bedroom/bathroom.
So I got another 450+ sqft big ass “family room” about two months ago.
The problem is I never go back there because we lived in the main house for 3 years now and don’t even think about it. I have some ideas but don’t really want to spend the money to outfit it and am not really inclined to since I don’t use it.
1800 sqft is fine.
Right, 1800 sq feet is plenty! Small bedrooms are ok, I’d use the space instead for a half bath and a laundry room.
You’ll know it’s time to buy when most McMansions have been subdivided into apartments or boarding homes.
“Short, president of the Cheyenne Board of Realtors, said the local housing market has been cooling but isn’t likely to sink.”
Houses have been selling like hotcakes in Montana and Wyoming despite population DECREASES in these states over the past few years. Montana even lost of seat in the House of Representatives due to population decline (now less than 1 million). Montana and Wyoming have a serious problem in that their children go away to school and never return. I know, because I’m one of them.
So, where does Short think these buyers come from? When the population continues to decline and houses still sell quickly, I’d say that’s pretty indicative of out-of-state investors and a real estate bubble.
Montana/Wyoming seems like a second tier Arizona to me…
1. Severe drought
2. Ranchers sold out to developers, abundance of cheap land
3. Buyers were the “noveau riche” (ie…HELOC financed)… and bought second homes/investment/retirement..now they are stuck with them, just like AZ, albeit on a smaller scale.
I looked in the Wyoming area a couple of years ago, but the drought and infestation of investors changed my mind.
Wyoming is infested with little 35 acre “ranchettes”. The price of gas is beginning to take the fun out of living out on the open prairie. A lot of out of state investors are buying up these little slices of heaven without knowing that the wind blows the shingles right off the roof. BTW, Wyoming has the highest suicide rate in the country.
Yeah, they like to spread out. I drove through in May, and I wondered what those big wooden fences were for out in the middle of fields along side the highway. A local told me they were there to catch snowdrifts!
Those are snow fences. Exactly as you described, intended to drift up the snow before it blows across the highway and helps- but does not eliminate total white-out conditions and black ice in the winter.
I thought Seattle had the highest rate of suicide. I drove up about 12 years ago, thinking to buy, but the weather and lack of good jobs at the time convinced me to stay in the OC.
How much would it cost in gasoline to drive across a 35-acre “ranchette?”
The bubble appears to be popping first with new construction.
I had a chance to drive around Boise (kind of middle America) this last weekend and noticed a lot of new construction and available homesites are for sale. One neighboorhood of homes pricing 250k and up had 21 completed or nearly completed homes for sale in a 4 block area. Another 2 dozen or so lots in the next phase are available; little construction activity was noted in the new phase. The site was the same in other brand new developments- just finished homes and available lots arent’t moving, especially compared with last summer.
For you researchers- I was driving around MLS area 550 in SW Boise (Meridian school district). I quick search shows about 280 homes available and listed as: to be built, under construction, or new and never occupied.
For you researchers- I was driving around MLS area 550 in SW Boise (Meridian school district). I quick search shows about 280 homes available and listed as: to be built, under construction, or new and never occupied.
Out here in Eagle, ID things are priced anywhere from 130->175 sq/ft. The 130/sqft I’ve been watching started at 140 and has had a few price reductions. Nice places seem to be moving still, but ones with less than ideal lots and features seem to sit. IE There is 1 buyer for every 20-30 homes and he/she picks the nicest one. I was driving out around Start & Middleton (who wants to live all the way out there) and noticed what seemed to be a lot of “stalled” construction. Houses in various stages of construction, but nothing really moving. I’m guessing most of the stuff in Middleton, Emmet and the like are speculators than don’t know the area well.
Great observations- I also noticed that the “big homes on small lots” in the 250k+ price range had a lot of for sale signs out front. Lower priced stuff looks to be moving as this is what most of the locals can afford.
I sent pictures to Ben- hopefully they will be up by next week.
Brandon,
We put up everything we had on Saturday. If you sent before then, please re-send.
Thanks for the sparsely-populated-state nod, Ben. Nice denial going on in Cheyenne there. HPI numbers show a 50% price increase since 2000. May sound pitiful if you’re in CA, AZ, or FL, but you can bet that wages didn’t inflate 50% during that time. Montana has followed the same track, and we get the same denials. Big cities, coastal areas, but never here, blah, blah. See this article from last year:
No Bubble, Period
Inventory is up, up, up everywhere. Wyoming prices still roaring, according to the latest HPI, but Montana slowed to 2.5% annualized appreciation.. in real terms, house prices are finally going down!
To me this is the interesting issue: will areas that didn’t have a housing bubble have a bust anyway due to economic decline in declining areas and over-building (due to low interest rates) in booming areas?
If not, it will be the early 1990s bi-coastal bust redux, perhaps expanded to Florida, Vegas and Phoenix. If so, it will be something new and worse.
Larry — look for “something new and worse,” IMO.
“And the price for one of the units has been lowered to $299,000 in order to grab the attention of people searching listings in the $300,000 and less range. “
Idiots! Everyone knows that you shoud price it at $299,999.00!
Why not $299,999.99?
Perhaps Suzanne has researched this.
Cheyenne is riding the wave like most places. In many ways Cheyenne is becoming a bedroom community for the spill-over from the Cororado “front-range”, like Fort Collins and Loveland, and as far away as Denver. Wyoming had a $2b surplus last year due to rising energy production, and they are spending it, baby. Two of the biggest non-public employers in Cheyenne are Lowes and soon-to-be Wal-Mart distribution centers. It’s unlikely that those kind of jobs will keep the party going by themselves. A few miles away in Laramie, the University of Wyoming is on a building and development spree, again infused by massive amounts of money from the state mineral royalties and donors. Other than public employment, there are no jobs or heavy industry in the Cheyenne area, to speak of. There’s extensive building and development in other parts of Wyoming driven by oil and gas development, but many still remember the last boom/bust cycle. Remember that Mr. O’Gara is paid to pimp the area.
Here in Boston some of the listings read, “Price good until June 20th. Come with pre-approval letter fast!”
Does this mean that after June 20th the price will go down even more? I think it does.
On another note, the two family across the street that was for sale for one year was taken off the market and rented out. The funny thing is that the tenants are already gone and the for rent sign is up again.
ot - newsflash:
zip/phoenix is above 49,000 listings. we’re really putting a dent in that overhang, eh?
now back to our regularly scheduled program
Wow! Now, I understand 50k will only be a milestone of interest to us bloggers, but that’s just crazy. Does anyone have stats on:
1. Number of completed homes, vacant and unsold, with the CO (cirtificate of ocupancy) in the whole USA?
2. Number of 2nd+ homes in the USA?
I really want to stay in Cali… but my company is unable to attract or keep young talent due to out pay scales not supporting purchasing Cali housing.
Luckily, my girlfriend can get a higher paying job in the two most likely locations we’d be moved to. 
These are “semi-bubble” location that just have the minimum metropolitan services and perks to attract people of my profession.
I think it might be too late for Cali to keep jobs… It seems like the trickle of jobs that have left will become a flood.
My company is also salivating over the projected $billions they could sell their land for… It pays for the move, new buildings, retraining people (due to departments only getting a fraction of people to move) and lost productivity (people stop working to prepare to move, house hunt, and settle in the new area)… Interesting numbers… very interesting. And we’re only looking at areas with enough tax incentives to pay for the move too.
Man am I glad I didn’t buy.
Neil
That is the game and that is exactly how it will unfold.
We are moving more of our development to Dallas, even though I would rather we did it in San Diego. We simply can’t make the numbers work here. My wife really likes this area (I like the Midwest better), but I think it would be good to take a break from California for a while until the economy reverts to mean.
I’ve been meeting tons of ex-Californians in Dallas over the past two years. They just keep coming. The business sector is booming out here. Dallas is a mass of overbuilt suburbs, but housing prices have stayed pretty consistent. I think there is currently a glut of mid to high-end stuff.
Despite the rumors, Dallas does have culture and there is plenty to do, you just have to make an effort to find it. People are friendly and will go out of their way for you, but you have to insert yourself into the community or you will get lonely.
culture if greased pig riding is your forte
You will like Dallas - are you moving to Plano by chance? I interveiwed with that company and they told me they are pulling out of SoCal by attrition. Another huge employer, that I working for, also is pullingout and relocating to Fort Worth and Georgia. Both said they can’t keep anyone once they marry and look around for a place to raise the family. So they quit the company and move. So both companies decided to move too!!!
I always enjoy your well thought out and insightful posts, Neil.
“He said sellers aren’t panicking. ‘It’s a matter of being realistic and realizing that if you have 1,200 houses for sale versus 600 houses for sale, it’s probably going to take you twice as long to sell your house,’ he said.”
Me thinks not. This is not like waiting in line for a taxi, where you’re guaranteed to get a ride by the time you reach the end of the line. In the current market, the airport people taken down the velvet rope, and now the taxi drivers (buyers) can cruise the line and selectively pick out the hot chicks. If you aren’t a hot chick (competetively priced house) - you’re going to be cooling your heels on the curb FOREVER!
Yes, and it’s a well-known fact that hot chicks really dig taxi drivers. But the analogy is a sound one — rising inventory doesn’t mean “twice the wait,” it means LOWER YOUR PRICE.
Developer John Lauriello says it’s a good sign that investors have purchased two of the units. ‘These are pretty prudent real estate people
Oh boy is this guy in trouble if that’s what he thinks.
“Investors were a bigger part of the market than many thought, including ourselves,” said Hovnanian, whose company builds primarily in the Northeast.
You think they would have SOME idea to whom they were selling. DUH.
From a Santa Barbara realtor posting at Realty Times (below). All you need is a cool 10+ million to continue to make a bundle buying Santa Barbara real estate
10 + Million Estate Market Leads Sales Activity in Santa Barbara
While the available inventory for sale continues to increase in the condominium market and the homes priced under $2 million, a look at the $10+ million Estate property market tells an entirely different story.
While demand for housing in Santa Barbara is still high in both categories, interest rate hikes have put pressure on those home purchasers of condos and homes priced under $2 million.
The $10+ million Estate property market on the other hand is completely different. We have seen very little new inventory from which these affluent buyers might select from. This limited amount of existing Estate inventory, coupled with a limited supply of Estate land options and the difficult and exhaustive process of getting approvals and then building have been the catalyst for the very impressive sales data in the Estate market.
Nearly half way through 2006, from January through early June, the $10+ million Estate market revenue has already exceeded that of all of 2005! This is not an anomaly.
The $10+ million Estate market has had a meteoric rise since 2003. According to Santa Barbara Association of Realtors Multiple Listing Service data.
For 2006, not quite half way through the year, the data posted a revenue number of $96.9 million - higher than the full year 2005 revenue figure of $96.3 million. 2005 however should not be overshadowed as it delivered a very impressive revenue increase over the 2004 revenue result of $74.7 million, which again was quite an impressive gain over the 2003 revenue figure of $33.6 million.
What does all of this say? The affluent buyers are finding that Santa Barbara’s fantastic quality of life, coupled with its historically limited inventory and low growth philosophy creates an wonderful living environment and perhaps a darn good investment strategy as well.
For more statistical analysis or market data, contact Wendy Elizabeth Gragg, President
Distinctive Real Estate
805.565.0246 WGragg@DistinctiveRealEstateOnline.com http://www.DistinctiveRealEstateOnline.com
Santa Barbara is an investment you can live with!
While the monthly numbers are also impressive, a long view is the one most commonly trusted when analyzing any investment. Here are the very impressive 5 and 10 year returns based on median selling price of Montecito and Hope Ranch - the two crown jewels of Santa Barbara real estate. It is for good reason that the long view is the most accurate, as annual comparisons are often skewed by a single large purchase.
Montecito
5 year return +53.3%
10 year return +236.3%
Hope Ranch
5 year return +50.0%
10 year return +221.4%
While these returns are very impressive and alone may attract your attention, you must also consider the excellent quality of life of Santa Barbara.
That’s what we call “driving with the rearview mirror.”
OC Max:
So you are saying that profits seen in the rearview mirror may not be closer than they seem?
“Warning - Objects are closer than they appear” refers to oncoming buses, meaning that recent buyers are about to be converted into street pizza.
“You’ll know it’s time to buy when most McMansions have been subdivided into apartments or boarding homes.”
No problem here in the bay area. No one seems to care. Just buy it and start renting out the rooms of the 3500 to 5000 sq. ft. abode. You should more then cover expenses, but you neighbors might be a little miffed at the 10 or more cars parked out front of their houses.
and the 10 cars are old beaters owned by undocumented workers