A ‘Lot Of Trouble’ With New Home ‘Glut’ In Arkansas
The Morning News has a rare update on the housing boom in Arkansas. “Home buyers will get bargains, and sellers may get less than they ask as the supply of single-family homes outstrips demand, according to a quarterly real estate report. The report said ‘there are economic imbalances developing in the residential real estate market,’ and ‘increases in supply are outpacing the growth in demand.’”
“Benton and Washington counties had 1,518 completed but unoccupied new homes in the fourth quarter of the report, which covers September through November. That’s an 87 percent increase from the 812 completed but unoccupied homes available in September through November 2004.”
“Kathy Deck, researcher at the University of Arkansas, said the area still is growing at a steady pace of 1,000 new residents each month and there is no slowdown in job growth. However, Deck said the home supply is increasing so rapidly that people can’t buy and move into homes at the rate homes are finished. ‘This is a time where extreme caution is necessary,’ Deck said.”
“Deck said home builders may get squeezed and have to reduce prices to sell homes in a competitive market.”"The oversupply of single-family homes may continue. There were 16,765 lots in subdivisions under construction in September through November and an additional 19,321 residential lots that have preliminary approval from local planning commissions and city councils. That translates into 36,086 lots, or enough for more than eight years at current population growth rates, Deck said.”
“‘The supply is so far out there that if demand slackens a little bit, there could be a lot of people in a lot of trouble,’ Deck said.”
“Deck said banks need to be careful about lending money for more new subdivisions or single-family homes. ‘If banks are out there giving money to everybody in the world who wants to build anything, it is really a dangerous time to the market,’ Deck said.”
“(Realtor) George Faucette said many builders and investors from outside the area have moved in and invested in subdivisions, as Northwest Arkansas hit all the Top 10 lists of best places to live and fastest-growing places in the country. ‘It’s not like a bubble has been pricked, but sellers are going to have to be more conscious about how they address a buyer,’ Faucette said.”
Arkansas sounds like a great place to invest. Who would pass up the chance to live near the headquarters of Wal-mart?
http://ludb.clui.org/ex/i/AR3133/
LOL. Has anyone seen the infommercial with “Ponch” - aka - Erik Estrada?
Pimping overpriced waterfront property to flippers. Do you think he has a rug?
Don’t laugh at Ponch… the prices on those lots are going up in April. If you don’t buy now, you’re going to miss out on the current low prices!
Too funny…I’ve seen him pimping properties in WA and AZ but none in AR as of yet. You know there is a bubble when there is overbuilding there.
BTW, I laugh when I see that Ocean Shores, WA infomercial and all the people are saying how much better the beaches are there than in SoCal…while they are wearing parkas on the beach…lol
Again I have noticed that I use the word “there” way too many times in my sentences. My 3rd grade English teacher would have bitch-slapped me if she read that…
Didn’t know about his other RE ads (WA and AZ). Sad. I never respected his acting on CHiPs either.
There’s a housing bubble in Arkansas? LOL. Seriously?
the bubble is everywhere.
OmniBubble.
wow we are idiots for renting… http://finance.yahoo.com/columnist/article/millionaire/2585
I’ve read it and it’s sad to see that David Bach doesn’t disclose the downsides:
1) leveraged losses are even more painful: it can zero out your equity or end up with negative equity!
2) tax payments will go up! (Even if appraisals go down, don’t be surprised if your tax rates go up even higher — that’s what they did here in Austin, TX after the dot com bust!)
3) And if you lose money on real estate, you can’t deduct it from your taxes (unlike other capital losses). See the details at: http://www.irs.gov/publications/p523/ar02.html#d0e684
[I was a bit surprised to find this out. No realtor told me about this bomb in the tax code.]
I’m surprised too, but come to think of it, it’s actually fair, as the first $500K gain from selling primary home is tax free.
What it means is the tax laws add air to the bubble when the market is rising. But when it’s falling, it makes RE investment much worse than others that losses can be deducted.
My understanding is you can’t deduct losses on your primary residence but you can deduct losses on an investment property to offest gains or carry the loss forward until you have gains to offset against. I may be wrong, but that’s how I think it’s set up.
Yes, I think so: since you can’t get exemptions on the gains either for investment property. You can get some exemptions from gains but no protections from losses so when the bubble bursts, people will be worse off than dot com busts.
At least with the dot coms, you can write off few thousand (3K per married couple?) every year against your income….
arkansas….arkansas…..i’ve heard that word before. just can’t place it.
It’s actually quite beautiful in places but there’s no way I’d live there. I require that the people around me walk on two feet with no knuckle-dragging allowed.
lol
ditto - LOL - Arkansas. I from Bakersfield and that is well below us!
… I’ve been thru there once. I hate to belittle people, but every person I saw down there looked physically dirty. Almost like they had coal dust on their faces (even though there are no coal mines down there). And this was in their biggest city (Little Rock). Weird state. Although I hear there are nicer places like Hot Springs, etc.
My wife and I drove from Tennessee to Texas through Arkansas but didn’t stop (or get out of the car) once. I still claim to have been there.
I was in Eureka Springs, Arkansas once for a weekend (part of a cross country trip) - it’s in the NW corner of the state and made for an interesting stop. The ex-Californians (Marin County and SF) I visited there seemed to be doing better than OK.
I went on a rafting trip one day, it was mountainous and scenic, and a definite tourist destination (lots of weddings at the many B&B’s with people coming from, if I recall, NO, Big D, KC, others), with some very good food and fun social spots.
Some cultural mix among the many transplanted locals, too, with the accompanying enlightened politics. A few mentioned something like “the place is a special ‘hole in the belt loop’” - meaning the rest of the state wasn’t like “the Springs.”
I don’t want to disparage Arkansas, but now I am wondering, is there any place in this country (let’s not consider New Orleans and Biloxi for the moment) that has not experienced explosive housing price increases over the last five years? I’d sure like to know about those places.
don’t want to disparage Arkansas, but now I am wondering, is there any place in this country (let’s not consider New Orleans and Biloxi for the moment) that has not experienced explosive housing price increases over the last five years?
Metro Denver Area, Colorado (Average 3% per year drop from 2001 to 2004)
North Dakota?
Pittsburgh. Its actually a nice place to live, too. Lotsa culture. Low house prices.
bearmaster, there are actually places. If you go to the PMIgroup website they have stats on a bunch of US MSA’s. City National’s site:
http://www.nationalcity.com/corporate/EconomicInsight/default.asp (report on the bottom right corner) shows stats for 299 cities.
Thanks so much for this link!
Actually in Northwest Georgia - Catoosa and Walker counties appreciation has held steady for the past 4 years at 6% on new homes and 4% on used homes. Average per square foot right now on a new build is $105.00. On a used home average is $85 per square foot. I just purchased a 3100 square foot new home (1 level), 1 acre of land, sitting on a ridgeline with a panoramic view of the mountains, 2/3 brick, with special insulation package that brings my heating/electrical costs in at $170.00 per month for the winter months. My total cost for this gem? $325,000.00.
Though appreciation has been far less “frothy” than in other areas of the country this area will not be immune to price depreciation. The major employer in the county is Shaw Industries (carpet/flooring). I don’t think we’re too far off from seeing layoffs in this industry and that will be putting pressure on home price appreciation. Building of new homes is going gangbusters here locally, but the banks are starting to tighten construction loans. The builders who had a million dollars of credit have been cut back to $750,000 for construction loans. Some subdivisions have 30 homes built by the same builder without a single one having sold! In those situations the banks are refusing to loan any more money to the builders for those subdivisions until the inventory starts to sell. One of the reasons that we haven’t seen ridiculous price appreciation here is because there is NO FLIPPING. The banks won’t allow it! I mean that literally. My realtor bought a home, upgraded it and tried to sell it at what the bank viewed as an excessive price increase in an 11 month period. The bank demanded that she show receipts for the work she had done to justify the price increase. So in the end she sold the home for a 6% increase which was all the bank would allow! People here finance locally they don’t use Ameriquest or Countrywide and the banks have been protecting the buyers as well as the stockholders. Also, 75% of the people here have gone with 30 year fixed rate loans with 20% down. Only about 25% of the financing has been with ARMS or 80/20’s. However as conservative as things have been here, Georgia is still Georgia and has a long history of record setting foreclosure statistics so it’s anyone’s guess how far the prices will drop when everything’s said and done. I don’t care. I sold my house in Orange County California and moved here. I’m 45 years old and paid cash for my house with the intention that I was going to die here. When the market starts to drop, I’ll purchase some rentals (cash) for passive income.
Curious - what do people do for work in NW Georgia?
Yes, much of Colorado has been flat. I had rental properties in Boulder, but sold out when then economy took a dive and rents dropped 10%-20% (plus had to give a free month to get any tenant, so the effective drop in rent was really greater). The type of properties I owned are still sitting at the same prices, +/- a couple percent, as in 2001, and rents are still quite a bit below where they were in 2000.
I have been told Salt Lake City was somewhat hot before five years ago, cooled off with the giddy overbuilding leading up to the 2002 Olympics and was mild up until very recently - when finally, fleeing California equity nomads found out it wasn’t overvalued! And now prices are on the charge. Something I saw recently said that SLC and CA prices have been countercyclical in the past.
Note (GetStucco, others): As told to me or seen when in the area or read in the SLC Trib or Deseret News (or whatever it is called).
It is ironic that people keep flocking to invest in real estate in whatever towns get accolades for being “good for retirees”. An important criteria for these types of lists often has to do with affordability. Once prices in those cities get bubbly, those cities will be off the “best places to retire” lists, replaced by some other town few have ever heard of. And the cycle continues.
I have owned some apts in NW Arkansas for over 20 years. The 1000 people a month mentioned are mostly illegal immigrants recruited from Mexico by Wal-Mart, Tyson, and other biggies, who have the juice to keep all local politics favorable for the immigrants. The shocking thing is that many of them are buying houses there, even on stolen ss numbers. Win, Win. If the house appreciates, sell, move back to Mexico. If the house depreciates, walk away, move back to Mexico or steal another ss number. All of the immigrant walk-aways are another “overhanging cliff” in the housing market that will accelerate the collapse when it starts.
The homebuilders can afford to lower prices if need be. Their margins are very high. The folks in trouble will likely be resellers, people who are going to be competing with the new home builders.
If the median value in a market falls from $300K to $240K (a 20% drop), that would blow a lot of homeowners out of the water. But the builder is probably still making $50K on the new home sale even at $240K.
Ben: you’ve got a bug with the nested commenting: even with “(Comments wont nest below this level)” I was able to click on reply and nest accordingly. Sorry about that!
Actually, Arkansas is a very beautiful state. I think most people think about its reputation (backward hick state) when making judgements. I can actually see why people would move there — and it is getting more sophisticated over time. It’s not too cold, less hurricane and tornado threat than neighboring states, little chance of earthquakes, etc. Does get a bit humid in the summer, though.
And have you noticed that if you read the full article, there’s no BS. Just sound logic, commonsense and warnings.
Matne that’s what the coastal areas mean by ‘unsophisticated’ :lol:.
Matne I should also check my typing skills when writing ‘Maybe’.
Or Matne not.
Unless all of those subdivisions consist of double-wides there is no one living there who could possibly afford them. Ten bucks an hour is the richest man in town. Arkansas has no middle class and no class in general. They can flush the entire state…my father made me go to school there…I know. Needless to say my father can drop dead.
State motto used to be “Land of Opportunity”. They had to change it to “The Natural State” because they were sued for false advertising…
I think even $105/sq.ft. in NW Georgia is too high. Some areas in that quadrant already have relatively huge inventories. If only 25% of the loans are ARMS, that is a heck of a lot of resets that will drive prices down fairly soon (w/in 12-18 months). I am looking in that area and am just biding my time for the dominoes to fall. Meanwhile, my short-term CDs are earning almost 4.5% and climbing and my rent is relatively cheap.