‘Are We Totally Falling Apart’?
The News Observer has this report from North Carolina. “In April and May, the number of existing homes sold on the Outer Banks plummeted by more than half compared with the same months last year. On the southernmost stretch of coast, sales in Brunswick County have dropped about the same amount. According to locally compiled statistics, sales on Emerald Isle are down more than 60 percent.”
“Broker Marcia Parrott has seen downturns before. But, like the thousands of others who make their living from Outer Banks real estate, she can’t help but wonder what’s happening. ‘Are we in a correction?’ she said. ‘Are we, I hesitate to use the word ‘collapse,’ totally falling apart? Or are we having a soft landing, which is what I heard someone say the other day.’”
“She said it was overdue, given the number of speculative houses that builders and developers put on the market, and the number of investors who jumped for quick profits. ‘Our prices went up too fast and too high,’ she said. ‘We needed this.’”
“Prospective buyers have caught on to the downturn and are routinely offering 10 to 15 percent below asking price, even though they know the seller has already dropped his price, sometimes more than once. In one recent case, broker Mark Petty said, a potential buyer even offered less than a previous offer, apparently betting that the first potential buyer would walk away.”
“Homes in the $500,000-and-under range are still selling, he said, but there’s a glut of oceanfront homes. In some cases, speculators have been left with one worth less than they paid.”
“Real estate is a huge industry on the Outer Banks. When Petty got into the business a little over a decade ago, there were 400 to 500 brokers on the Outer Banks, he said. Now there are about 1,100, including many who haven’t been in the business long and perhaps thought the market would always be booming. ‘It’s probably a rude awakening for them,’ he said.”
“On the Outer Banks the average home price fell 16 percent, or almost $100,000, in May, and sales were off 54 percent.”
“John Hunter, an appraiser in Kill Devil Hills, said he’s seeing such things as a seller who turned down a $1.5 million offer a year ago accepting $1.2 million recently.”
“Income from summer rentals is important for many homeowners on the barrier islands. Hunter thinks the nature of the downturn will become clearer in the fall, once people who might have been thinking about bailing out ponder that long stretch of winter mortgage payments.”
‘Soft markets in the places where many Outer Banks buyers are from — such as northern Virginia and the Northeast — are partly to blame. ‘They may be more aware of changes in real estate conditions than we are in North Carolina,’ Kent said. ‘They may be feeling the pinch in their own areas.’
The rolling boom becomes the rolling bust?
my memory is that the second home markets (new hampshire mountains, maine, cape cod) falling much further and much faster than primary markets (boston, new york). a ground report from cape cod- realtor friend sold $11,000,000 worth of real estate in 2005, has closed on $400,000 so far this year. his report is that the service industry (landscapers, painters) are hurting this summer on the cape, as many are resorting to cutting their own lawns and picking up a brush.
Last year my Northern VA real estate agent cashed in all their family’s retirement savings to pick up an Outer Banks vacation house. I haven’t heard how the vacation rental market is doing. Folks might choose less expensive vacations if they don’t have the home equity cash, but it’s still a popular place to go for families here in Northern VA. We went to Corolla a few years ago, and it was beautiful.
Lots of people from up here vacation in the Outer Banks as well as Cape Cod, coastal Maine. This area is a ghost town (like most vacation weeks) so I’d say they’re still going somewhere.
realtors hesitate to use the word collapse.how about bubble burst or implosion.
The Outer Banks are another hurricane magnet. There was a very interesting PBS series in the mid 90s called “Savage Seas” and “Savage Skies” which had a lot of footage and information about that. It’s also an environmentally sensitive area. You can just bet these wealthy homeowners will be the first ones with their hands out if a hurricane takes out their properties, which should never have been built in the first place.
Woohoo! North Carolina houses for everyone! Soon, I’ll be able to buy a whole city of houses in the land of grits and southern belles!
Didn’t the hurricane season just begin?
Hurricane season has started ,and the NWS has predicted the area of concern is the Eastern seaboard….and each prediction seems to be closer to their predictions. Last year was the Gulf concern. Seeing what Katrina did ,I shudder to think what would happen to the spit of sandbar known as the outer banks…
It has already happened- Hurricane Isabel .
Google it for more info.
OT but very funny. Last Friday there was an article: Home prices threaten Fed balancing act. I responded back and forth with the author:
Lou,
“Involuntary sales are caused first by economic distress and job loss. We have none of that outside the auto belt.” Didn’t you just say in your article that the mortgage and real estate industries were being affected too? Running at 1/2 capacity? Some previous bubbles have popped by a major economic event or major loss of jobs. Would those bubbles have popped without that major economic disruption? Absolutely. It may have taken another 3 years for 1990 housing bubble in So Cal to pop without the end of the cold war, but the prices were out of wack and had to readjust. The conclusion is not that it takes a major economic disruption or job losses, those events just trigger it earlier than normal. A bubble is a bubble, just keep blowing it up and the smaller the pin you need to prick it. The end is near…
Bubbleologist # 1,909,293
His Response:
Part one… MORTGAGE industry running at 1/2. You added the real estate part. On it’s best day, only 20% of Realtors make a good living.
Part two… financial market bubbles tend to blow because the products have no utility but price. Unlike houses.
Part three… Bubbles DO blow from their own internal pressure (stocks in 2000). However, SoCal early ’90s… My idea of a bubble is an assest that goes to a price that you’ll have to live a long time to see again, post-blow. Nasdaq, for example… I’m 57, and I don’t expect to live long enough to see 5,000 again (my children, 12 & 17, may not live long enough, either). But, SoCal ealry 90s… after the earthquake and defense meltdown, prices were back at their ‘90 top by, what… ‘96? Three years? That’s no bubble, that’s briefly overbought. Now they’ve doubled? Again? Please, God, could we have more bubbles like SoCal early ’90s?
In hard data in some large US housing market since WWII, you find me a housing market that has lost 25% of its value and failed to rebound. Find me one that lost 15% of its value and failed to rebound within just five years. Find one. Just one. ONE. If you can’t (you can’t), then you’re just blowing future smoke. Pure, want-it-to-happen bullshit. You might be right, but it will be by accident.
[Lou Barnes]
My response today:
Lou,
Part 1: I don’t have a graph for the LA housing market in early 1990s, but I do know it was down 40%. Here is a graph from the San Diego housing market that clearly shows that the market was down for 6 years at a minimum and it took at least 8-10 years to catch up to pre-bubble prices. It was down 40% in some of the San Diego beach communities. Remember this Lou, on the way a down a smaller percentage decrease erases a larger percentage increase. For example a decrease of 50% of the value will completely erase a previous 100% gain. Think about it. I would even be more correct if I could inflation adjust my graphs (as I should be able too). I could prove this in MANY more localities.
Part 2: Wrong. Financial markets are more liquid and can respond to pricing pressures MUCH quicker than the illiquid housing market. This is simple concept they teach in finance or economics. Illiquid markets are proned to be affected by momentum differently and take a LONG time to change direction and readjust. This is why you see such defined peaks and valleys. At the end of the .Com bubble you saw internet stock trading companies coming online to help the market become even more liquid. Right now you see Zillow, ZipRealty and others doing the same thing. Commissions are dropping.
Part 3: See the graph. My point is that we were lucky to have such a small “bubble” in the early 1990s. You are correct. Please God give me a bubble like that one. Those 2 factors (end of cold war and earthquake) popped the bubble early which was a blessing. It kept price reductions to 40% and it took 8-10 years to rebound. This time is MUCH worse. Nothing popped the bubble prematurely and additionally we have relaxed lending practices and cheap money like we have never seen before (maybe before the great depression). Have you ever read about Japan? Obviously Japan had one additional major factor we don’t have this time (revaluing of their currency) but at the peak of that bubble they were offering a 100 year loan. Sound familiar? 50-year loan? They didn’t even have ARMs. Values are down 50-60 in Japan which erases about a 130% increase. That isn’t even inflation adjusted. Lou, stop trying to protect your industry that is about to go down and in flames, it is over. I am correct because I looked at history and did my research. There isn’t an argument you can make for the housing market that I can’t destroy. Facts are facts.
Yours Truly,
Bubbleologist # 1,909,293 , MBA, EIT
lou is and always has been a paid cheerleader. he derives a good deal of his notariety from press releases, articles, etc. i stopped letting him bother me a long time ago; he is so off the mark that it is almost laughable. don’t expect him to change his tune anytime soon, as they’ll take his article and hapless mug off the front page of the real estate section.
The problem in comparing the late 80’s real estate run-up to today is that the level of suicide loans available then was nothing compared to what it is today. An exotic loan was one where the seller loaned you the down payment, at a pretty hefty rate, and your ratios still had to fall in the 28-32% range. It was very hard to qualify. Most people could actually make the payments if they stayed employed.
Now contrast that with today. They can’t make the payment as they rise even if they stay employed. Exotic loans now mean suicide loans. Stated income, 45% ratios, I/O and neg am loans, etc. etc.
You cannot compare this to 1990 SoCal boom….and that bust was UGLY. I was a realtor in 1992 (no laughing please) and most sellers were upside down on their loans. People just walked away. The only homes I remember selling in our office were foreclosures, and they sold at deep discounts. You couldn’t sell, so you couldn’t buy. Every seller I talked to said “I need to sell for this much” and most of the time you just said “no thanks” and passed on the listing. Of course, most of these people wanted to move, but didn’t need to. And their mortgages were still reasonable. The only people that really got hurt were the ones that bought in 1989 and 1990.
FYI I bought our home in 1997 because I wanted a house for my family. The market sucked and there were planty of homes availalbe. I paid $292,000 and that was EXPENSIVE. We literally reached financially to make ends meet. That was with 10% down and a 30 year fixed at 8.125%. We were making decent money (far above the average) and it was still a stretch. Today the home sells for $1 million.
Bubble? Of course this is a bubble. It’s a MASSIVE bubble.
This is not your father’s housing bubble. And it won’t be his bust either.
“In one recent case, broker Mark Petty said, a potential buyer even offered less than a previous offer, apparently betting that the first potential buyer would walk away.”
Can I get a hell yeah!
Hope we hear more stories of buyers kicking sellers when they’re down.
This is a lot like the guy (here on this blog) who suggested lowballing sellers, and when they reject, lowering the offer even further.
No more bold
No more cite
Grr. Close bold.
Hot damn I broke it.
i suspect there will be a nuclear winter of contemplating mortgage payments…..i wonder how many will leave a pile of oily rags in a corner of the garage…you know, next to the hummer you can’t afford to fill up anymore.
My accord took $41 to fill up yesterday… I fear for the Suburban/Hummer/Excursion/etc owners.
My 1991 Explorer costs about $60 to fill up. And there are lots of those around. Newer models have a worse gas mileage rating, I believe.
$76 a month for a subway pass. Pre-tax. Car-free for nine years.
I salute you, sir.
$217 for my monthly train pass, $48 for my monthly PATH ticket. Unfortunately the future Mrs. refuses to move to the city so I’m stuck in suburbia. The car is not an option :/
Gasoline is one of the few consumer necessities which people have the ability to mitigate their exposure to. Very few people need to drive a large SUV or truck and if their gas guzzler gets too expensive, they can buy a more fuel efficient car.
Theycan also change theirdriving habits, reduce the number of extraneous trips, keep their vehicle tuned up better, etc. to reduce exposure to higher gas prices.
People who are truly affected by high gas costs and do nothing to mitigate their exposure are idiots and don’t deserve the money they lose to the gas companies. But they sure do know how to complain.
An H2 costs about $3/gal * 40 gal = $120 to fill up in California. At our local mall a smaller H3 sweepstake is offered on the floor of the mall, I noticed zero interest from the public.
The Chevron stations stop at $70… you need to charge a second time to go higher. So that’s what I’ve been paying for nearly every tank lately, which I figure almost fills my pick-up’s 24 gallon tank.
Also on those “free car” give aways - read the back carefully. There’s a reason they ask for your income and other personal income. If you don’t qualify (for whatever they eventually want to sell you) they remove you from the drawing. It’s all a ruse to get your name on mailing lists. Usually the drawings are 2 years later. Read the fine print and never give out personal information.
Yep. I’m just wondering if oceanfront homes have gone down because of Katrina ,and the new insurance rates . While apparently these areas do not have as much potential as Florida for damage ,buyers might be spooked regardless . The rolling bubble is cracking for a number of reasons .
What’s interesting is how shocked and surprised real estate agents seem to be by the cooling markets . I’m sure the NAR/cheerleaders
prior predictions had a hand in the perception . IMHO the real estate community was not prepared for this fast of a correction . Only goes to show you these “experts” never look at the right data ,or add it up right .
My real estate agent told me last year that the market was crazy and sellers want to much ,yet now that same agent is shocked by the change in the market .
I was just listening to a NAR pimp on CNBC, someone who wrote the ‘millionaire real estate’ investor. They were discussing how baby boomers were buying second homes, and that this trend would be continuing. When the CNBC bubblehead anchor asked how that squared with the downturn that she was noting in her real estate area, and others throughout the nation. The NAR pimp then put an academic spin on it, saying that they had made an extensive study for the years 1975-1991 (note the convenient stop at 1991), and prices only increased. CNBC bubblehead asked how long you would have to stay in a property to insure equity gains, and he replied 3 years. NAR pimp replied that 16 years was a very long timeframe, so they were sure of their results.
I don’t think further analysis is necessary, but since I didn’t catch either of thier names, I enjoyed calling them “CNBC bubblehead” and “NAR pimp”.
Convenient study, indeed. Just so happens that 1975 to 1991 (actually late 90s) would be right about when the Baby Boomers were forming families and buying homes.
This whole “second home” notion is one of the most absurd stories they’ve been spinning. Most people do not want or need second homes unless they are giving off positive cash flow via rentals. As the Boomers are heading toward retirement, I expect them to UNLOAD second homes, not buy more, especially if housing prices are going down.
A ’second home buyer’ is the new term for ’speculator.’ Same thing.. Just a different label.
As I was watching the CNBC interview, it occurred to me that the NAR pimp was addressing the 2nd home owner as much as potential new buyers. The phrase ‘cooling the marks’ kept coming to mind, as you can’t afford to have too many of the marks… uh speculators… uh investors… uh 2nd home owners deciding to unload without rapidly deflating the bubble.
Would have been nice to have Ben appearing as a point-counter-point against the NAR pimp.
Img……Interesting how the real estate “expert” failed to include 1991 to 1998 in his analysis ,(real estate went down in California and other places ). Its also a outright lie to say that from 1975 to 1983 real estate prices didn’t go down .
From 1979 to 1983 it was a dead market and prices did go down a little . The reason why the prices didn’t go down more during that cycle is because the market was so dead not many transactions were taking place . You didn’t have a high speculation market and toxic loans ,( alot of the loans were assumable in those days ) . So, all the sellers ,who were mostly
owner occupied homeowners ,just didn’t sell while they paid down their equity during that period .
The sellers who had assumable loans sold for more money than sellers that required their borrower to get new financing .
By the way , the builders would buy down loan rates in order to sell out the tracts in the late 70’s /early 80″s and the higher end new home tracts just sit on the market . In addition you really didn’t have the inventory glut of new homes like you have now .
r
Folks in places like NC, SC, and to some extent Georgia and Tennessee really do seem to believe that an inexhaustable supply of rich baby boomers are headed their way. Those who know about the possibility of a national bubble also seem to think, inexplicably, that a bubble burst in all of these boomers’ original markets will somehow not affect how much money those same boomers will have to put into a relocation home. There is some kind of logical disconect there.
Considering how poorly the baby boomers have prepared for retirement they better not get their hopes up that there is a big supply to bail them out. Wasn’t the average 401K balance way under $100K for most boomers ? Will Boomers suddenly be able to stop spending once in retirement ?
I think the average figure for everyone is they have ~$36 K in their retirement accounts. It’s somewhat higher for the 50-59 boomers, but not dramatically so. Certainly not enough to fuel home purchases.
Here in Rural Northwest Georgia, some builders are starting to figure out that the market is overbuilt and the downturn has begun. My builder (Father and Son team) stopped building “spec” homes and they now only do renovation and custom building. Both he and his son have their personal residence up for sale. Between Chattanooga and Northwest Georgia MLS there are 7000 homes on the market and that’s really got my builder concerned. This is a dramatic difference in sentiment from 6 months ago when they planned on buying 5 lots for building in 2006. In 6 months they’ve gone from a plan of building 5 new homes to building -0- homes. Smart move on his part.
Another beach community comment-
Went to Santa Barbara, CA on Sunday. How many people can afford a $15 million beach house?? The prices there are totally nuts. Cracker jack bozes are $1 million. Who can afford to live there??
*boxes
Larry Ellison
Larry Ellison just reneged on a pledged $100 million gift to Harvard.
Yeah, because he was mad that they fired his buddy. It’s not like his checks don’t clear (when you’re a billionare the banks call overdraft protection a line of credit).
He does take advantage of those though, last I heard he had a couple billion in debts.
Convenient excuse. His money handlers have been trying to reign in his out of control spending for years.
I know a 20 year-UCSB faculty (Professor Step 6, which is a big deal in the UC system), and has a ~1000 sq ft home worth ~$1 mil. He can’t afford anything else.
I bet he could afford to rent a much nicer space, and retire on the capital gain from selling that place (if only he had sold last August!).
“~1000 sq ft home worth $1 mil”
Ain’t no such beast.
How about 700 SF, 3/1 for $875,000?
http://tinyurl.com/m667x
Or a 1092 SF, 2 bed/1 bath “cottage” for a mere $1,095,000?
http://tinyurl.com/jw8xe
SB has lots of very tiny houses for very BIG prices. They don’t even like to list the SF because they want you to call first.
Who can afford to live there [Santa Barbara]??
My brother in law. He’s an electrical contractor. Why do you ask? Ohhhh, you mean who can afford to buy and live there -now-? Ans; Nobody. I imagine his house would run about $8,000 per month in taxes were it sold today. I imagine that 90% of the 1% who could afford that are too smart to afford that. Still 1/10 of 1% is 100,000 potential familes who might consider it.
I, for one, am glad to see North Carolina is in on the bust as well. It’s been difficult to remain disciplined and logical (and not join the flipper party) in the face of constant reports about how prices in “X” are up 52% in a year. (Go ahead, flame at will.) It’s just that after years of waiting for a correction to the bubble which seemed obvious years ago, one begins to doubt his/her own thought process and thinks about capitulation. After all, if this credit bubble is going to go on for a few more years, we all might as well join in the “New Economy” of just flipping to one another. I watched the dot.com bubble pass me by because I knew it was a bubble. Missed out on making lots of money due to my conservative nature. It’s depressing to work hard for regular income when fools (literally) are making millions on bubbles. I sure hope this whole bubble economy ends soon. (sigh)
Sorry for the rant.
As much as you may want to kick yourself for not being more aggressive buring the dotcom and housing bubbles, it’s far easier to lose your shirt than make your killing.
CaRenter:
Don’t beat yourself up.
In HINDSIGHT you could have rode the dotcom up, but would you have gotten out?
Most of us rode the dotcom up, then right back down. It was hard to know when to get “out”.
Hindsight SEEMS like it is 20/20, but it’s really not. You just know the outcome of THIS path… who knows what would have happened had you jumped on the dotcoms. you might have found yourself overleveraged and lost everything on margin calls.
Besides, can’t change the past.
As for jumping on the housing ship now, why bother? If you jump in now, and the Fed/Gov/Banks don’t bail everybody out, then you’re screwed with a golden prison and indentured servitude. If you don’t jump, and a big bailout comes, I would bet you’ll see other opportunities rise from those ashes. Sit on your cash for now (or gold/commodities/silver if you’re worried about hyperinflation) and you’re in control.
clouseau
when you get your whish will you still have a job?
If one gambles on being employed a few years and turns out to be wrong, will it have been smarter in retrospect to have bought or to have waited?
You aren’t alone having common sence.
Thank you all for your kind comments.
BTW, although I missed out on the dot.com bubble (actually bought some stock in the beginning of 2000 — final bear capitulation — wanna buy some Microsoft and Agilent stocks from me? I’ve still got them.), I did at least buy a home in early 1998, and made very good money. Sold in 2004 and been renting ever since. No reason whatsoever for me to whine. I just wonder about that bailout and if it will cause the value of our savings to be wiped out. Also, I do worry about what this whole credit bubble will do to our economy — and society — as a whole.
Good luck to all!
Fools are *losing* millions on bubbles.
If you are very smart and very lucky, and bought a *nice* place interest-only or neg am in 2003 (which was about the earliest I think there was reliable evidence the common person had for the beginning of the bubble), and then sold in mid- to late- 2005, by accepting a significant amount of risk you could have played the bubble-game and made good money after PITI payments, maybe around 100k in most markets, 200-300k in San Francisco. But for that you would have had to time everything exactly perfectly.
Those who made a killing on the bubble are those who had property anyway from way back when and then sold it recently.
“Their company had begun advising some clients not to sell without a pressing reason but to wait for a better market.”
look, i know jdsu is selling at 34 bucks, but you gotta hold on for the eventual uptick, really, it’s gonna come back, trust me.
Ok now its at $25 - double down!
Ok now its at $15 - triple down! YOU ARE GOING TO GET RICH!
Ok now its at $3 - SELL NOW BEFORE ITS TOO LATE!!
Or my favorite rationalization, “…I don’t invest in those speculative dot-coms (like Pets.com), but I do invest in the bricks-n’-mortar internet companies like JDSU, because the internet will always need those….”
It’s my favorite rationalization because I that’s the one I was using as I rode JDSU from the bottom to the top and then back to the bottom. Hope I learned something from the experience, but one never knows.
Brazilification of America Now Complete:
http://www.xanga.com/russwinter
Thank you, Russ. I always enjoy your commentary and links to your site.
Agree that we will see this disparity grow even worse as we move forward.
O/T but a follow up from an article last week. I wrote to the author and here is what transpired:
Lou,
“Involuntary sales are caused first by economic distress and job loss. We have none of that outside the auto belt.” Didn’t you just say in your article that the mortgage and real estate industries were being affected too? Running at 1/2 capacity? Some previous bubbles have popped by a major economic event or major loss of jobs. Would those bubbles have popped without that major economic disruption? Absolutely. It may have taken another 3 years for 1990 housing bubble in So Cal to pop without the end of the cold war, but the prices were out of wack and had to readjust. The conclusion is not that it takes a major economic disruption or job losses, those events just trigger it earlier than normal. A bubble is a bubble, just keep blowing it up and the smaller the pin you need to prick it. The end is near…
Bubbleologist # 1,909,293
He responded:
Part one… MORTGAGE industry running at 1/2. You added the real estate part. On it’s best day, only 20% of Realtors make a good living.
Part two… financial market bubbles tend to blow because the products have no utility but price. Unlike houses.
Part three… Bubbles DO blow from their own internal pressure (stocks in 2000). However, SoCal early ’90s… My idea of a bubble is an assest that goes to a price that you’ll have to live a long time to see again, post-blow. Nasdaq, for example… I’m 57, and I don’t expect to live long enough to see 5,000 again (my children, 12 & 17, may not live long enough, either). But, SoCal ealry 90s… after the earthquake and defense meltdown, prices were back at their ‘90 top by, what… ‘96? Three years? That’s no bubble, that’s briefly overbought. Now they’ve doubled? Again? Please, God, could we have more bubbles like SoCal early ’90s?
In hard data in some large US housing market since WWII, you find me a housing market that has lost 25% of its value and failed to rebound. Find me one that lost 15% of its value and failed to rebound within just five years. Find one. Just one. ONE. If you can’t (you can’t), then you’re just blowing future smoke. Pure, want-it-to-happen bullshit. You might be right, but it will be by accident.
[Lou Barnes]
Define “Rebound” Asshole.
In my area of LA (San Fernando Valley), prices didn’t hit 1989/1990 levels until about 2001. That’s 11 years from a bubble top where people put 10-20% down, had verified income and neg-ams were not available to people who couldn’t handle them. We also saw drops in our (good) neighborhood of 25% to almost 40% by the time the bottom was reached. Also, as Deb points out, interest rates were falling during the downturn, cushioning the fall.
“On the Outer Banks the average home price fell 16 percent, or almost $100,000, in May, and sales were off 54 percent.”
Don’t panic, investers, the market will come back soon! $100K loss is no big deal; hold on for the long run, and you can make 10%+ per year forever. I heard it myself the other night on the cable TV channel that features real estate investment gurus 24/7!
BwaHaHaHaHa!!!
Another point to ponder on the ‘baby boomers will retire to here’ rational, if they don’t have a LOT of cash saved up or real equity in their homes, they won’t be able to do it. Once most people retire they won’t have enough INCOME to qualify for a mortgage. I have a freind that owns, ie no mortgage, his condo (Hartford Ct, expensive, gated, etc.) and he had a fairly hard time getting a HELOC. He coudn’t get one on his flat in England.
Posted earlier
My wife and I just returned from the far West Valley. We visited several communities and I have to share what is happening with KB’s Santarra community in Buckeye. First, back to Feb. 2006. We just sold our home and decided to look at this KB community. They had a 4 bed/3bath 2600+ sqft spec home listed $365,000. This was way out of our price range and thought we would never return. After reading this blog and seeing the mkt trends we decided to return. What the heck, we’re on vacation anyway. As of today, same model different spec., however, this one is loaded. Oak cabinets, granite counter tops, upgraded carpet, 18″ tile. 7500+sqft lot, the whole nine yards. It is a part of the 48 hour sale they are running from July 2-July 4th. It is listed on current spec. sheet at $249,000! That is nearly a 32% price reduction. We also found a 2200sqft home in the same community at $210,000! Five months ago we saw a similar floorplan in this same community selling for nearly $290,000.
After talking with the agent, who was obvioulsy hot, tired and miserable, he stated that this sale has been going on for well over a month and every weekend the prices have been “severly” reduced. They have well over 15 more specs to sell but he felt the prices wouldn’t drop much more.
After hearing that interest rates are at 7% now we seriously considered purchasing today. We forced ourselves to walk back to our truck and think it through. We want our house so bad we can taste it. Is it time to buy?
You should ask the man in mirror that question.
Er, person in the mirror.
Somebody has a severe case of house fever. I would wait, and am. You probably cleaned up on the first house, which is great. But I would not fear that the July 4th “deadline” will mean the end of bargains in the development and throughout Maricopa County.
If the man in the mirror won’t tell you ask the man behind the curtain. Don’t bite me Toto.
If you feel it is time to buy, go to the bathroom. Look into the mirror, and stare VERY DEEPLY into your eyes. Grasp the side of the mirror and SLAM your head into it!
If you think that hurts, buy now and find out. Trust me buddy, the pain there is just starting. Those developments out there are obviously dancing now, and the music is still playing (though very softly).
Check back say in September / October and let us know what they’re asking then.
ps– congrats on your timing (getting out). Now go find a nice place to rent (Flag/Payson are cool right about now).
Yes, KB and continental are doing the same in Maricopa; there you can get a 2200 square foot with upgrades for about 200 K. Also, Casa Grande and Queen Creek are plummeting; I visited a Pulte development near there (QC) and they had houses you couldn’t touch for 240 K last year going for under 200. I’m with you and tempted to buy, but I think it will drop another 20% by early next year. Lokk at how many homes are available, it’s amazing
“Homes in the $500,000-and-under range are still selling, he said, but there’s a glut of oceanfront homes. In some cases, speculators have been left with one worth less than they paid.”
If prices only went up they wouldn’t call it speculating now would they?
Hey Ben - here’s something hot off the press: extreme home staging! Maybe it warrants a thread of its own!
http://money.cnn.com/2006/07/03/real_estate/extreme_home_staging/index.htm
The mother of all ironies:
the very agents that are saying “we needed this break..because prices were going up too fast,” are THE VERY the same agents that were encouraging stupid listing prices for sellers and for their buyers to obtain foolish loans and write up deals for thousands over asking prices.
Over the next couple years I want to low ball EVERY car the agent put’s up for sale, every boat and every house they own that moves to foreclosure and tell them MY AGENT told me to low ball you!
Redux:
This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.
My advice to fellow renters, with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.
OT - anyone know what a reasonable assumption is for the cost per square foot to build a home? Assuming we move to Colorado, would $125 per square foot be reasonable quality today? $100?
I see land prices are falling in certain places, so if the builders are hungry I might be able to avoid the majority of the bubble by building my own home. I’m just looking around and I can buy a nice 10 acre lot of $50k, put a nice 3000 square foot house on it, and probably not spend more than $425,000 total. I cannot find a home in the right area matching my needs for anywhere near that price.
Depending on the cost per square foot, it could be a way to get in now without getting raped by the bubble.
Comments?
Very regional and somewhat seasonal and responsive to economy and costs. In SoCal the demand and paperwork and such drive modest unpolished construction to $220/sq ft. Ouch. Concrete is $130/sq yd. Ouch. Pads typically $18/sq ft. Lumber is getting wierd with retail pricing and lumber futures diverging. My bet is that housing even next year, 2008 for sure will be selling for far below replacement costs. I could be wrong but I don’t see a bargain in construction over existing right now or for the medium future. Raw land sure isn’t going to go up in price and contractors are charging a premium. Wait.
Thanks Robert. That was what I needed to know. I was thinking that as the economy takes a nose dive, contractors will be willing to work for less, materials will come down, and if land plunges, it could be a good deal compared to buying an existing home. Unless we get a 40% correction quickly, I just wonder if the components of a home (labor, materials, land) will react quicker to the environment change than sellers will.
In any case, 2007-2008 is the timeframe I am looking at. The market will tell me then what the right direction is.
Thanks again. I’ll keep your comments in mind.
I suspect (meaning I have no supporting data) that in the coming crunch/squeeze/contraction that people will be unloading raw property for a song. The old rule -was- never buy land unless you plan on improving within 6 months but I think a lot was bought on spec. The recent HB land sales and option expirations agree with that. Remember, raw land is dead money with very high “load fees “(taxes, etc.). I suspect people will dump land first when their personal finances get tight. Nothing is more illiquid than raw land in a recession. Watch the tax sales even if you don’t want to buy on the courthouse steps. They will set the market in a recession and the people that do buy may be the ones who will sell to you after they clean up all the loose ends.
Thanks guys. Good information. My choices seem to be:
1. Wait 3-5 years.
2. Get a much smaller and more modest home, so I won’t get nailed as bad in the downturn.
3. Build my own house and try and take some of the profit out of the transation.
But having a nice safety net is a great feeling, and spending a good portion of it now leaves us a lot more vulnerable. That is what keeps nagging at me.
I really wish these aholes would stop the speculative BS. It is screwing life up for a lot of people. I hope this downturn teaches them a good lesson.
Compare todays interest rate and monthly payments with what interest rates will be 3 to 5 years out. I can see 12% new home loans as the norm…If you can buy at 7% interest a place you coulk call home for a long time, and not worry about the fluctuations in prices, and know you have the job to pay the mortgage for a long, long time…you might buy now. I can’t see interest rates ever being this low ever.
Joe,
It’s my observation that contractors are still doing OK, but as Robert points out, it’s a regional thing. Around here, there are an unbelievable number of scrape&rebuild projects in progress. These seem to have most of the quality builders tied up, judging by the slow progress.
I think that this is a sign of change, though, as the fact that these projects can get crews at all is a change. I think it means that the big projects are starting to wind down and free up some labor and equipment.
Materials have not come down at all, as far as I can see. Even the high-end construction is using scrapboard instead of real plywood for sheeting the walls.
Your stated timeframe might be a bit optimistic - I’m guessing that there is enough pent-up demand for labor to keep construction costs high for at least another year and quite possibly longer. The price of construction labor will come down after the unemployment checks run out in 2008-2009.
Joe, starting in 2007 would be better than 2008 in two significant ways: there are good tax credits for both solar heating and solar electricity (I say again, tax credits — subtract it off the very bottom line of the return), and the new electrical code starts in 2008, which confuses both contractors and inspectors for at least a couple of months, and will cost you at least a little bit more in some areas.
Check out steel construction. There’s a local company here in Northern VA, for example, that costs about $25 a square foot for the framing and concrete shell. Also, modular is getting more likable, and I think may be more energy efficient if it has structural insulated panels.
Never even crossed my mind. Thanks, I’ll check that out.
Arwen has a very good point.
Next time you see a commercial building going up, check out what it’ constructed of; steel frame, metal studs, block and stucco or brick exterior, and metal roof.
They don’t do this because it’s so much prettier and more expensive. They do it because it is cheaper, and because it allows for very long spans - big open rooms.
Residential guys don’t do it yet because it hasn’t really caught on, and by and large, the industry doesn’t know how/can’t do it. They don’t have the right tools, methods, etc.
So if you’re going to build new, consider an architect that knows metal, and look for a commercial builder.
Think of what you could do with NO interior bearing walls. And I’ll bet the insurance is less because there is NO combustible material.
Joe, look down south to Pueblo, Walsenburg, and especially Trinidad. I just bought 35 acres outside Trinidad for $30K. I saw a couple of good 35-acre lots for that same $50K while I was looking over the past couple of months, BTW.
Funny, we were driving around one of Memphis’s “historic” (meaning older than 1/2 century) districts this weekend, wondeing aloud if that kind of construction - the style, quality, homes that might be big but never “Big Box” - would ever come back. My husband is of the opinion that it won’t; labor will never be that cheap again, nor materials, even inflation adjusted.
On the other hand, he’s really hoping that if we do opt to own again someday, that we can build from scratch. Even at fire sale prices, anything around here made after the mid 90s would feel like throwing money away. Lots of gorgeous new 600K homes built locally (think $1.8 mill minimum “translated” to California comps) have all sorts of interesting features like huge plaster cracks evidencing unstable greenwood, early and “unanticipated” settling, location on a flood plain by the river, etc. (And some buyers of these actually come from “old money” - How do folks get that affluent and still so easily fooled by a little lipstick on the pig?)
Just thinking out loud, but I guess I’m wondering if there will be a sane rationale to build from scratch in not so very long term, or if the frugal not-forever renter should prepare to settle for the best of existing inventory, 5 or however many years down the line.
The benefit of scratch-built, is you get what you want. You pay a premium for that, but if you’re going to be in it a lifetime, it’s worth it.
For all the articles and comments there is still a lot of resistance here along the NC coast for folks to actually reduce prices. About 10 homes on our street for sale and little if any price reductions, even as some of them have been on the market for one year +. One builder is in serious denial and has been slowly building several homes for one year plus - I guess to extend his timeframe before his loans kick in. Same prices, one year later and no takers. One would think the realtors would stop them from wasting their time.
“John Hunter, an appraiser in Kill Devil Hills, said he’s seeing such things as a seller who turned down a $1.5 million offer a year ago accepting $1.2 million recently.”
Catch a falling knife… wonder what if sold for around 400K 5-7 years ago.
Those of you in other parts of the country may not understand what coastal NC (the outer banks) are like.
Unlike Florida, with it’s palm trees, or California, with cliffs above the ocean… NC’s shoreline is made of shallow islands. Sand bars, really. You can’t find any land over 8 feet above sea level (except for a few high dunes owned by the Nature Conservancy). There are no trees to break the wind, and often the width of the islands can be measured in yards.
When hurricanes plow through here (as they commonly do, since NC juts out father into the Atlantic than just about anywhere except Cape Code and the shore of Maine) the storm surge washes right cross the islands. It tears out bridges, rendering travel to and from the mainland by any means ofther than boat or air impossible for months. The surge can even create cut islands into pieces by creating new water channels. This happened with hurricane Isabel in 2003, which was only a category 2 storm.
Insurers absolutely freak out, if they learn a property is on a barrier island.
Oh well. Happy homebuying!