The Housing Market-What is yours like?

[desdawg]

I haven't seen much of the mountains this summer. We have been busy trying to work ourselves out of a job. We have had lots of work so far this year but it kind of looks like we will wind up in about 2 months time. The boom and bust housing market is on the bust cycle. And it looks like that will continue for another 5-7 years. Too many people were allowed to buy more house than they could possible afford and now the whole thing will have to go through a correction. And that correction is a long cycle. Fill your piggy bank. About 1-1/2 to 2 years from now will be the true buyers market for real estate. I have added 5 properties to the portfolio so far this year and have one more in escrow. All were purchased for about 50 cents on the dollar. So even now there are bargains out there. But you have to know your markets and watch your P's and Q's. The people who pay retail market price today will be upside down in a year or two. They will spend the rest of the cycle getting back to the price they paid. Fortunately I am a bottom feeder. I have a lot of vacant land and will probably spend the next couple of years developing some of it and adding to the rental portfolio. Not my favorite thing to do but I do know how. Soon I will start shopping for inexpensive mobile homes to put on some properties.

Our county government in it's wisdom started charging an "impact fee" January 1. Anyone building on an unimproved lot is charged $8800 in addition to the normal permit fees. For a manufactured home it is $4300. People who live in manufactured homes don't have as much impact on County services for some reason. Go figure. APS, our local electric provider always would do a 1000 foot line extension at no charge. As of July 1 they changed their policy. They will now price the job and pay the first $5000. The property owner pays the rest. On average a line extension here is priced at $15,000. So with 10 grand for power, an $8800 impact fee plus normal permit fees and you have just spent $25,000 without turning over the first shovel full of dirt. The construction world has gone bonkers, at least here in AZ. Add that to the country wide housing situation and I think we are done for a while. So it is time to resituate myself. At the tender young age of 59 I need to choose carefully. Mainly all I know is real estate and construction.
I am curious to know what is happening in the rest of the country. I wasn't sure what forum to put this in so I just put it here. If it needs to be moved Glen have at it.

[MikeT]

The housing market remains pretty strong here in Portland, but on the coast where I am building it is saturated with overpriced homes and lots.  In Portland, we have an urban growth boundary and this limits the buildable acreage in the metro area, so it keeps supply (pretty) tight.  I am not saying that we are immune, only that a bust hasn't happened here yet.

On the coast things are just nuts with prices.  My wife and I were in the small village of Neskowin and small homes (600 sf) with no ocean view are selling for over $1000 a square foot.  I can definitely see a correction coming there.

mt

[optionguru]

Northern New England slowed down a lot about 1 1/2 years ago and prices started coming down about 1 year ago.  Nothing is moving and now prices have come down to a point where most people can't afford to lower them without going upside down.  All the new real estate investors are stuck in hold and wait mode if they can afford it.  I've been trying to sell my apartment building for about a year with only three lookers.  I could keep it rented pretty easy but I've decided to let it go vacant due to very high heating costs (I pay all utilities) in the winter.  We have a lot of dead beats around here.

I agree that in the next year there will be some great bargains, I'm starting to see it now.  I think this time I'm going to lean towards warehouse and workshop rental space.

[glenn-k]

Great topic and advice from you, desdawg.  Here is fine on the topic.  


We are better here  in the mountains than the valley but I syill see new starts not moving very fast.  In the valley I have heard of developers dropping their prices by the ton -- seems I heard $100k at one time.

[optionguru]

I forgot to mention that one of my largest clients is a pretty large homebuilder (200 units per year) and said that he has many people walking away from deposits on new construction.  He builds in North Florida where starter homes run around 250k.  People figure it's smarter to walk away from 10k to 20k then close on a home that will immediately be 40k or 50k upside down.

[mdelmonte]

Here in the Northeast, the market is pretty stable, especially for those homes priced under 300K...but there aren't many of those.  

[Jared]

Here in Arkansas, at least my part, things aren't in that bad of shape. A year ago I paid 110K for our house and we could sell it today for 112-115. Not much more, though. So, if I were to forgeo a realtor (which we're seriously considering doing) I could get out of my house and pay closing costs and maybe have enough for a soda left over. All joking aside, I saw this coming for a while, and if I were to get enough to pay the note, closing cost and actually, honestly have the $.55 a can of soda costs, I'd be very happy. I just want to walk away with nothing owed. That's my short term dream.
Jared

[desdawg]

Thanks for the responses. I was thinking ours couldn't be an isolated situation although it has been compounded by the impact fee and the electric utility making it's move now. Those two items in addition to the housing market tanking the way it has make for quite a comination.
Our area is saturated with foreclosures. People were qualified for mortgage payments based on adjustable rates or interest only. Sooner or later all of that has to be made up. Many thought the way prices were appreciating in 2005 that they could hang in there for a couple of years and either flip the property or refinance with an increased valuation. But the worm turned and the property values went down and the paychecks didn't get significantly larger if any at all. We have many investor owned homes that have never been occupied. The payments are way more than the rent they could bring in. The property manager who handles my rentals gets calls from these folks all of the time hoping they could turn the house over to him and get some relief. This scenario has flooded the rental market with higher end homes. It is not unusual for someone to be making an $1800/month house payment on a home that can be rented for only $7oo-$800/month. Competition for tenants will drive the rents lower.
This will affect not only people who work in the industry but ultimately everyone. My insurance agent is even complaining. When all of the people who are affected directly stop spending so freely as they were everyone from computer geeks to the guy selling hot dogs will feel the impact. I think most people are only at the beginning of the realization of the full picture. JMO.

[GunPilot]

I was praying eight years ago that the housing boom would slow down.  Mostly for selfish reasons due to hating the rampant development around here (Casa Grande) but also from the feeling that we were on a runaway freight train.  Looks like the bridge is out ahead and we can't slow down in time.  I guess we'll see how this all works out.

I bought my house here in '99 so I benefited from the increase in housing values. I'm also glad I have a 6% fixed on it too.  One of those interest-only outfits was pushing me hard to refinance, thank God I didn't do it.  

I saw people buying houses for $140k and selling them 4 months later for $250k in 2004. People who I know had blue-collar incomes were buying 350 and 450k homes too.  Now I know how that was happening.  

It's all fueled by greed - from the finance companies to the developers to the people who think they can make a quick buck or get something for nothing.  I saw it back in the early 70's as a kid. It took two decades for the development to start up again.

Everybody has to make a living, but this was a feeding frenzy the like I've not seen before.

[desdawg]

Bump and Update:
I have worked my way through all of the jobs I had which was nearly enough to make it through September. New work has not been showing up. Most of what I had was contracted in December. New home construction, at least in my corner of the world, has nearly come to a halt. It is not economically feasable to continue with all of the expenses of operating a business when at best I can only hope to pick up a bone here or there. So Friday I will shut down and call it quits for a while. If things come back around I can alway re-start. If this scenario continues as I predict for the next five years or so I will not attempt to pick it back up. I will be 60 in February and retirement age in the 4-5 years that could take. So I am more than likely retired as of right now. I didn't have a good exit strategy in mind but one has been provided by circumstance.
On Friday I will head for the hills. I haven't been there all summer long to speak of as I was focused on getting the work completed. Now I will have some time to call my own so I will be getting back into being part of this forum. Goodbye 112 degree days, hello snowflakes? Ying and yang, plus and minus, pro and con. There are always tradeoffs. But it is all good and I look forward to participating here once again.

[peter nap]

It's pretty much Dead in most of Va. Ad said earlier, I'm not sad to see it stop. Unfortunately, it's too late for the county where I live. It's changed from a beautiful farming area to a breeding ground for yuppies and soccer moms.

Thank goodness I have a farm in another very very rural county.

[glenn kangiser]

Glad to see you here, desdawg.  Valley housing is not doing so good.  I work some commercial steel - it seems to have slowed down - at least not many calls, but here in the hills, we seem to be picking up a bit in repair and remodel.  Home sales are still fair up here as people want to get out of the cities.  Not booming but not dead.

I'm just pushing for enough to pay the bills - not trying to overwork myself.

[desdawg]

I think you have the right idea Glenn. A slower pace would do me good for a while. I seem to only have two speeds, wide open and shut down. Truth be known I am tired. Shortly I will be tired for the second time which would then be known as RE-TIRED.  

[glenn kangiser]

I know the burned out feeling.  I decided to coast a bit this year - do some things I want to do besides work out of town all the time.  Work (paying) is starting to find me up here now.  I'd like to get busy enough to not have to go out on the road...but not much more than that.

[peter nap]

I think both of you have the right idea. I spent most of my life running with the throttle wide open. Got my kids through college and still didn't slow down. Had a couple of mild heart attacks and still didn't slow down. I'd start work at 3:30 Am and finish around 9 that night.

I used to go through the 60 day burnout and have to take a day off. Then back to business.

The thing that finally did me in was appendicitis, believe it or not. It flared up one day and I was busy so I ignored it. I was still busy 3 days later when it burst. Even then I stayed busy until I passed out and was taken to the hospital. Near died that night but of course, I was busy and checked myself out of the hospital the next day.

After a week, I thought about it some and decided to smell the roses for a while.

all of us who are self employed need to remember, the boss is an asshole so we need to sneak out now and then

[Okie_Bob]

Des, I'm not as pesamistic as you. From here in Texas things don't look quite so bad and we expect a re-bound much quicker than your projection. Actually, last night on the news they were talking about how homes in Dallas are actually still going up in price! I do believe new house startups have slowed some but, not much. And with the amount of new house built consistantly over the past 5-7 years, it's amazing we don't have a glut.
So, if you want to keep burning the candle at both ends, come on out here for awhile, I still have trouble even getting anyone to quote me a price to do anything. Can't even find illegals that will work anymore!
Okie Bob

[peter nap]

[highlight]Can't even find illegals that will work anymore! [/highlight]

want me to send you a few (hundred) Bob. Can't say if they'll work or not....but it's worth a try!

[glenn kangiser]

All of us who are self employed need to remember, the boss is an arsehole so we need to sneak out now and then  

I always knew that about him - but he's proud of it and I was afraid to tell him to his face.

[MountainDon]

The market here, Albuquerque, NM, resisted the downward national trend until August this year. It had been down from the prior years boom, but prices were still climbing on resales. August brought an average $18K drop in sales prices and the market has a truck load of properties up for sale. Some neighborhoods have a half dozen or more homes for sale within walking distance of each other. The newspaper today pictured a street with three house in a row for sale, all with the same broker.

[Okie_Bob]

Peter, we have enough new ones added daily as it is. They seem to find jobs pretty easily now that they know nothing is going to happen to them if they get caught....or their employers either, thank you very much President Bush!
Okie Bob (an original) (That's native American to those not familiar with the term.)

[desdawg]

I finished up every job I had yesterday and paid off my help (that was the hardest part). In Maricopa it is estimated that 40% off the homes are vacant. Mortgage money was easy to get with stated income and low/no money down so many were purchased by investors and have never been lived in. Seems like after the dot com bust people fled from the stock market and jumped into real estate. So there were lots of inexperienced real estate investors out there trying to navigating the terrain. They would get a HELOC on their primary residence and run with it. The herd mentality was amazing. In 2005 people were waiving their checkbooks like it was their first time at an auction. I sold a lot of the rentals I had and using the 1031 tax deferred exchange upgraded to better properties. Today it is a real buyers market. Many folks have payments they can't afford. It's pretty sad really but they did it to themselves. I have no sympathy for the lenders who made it all possible or for the secondary mortgage market who now own unsalable bonds. So the correction was necessary overall to get things back to a real level. Credit standards are being tightened and even though it is a buyers market financing is difficult for anyone without A-1 credit scores. When the pendulum swings it swings hard. So what we have is many homes for sale at fire sale prices and a limited number of buyers due to the tightening of credit qualifications. It is not a good time to be a seller.
My work has always been on rural properties installing septic systems, electrical services and water systems. That market in my area is completely stagnant. It made more sense for me to just quit than to maintain payroll, insurances, etc and try to exist on a very low volume of work. That is the stuff going broke is made of. And fortunately I was able to save a few nickels for the hard times. I am putting together a few rentals which will help keep the cash flowing. Eventually the market will come back at some level, probably never like it was in 2000-2005. And we will move forward. Each area of the country seems to be a little different. The high growth areas like here, Los Vegas and Florida are taking the biggest hits and will be the slowest to recover. Other areas that weren't on that fast track will come back more quickly. What I find amazing is that it took the Wall Street folks as long as it did to recognize the problem. Those people are supposed to be the money experts. Talk about hiding your head in the sand. I guess they bought a lot of bad paper and didn't want to acknowledge the fact. Anyway it is an interesting time.

[glenn-k]

Wall Street is all smoke and mirrors, desdawg.  When the mirror breaks the real world is revealed.  So goes the dot com industry.  It couldn't last.  It was made of nothing.

I like your analysis of the current situation.  That's the way it is and the choices you made are sound.  

My brother was one of the ones you mentioned.  Started a spec remodel a couple years ago.  I mentioned at the time he was buying it that things didn't look so good, but he tried it anyway.  He barely got out of it by selling it about a month ago I heard.  $4200 a month payments.    I was hoping he didn't end up with an albatross necklace.

[peter_nap]

I think you summed it up very well.

I was in the building industry in the late 70's and early 80's when the hammer dropped. I had always built one spec house at a time and not gone to the next one until the last one closed. I financed them out of my pocket. All my peers told me that in order to make BIG money, I had to go for construction loans and build 10 specs at a time.

When the market tanked, I packed up and went home. My peers went to Bankruptcy lawyers.

Greed is a killer. I saw the same thing happening the last few years. Even TV with shows like flip that house pushed inexperienced people into markets they knew nothing about.

The housing market had to crash.

I have an investment plan that does involve the stock market Glenn and it has done quite well. The stocks have to be picked for what they are, not what CNBC says. IMHO, they all need to be long term investments....Quickies bring me back to my GREED sentiments.

I also have a large timber investment. It will not be worth moving for several years after the building market improves which will be several years at least. In other words,

Buy low, Sell high and wait a he!! of a long time in between.

[glenn-k]

Yeah -- there is still some of the stock market that is doing pretty good.  Can't lump it all together.

I was doing steel buildings when the end hit in 1982.  Went from a million plus per year to nothing in about 60 seconds.  I didn't go bankrupt but still had a lot of equipment payments etc to pay off with nothing.  Took me about 3 years.  

It akes me mad to see so many file for bankruptcy and leave the honest people holding the bag.  Some filed on me and left me hanging at that time also-- a big irrigation company in particular that had a big plane and bragged of their trips to Washington DC to donate to and hang out with politicians, with hot and cold running whores on the plane.  I hope they lost all that they had, but they probably didn't.  

I was doing trenching and irrigation pump discharges etc. for them as well as contract plant repairs.

[southernsis]

I am a real estate broker in Arkansas and Missouri. Things have really slowed down here. I hope it picks up soon, but I am hearing that after the first of year that things may pick up.