Talk of a housing bust has been going on almost as long as the housing boom, but that loud hiss you hear is the bubble finally deflating: The Washington Post notes that sales of previously owned homes plummeted in July to the lowest level in 2½ years. In the Midwest — never a favored region for home-flippers anyway — sales are down 5.9 percent.
But look on the bright side. Wichita never really benefited from the boom in other parts of the country, so any slowdown will have far less impact here than in places like Florida and California. Also, slowing home sales may convince the Fed to hold off, for now, on more interest-rate increases.
Finally, all those folks who tapped their swollen home equities to buy RVs, luxury cars and second homes? For them, the party may be over.
Posted by Dave Knadler
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22 Comments
http://boards.fool.com/message.asp?mid=24433556
All of the regulars here know by now that my wife and I are Realtors, a husband and wife team, associated with one of the major national franchises. We live north of Atlanta out in Roswell. The managing broker of the large mega office we work from holds an office business meeting every first and third Tuesday of the month. This past Tuesday performance awards were announced and handed out for July. The good news was that my wife and I won listing agents of the month with four new listings. The bad news was that we also lost two listings in July, but thankfully, that was not announced. Unbelievably, we lost one of those listings in a record 21 days!
I’ve been waiting for this actually. I was looking for a home last year, but I wanted to wait for the bust. Although Wichita didn’t have the boom prices like they did in other places, people were still buying and prices were a bit overinflated due to buying activiy of low interest rates.
I talk to an FHA appraiser and he had many times in the past year appraised homes for much less than their sell value, when he said they used to be right on the money of the sell price or even below the appraised price.
So I stalled and now I’m looking again. To my surprise I seen houses that were selling last year that are still for sell this year. Of course they are $20k less in the listing. So I think I’m at the right time. Everybody is tapped out, people who wanted to buy a home has bought one in the low rate game of the last 4 years. It’s my turn to get a bargain.
I rather have a much lower purchase price of a home than a lower interest rate.
Never fear though, the county will raise your appraisal for tax purposes another 5-10 percent next year.
I figure my house is at least 33 percent over-valued for what I could actually sell it at.
Meanwhile the Tabu Bar downtown was appraised at a quarter million and fetched nearly a million at its sale.
I should really get to know some Republicans . . .
CapnAmerica! You will be a happier person. ;)
When I was in Seattle during August, there were NO signs of any slowdown in the Puget Sound housing market. The median price for a home in Seattle is $250,000, and not going lower anytime soon.
I had a girlfriend from Seattle whose parents bought their house which was about a block from Alki beach for about $17K in the 1950s. They sold the house in the mid-80’s for a little over 1/2 million. I bet it would bring twice that now.
So, while I complain about Wichita prices, our housing here is incredibly cheap.
Stephen Davis,
Oh, indeed. Every time I go home it becomes clearer and clearer to me how Seattle is being deliberately transformed from a place where regular folks live and work into a playground for upper-income earners. Hence, CF finds himself in the middle of the country, where a decent standard of living is still to be had.
Joe, a house isn’t a regular investment: you get to live in it. Actually, housing in most of the Midwest is never a great investment, from a money-making perspective, because there’s so much land available that new-home construction can expand as much as the market will bear, and this lowers the values of older houses, or makes appreciation extremely low at best, on an inflation-adjusted basis. Add mortgage interest, and you shouldn’t expect to MAKE money here.
If you feel you are ready to get your own home, and can afford the price and loan rate, go for it.
CF,JOIN THE CLUB.
Seattle is a great place to buy a home. It’s pegged to California-coastal values, which are much higher. California is experiencing a price-pullback, but it won’t last long.
As for prices being cheap here, duh! When the climate doesn’t allow you to go outside in summer, or winter, it SHOULD be cheap. In the North, the winters are colder than here, but the summers are lovely. In the South, the summers are not much more unbearable than here–you stay indoors under AC in both cases–but the winters are sweater or shirtsleeve pleasant, and fall and spring are delightful. Kansas is an airmass conveyor belt for Gulfstream air in summer, and Arctic air in winter, with battles between them in fall and spring.
Joe, Having a lower interest rate allows you to buy more house, or a more expensive one. For example, I recently bought a house twice the size of my first home with comparable payments because of the difference in interest. For every point in interest you pay your house payment goes up $100/month. Of course you have to consider everything, utilities, insurance, taxes, etc.
I think I read it in the Eagle, but it may have come from KMUW, that Wichita is becoming increasingly attractive to out-of-state retirees because of our relatively inexpensive housing and the comprehensive medical services available.
So, heartlander, if you wanted to sell your house in Wichita to move back to the west coast, I bet you could find a buyer. Though you might have a problem finding a comparable house for the same money on the coast.
I am thinking it was in the 80’s when it was common to see in Seattle “Don’t Californicate Washington” bumper stickers. When it became cool to move to Seattle, those California buyers drove up Seattle house prices.
SD, absolutely. I thought for a long time that price hikes had to level off long-term, but they just didn’t. They dropped a bit in recession, but then bounced back and rose higher than before.Before 1970, a house there and a same-sized and amenitied house here had comparable prices, because they were both priced primarily on low-regulation construction costs. Now environmental impact studies and infrastructure levies on developers (payments for streets and schools), and even anti-development litigation have enormously increased total construction costs, and because prime land is hard to come by, land values have skyrocketed.
On the other hand, away from the coastal cities, homes are still affordable in many places. You can get a 2000 sq ft home in far-northern California, the Mojave desert and Central Valley for $200k. Put that same house 5 miles from the ocean in west LA , southern Orange County or northern San Diego County, and it’s a $600k-minimum proposition. Put it a half-mile from the beach and it’s $800k+. Two blocks from the beach, it’s over a million. Double that for an oceanfront home. If it’s a 1950s-60s home in a development for upper-middle-manager families, the oceanfront or near-oceanfront buyer will invest another million or more for tear-down demolition and new-home construction.
Think about this: anybody who proposed tearing down a well-maintained, perfectly useable mid-sized home here would be considered an idiot, and he would be. Valuation here is a function of man-made improvements. In California, it is a function of the natural landscape and climate. There are places along the Southern California coast that have never recorded a winter frost, so landscapes are colorful all year, and that have consistent daytime summer highs of 74-78 degrees. This climate has been characterized as “6 months autumn, 6 months spring”. The only other two places in the entire world with nearly-identical climate are the tip of South Africa and southwestern Australia, because the in all three cases, prevailing winds come off the ocean, whose temperature varies from mid-to-upper 50’s in winter to upper 60’s in summer. This warms the nighttime winter air, and cools the daytime summer air. During WWII millions of Midwesterners went to California for military training and to work in aircraft plants and shipyards. A large percentage of them decided there weren’t good enough reasons to return home. Most of my teachers came from the Midwest–I can think of a half-dozen who came from Illinois alone.
Then starting in the 1970’s many Midwestern transplants began moving to the Northwest packing fat California-home-sale profits that enabled them to buy similar homes for half-price, and have more money for retirement.
Now we see reverse migration to the Midwest, as well as the Rocky Mountain states and Texas. I’m not sure if there’s all that much coming to Wichita, though. It would be nice to see the exact demographic data on this.
This .pdf is from the WSU site indicates that in the Wichita MSA (metropolitan statistical area) that 30.5% of residents were born in another state. That does not get exactly at what you were wondering and I don’t know how much different that would be from any other area.
http://webs.wichita.edu/depttools/depttoolsmemberfiles/cedbr/DP-2cities_nativ.pdf
I will look some more.
The Kansas legislature uses the K.U. Public Policy Research Institute. From that organization is the following .pdf which tells you about everything you might want to know about Sedgwick County. There are multiple years listed, so trend lines can be drawn.
http://www.ipsr.ku.edu/ksdata/kcced/profiles/pdf/20173.pdf
While there are increasing numbers of of older people in Sedgwick County, that could be due to people living longer. The most telling figures, it is early in the document, is that Sedgwick County’s net migration is a negative number and if I am interpreting that correctly (demography is not my specialty) that means there are more people leaving the area than coming in. Which would tend to dispute what I was reporting about Wichita becoming more attractive to retirees.
Like I say there are a lot of data here and there may be a more precise way to answer the retiree question than what I have yet found there.
From the above source – census data indicate that in Sedgwick county from 1980 to 1990 there was a 24% increase in the population over age 65. From 1990 to 2000 there was an 11% increase in the same group. Over that time period, it does not appear that there was a big increase in that demographic.
I think I will contact the Wichita Chamber of Commerce and see if they can point me to any data on the retiree question.
From WSU this pdf is a set of population projections based on census data. There is an expected increase in the older person demograhic, but it is not clear how much of that would be due to in-bound migration. I emailed the Wichita chamber concerning the retiree question.
http://webs.wichita.edu/depttools/depttoolsmemberfiles/cedbr/popproj2004.pdf
Hey, as a side note, I saw that the Wichita Chamber of Commerce will be hosting a program this December where James Carville and Mary Matalin will be talking/performing. That might be worth going to.
http://wichitakscoc.weblinkconnect.com/CWT/External/WCPages/WCEvents/EventDetail.aspx?EventID=117
SD, thanks for the info. My read, as a retired physician, is that for many of the 45 of 105 Kansas counties that did not suffer population loss (60 counties shrank) from 1990 to 2000, where population increases were less than 5%, this was was almost certainly due to increased longevity, rather than net-influx of new residents.
The word from the Chamber and the WSU center for economic development is that there are no data available on in-bound migration by age group. The researcher from WSU wondered if Realtors would have this type of data. Does anybody know about that?
I don’t think folks understand just how bad this cras is going to be. I fully expect homes in some areas to lose 40-70% of their value. The following article states the case very well:
Real Estate’s Crash LandingPeter SchiffAug 25, 2006
During the unprecedented run up in housing prices over the last decade, most economists and real estate professionals firmly declared that the market would always move higher. When the recent cooling dashed those hopes, many reluctantly fell back to the “soft landing” hypothesis, which predicts that price appreciation will return to historically average rates. However the latest housing data, particularly this week’s figures on new and existing home sales, have made these overly rosy assumptions untenable. The “hard landing” scenario, which envisions real estate prices moving sideways, or actually posting moderate declines, is finally gaining broader credence. But, even this forecast will prove overly optimistic. The real estate market will not land soft or hard, it will crash and burn. Those who did not have the foresight to bail out may be faced with a distinct shortage of parachutes.
The glut of homes on the market, the highest level since 1993, doesn’t even begin to tell the story. Homes were far more affordable back in 1993 than they are today, and there were significantly more renters (who had not yet entered the market) who could potentially buy them. Today, home affordability is at an all time low, and just about anybody who could buy one already has. For those who think the inventory of unsold homes is high now, you ain’t seen nothing yet.
Consider these factors. There are a record number of new homes currently under construction. Real estate speculators who bought solely on the anticipation of rising prices will likely try to unload their properties now that the market has turned. With higher short-term interest rates, those who financed with ARMs will also try to sell their homes to get out from under mortgage payments they can no longer afford to make. A record number of Americans who bought second homes, or vacation properties, will likely reassess the wisdom of those purchases, and put these properties back on the market as well. Finally, homeowners who watched the values of their homes rise for years, but were reluctant to sell them for fear of missing out on even bigger gains, will rush to cash in before all that paper profit disappears.
This raises two pertinent questions. First, where will all the buyers come from to absorb this supply and second, at what terms will lenders be willing to finance these purchases? When prices were rising everyone wanted to buy, no one wanted to sell, and lenders were willing to finance just about any transaction. As a result, there was a “shortage” of homes for sale, a surplus of buyers, and prices rose accordingly. As prices begin to decline, few will want to buy, many will want to sell, and gun-shy lenders will be reluctant to finance all but the most secure transaction. As a result, the “shortage” will become a glut, and prices will collapse.
The glut of homes on the market indicates just how overpriced real estate has become. By next year just about every house in America would be for sale if the owners thought they could sell at today’s prices. It is impossible to clear the market at current price levels. The only solution is for prices to plunge. Lower prices will result in fewer homeowners wanting to sell, more potential homebuyers able to buy, and lenders willing to finance the purchases…..http://www.321gold.com/editorials/schiff/schiff082506.html
V.L.R.B!!
The email message below is from the Metro Planning Dept. The answer to the retiree inbound migration question may be forthcoming next week.
********************************************************************We are currently doing a comparison of 2005 American Community Survey data from the Census Bureau with 2000 Census data. We should be able to give you an answer first half of next week.
Wichita-Sedgwick CountyMetropolitan Area Planning Department455 N Main – 10th Floor – City HallWichita, KS 67202-1688