thoughts on real estate
One of Andrew's comments on an earlier post made me think about where housing prices are going and where the housing market in general may take us. My original thoughts about 5/1 ARMs are coming true - that people wouldn't be able to handle the higher payments once the five year initial term adjusted to the higher rate. I got this off of cnn money, dated this week:
Where foreclosures are jumping
Year over year gain in homes in foreclosure. Click for more stats on each state.
Nevada: Up 255%
California: Up 160%
Florida: Up 62%
Every time Utah sees a huge rise in house values (ok, at least since I' ve been paying attention) the national market is slumping, and Utah falls fast and early as much as it rose late in the game. So, if Utah is the canary in the coal mine, with prices skyrocketing this year does that mean we're in for a major nationwide slump within two years? This happened in the early 80's, the early 90's.... so now the mid-2000's?
thoughts?
Where foreclosures are jumping
Year over year gain in homes in foreclosure. Click for more stats on each state.
Nevada: Up 255%
California: Up 160%
Florida: Up 62%
Every time Utah sees a huge rise in house values (ok, at least since I' ve been paying attention) the national market is slumping, and Utah falls fast and early as much as it rose late in the game. So, if Utah is the canary in the coal mine, with prices skyrocketing this year does that mean we're in for a major nationwide slump within two years? This happened in the early 80's, the early 90's.... so now the mid-2000's?
thoughts?
posted by mnlop at
6:43 PM
12 Comments:
you are not going to believe this, but today I was supposed to be working with my boss and we got discussing home ownership and my chances of owning a home around here. he predicts that like many ultraurban cities, seattle will never really "slump", but that by next spring things will be lower-priced and deadlining as far as values go. but there are so many people like me (young professionals renting, waiting for something to come up that's affordable) that it will be hard to get into anything. very hard. I'm thinking maybe I should move to pasadena. :)
At this point waiting won't hurt because home prices are done going up by insane amounts. Seattle may be more like New York - there are tons of people with lots of money per capita which makes it very stable as far as prices, but you may become one of those people with lots of money :) I looked at Seattle prices this week, and was surprised it wasn't all that much more expensive than the best neighbhorhoods in Salt Lake, and paying those prices make the money so much more worth it because it's Seattle!
I kinda see Utah as the place where everyone goes when they can't hack it elsewhere. Not to get down on anyone, it's just an unfortunate reality that some housing markets price out homeowners who don't make enough money. I couldn't cut it in New York, the prices there are just way too high. I'd be renting with no hope of ownership and probably looking for a job someplace that's easier to afford. Heck, I already catch myself doing that from time to time, including looking in Utah. So, anyway, I think we're in for an interesting couple of years. The 5yr ARMS (including mine) are coming due, but I don't see interest rates rising that much. Utah's market, I think, is being affected by two (of many) factors -- people fleeing sticker shock further West, and those whose ARMs are coming due and who either want to take their gains and go elsewhere or can't make the payments. But the economy is such that it can't handle a housing slump; this will keep interest rates down. At least, that's my theory. So, I guess one question is whether the ARM scare is real or imagined? In many coutries it's the normal thing to do, with fixed-rate mortgages being the odd choice. Unless we get stagflation again (this happened in the late 70's/early 80's, I think) where interest rate inflation is combined with stagnant growth then riding out the storm may be a good thing to do. My rates start floating in 2008, so I still have some time to refinance. The question is a.) do I do it now and risk not having and LVR of 20%, or b.) wait a year or so and see what happens with housing prices? Perhaps we've built out to current demand, and that combined with high commodity prices is causing the housing slump. I dunno, but it'll be an interesting couple of years. My only sure feeling is don't rely on historical analogies too much; history likes to repeat itself with variations.
I'm thinking about it mom! I really am.
I'm thinking about it mom! I really am.
I do have a dispute to the notion of people moving to Utah when they can't cut it elsewhere. The people I've been meeting and hearing about are quite wealthy, with primarily out-of-state wealth. Heber City and that whole area between Heber and Park City is now completely filling with wealth. It is almost like another Aspen, CO. Also the same thing is happening in the East parts of Salt Lake (my street has an average home price of around $400,000, and it just goes up from there.) Utah is becoming known (even in places like Manhattan) as somewhere beautiful to live. It's also true that many people are moving to places like the West side of Roy in Davis County -- it's places like that are where the masses are going for affordable housing. So I'd have to say Utah has a strong duality. Also, the latino population has exploded, with the population in Provo-Orem going from like 2 or 3% in 1990 to 30% today (I got those stats off public tv the other night). Bottom line? It's turning into a regular, everyday metropolis.
I'm feeling wordy on this subject right now! Andrew, you are right about history repeating itself with variations. The variation I see in this case is this (and it ties into Mom's comment): Housing markets in 'good' areas, like Santa Monica, Pasadena, Malibu, Beverly Hills, etc, will probably never ever see any drops in value as a result of an overall nationwide drop in the market, and will probably continue appreciating at a reasonable rate(although they might drop if there's a bad enough earthquake or mudslide). So those are secure. But areas like Lancaster, the Central Valleys -- anywhere there is overbuilt new housing in previously undesirable areas - those worry me. I see a possibility of a 'selective depression' affecting people and homes in areas like that. But that could be a very widespread phenomenon - if people start losing homes on a mass scale in those areas all over the country where people have stretched themselves too thin to live in areas that are barely acceptable in terms of commute and desirability -- that would be bad. I see the wealthy staying wealthy, but I see the lower to lower-middle incomes stretched way too thin to go on like this much longer. And think about how many more people are in that situation, than, say, in the Malibu situation. If the bottom falls out, those are the ones who will be hurting, and there will be massive amounts of them. Those areas can quickly degrade (I read one report of a town in Colorado where exactly that is happening - big, suburban houses boarded up and graffitti'd). It's a perfect example of an outskirt-y type of place that was overbuilt for it's value that may never recover. So that's what I meant by nationwide slump :)
Emily, yes - that's what I've been noticing, too. Lancaster is going downhill, quick. Kip's brother lives there and they have had a recent and dramatic increase in crime in their neighborhood.
I saw in Antioch, CA (a place where I was on my mission) several neighborhoods that had been built may 5-10 years previous that were already starting to feel run-down and ghetto-ish. Problem was there was no inherent value to the place as a spot to live, and the developers didn't plant any significant trees (don't want to outscale the house, heaven forbid) and made the homes out of crappy materials. Then again, it's shocking how consistently the mainstream building style of previous eras goes out of fashion and then pops up 30 years later looking cool again. I just can't imagine that happening with current new construction, anything from the 80s on really.
Yeah, developers of new homes are already starting to lose money on their projects, they've completely overshot the market. What really worries me is that every vacant house sitting in foreclosure means a bank has just lost a ton of money. Multiply that by thousands...
I agree with you about wealthy people moving to Utah. What I meant by my comment was that those who don't have enough to be financially independent, who can't make enough doing whatever they do to live in California, would probably end up someplace like Utah. Many of my friends, for instance, from the Huntington ward have moved to Arizona because they couldn't afford housing in California. Several have moved to Saint George for similar reasons. I think there's another layer, those who have ARMs, who are barely making their ARM payments and will be in a similar situation when their ARMs start to float. If you're financially independent than you can move wherever, and that will go with the whims of fashion. Perhaps it will also bring with it higher-paying jobs, although I wouldn't bet on that happening. But it's tricky because the economy isn't doing too hot and the feds aren't chomping at the bit to keep raising interest rates. My ARM is tied generally to the fed rates, so as long as those stay down I'll be o.k. And they could stay down for some time -- the slumping housing market is gonna be a decent-sized drag on the economy. I think we'll see how big of a drag it can be on the heretofore booming financial services sector especially.
I concur. Lots of people have ARMs, and my prediction is they will start to float if placed in the right substances, unless we keep them tied down. I'm financially independent though so I can move mine wherever, following the whims of fashion.
Okay, on with your big-people talk.
-little brother
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