Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
Tuesday, January 31, 2006
Speculators 'Run Out' Of Bubble Markets, Into TX
The Street.com reports that homebuilders are going where the speculators are. "Builders' recent order reports suggest that the Lone Star State is currently the brightest spot in the country's housing market. Housing sales are spiking in the four major Texas cities of Dallas, Houston, San Antonio, and Austin. The recent new order numbers at Centex, Meritage and Rylandwould've looked a lot worse if it weren't for strength in these cities."
"In its most recent quarter, Meritage posted just 1% unit order growth. Orders were flat in Arizona, dropped 52% in California and fell 13% in Nevada. But orders jumped 22% in Texas."
"Housing speculators, after being run out of Florida, California and Arizona, are already turning up in areas like Austin to flip properties for a quick buck. But speculators might be in for a big surprise, since Texas is far from land-constrained and artificial demand is not likely to have as big of an effect on housing prices in the state."
One famous speculator has his eyes on Dallas. "Donald Trump declined to say much about his plans, but he predicted that a Texas version of his Trump Tower luxury hotel and condominiums would be a hit."
"The question, however, is whether Trump is late to the party. Dallas is teeming with projects that will add several hundred luxury condominiums near downtown and the restaurant-laden West End. Developers of the landmark Stoneleigh Hotel say they'll build about 100 condos, and Perot plans another tower plus retail shops and restaurants."
"At the W Hotel and Residences, they are still trying to sell about 30 of the 150 units, said Jonas Woods, president of Perot's Hillwood Capital. 'We definitely see the demand slowing,' Woods said. 'I'm worried about how much product is being talked about in Dallas.'"
"Trump said during a brief telephone interview that he knows all about the city's condo boom and office space bust."
Bring it on, Donald. We haven't had a good high profile bankruptcy here in town since the Hunt cases.
ReplyDeleteWasn't Trump a "chump" a couple of decades ago? When his winning streak ran out?
ReplyDeleteThe reason they are doing condo's there is because of the empty office building. AS for the 'restaurant-laden West End', the last time I was there, the number of off duty police working security was almost equaled the crowd. And there's a lot more drinking going on than eating.
ReplyDeleteThese people just don't get it.
ReplyDeleteDallas isn't New York. It isn't San Francisco. It isn't even Austin, where there are some cool places to live downtown.
Dallas is rock ribbed, Republican family values, white flight to the suburbs, giant SUV lovin', gas guzzzling only go downtown if you have to work there. The demographic who tends to gravitate to dowtown/irban living beats it the hell out of Dallas unless they are forced to live here. There is no market for $600K to $1M downtown and uptown condos. The dirty little secret is that a lot of the ones built since about 1999 are for sale or empty.
They have to be building these for the flipper/speculator crowd. The Dallas resident with that kind of money will go for the McMansion every time.
txchic,
ReplyDeleteThat's a good point. Folks in Dallas want a car as big as these condos.
Texas is a terrible investment unless you are still cashflow positive after including 10% vacancies.
ReplyDeleteMy good friend owned outside of Austin between 2001 and 2004. Guess what, he lost $25K after the ordeal. He had to compete with all the foreclosed homes and non-stop builders offering great incentives. And we are talking 2004!!
Everyone here in CA could not believe his story.
If you check the SDCIA forum, they never talk about investing in CA. They first attacked Vegas, then Pheonix, and now all over Texas. They will drive prices up based on their own speculation; not because of any other factor. Which brings us to the entire bubble picture.
On my last trip to Austin, I met a speculator on the flight back. He was on a mission - he and his buddies had just cashed out some flips around Silly Valley someplace (probably Oakland or East of there) and were looking for more opportunities.
ReplyDeleteI crossed my fingers and wished him luck :-) What I probably should have done was to offer some swampland in FLA - he was quite the credulous bozo.
try rebooting
ReplyDeletefeepness,
ReplyDeleteSorry about that. The new blog is almost done. I looked at it today.
MrIncomeStream makes a valid point.
ReplyDeleteIn my lifetime, and the lifetime of my parents and grandparents, it has never been wise to cash out of California and move elsewhere to wait it out. This strategy has always been a loser, especially if Texas or anyplace other than the other desirable places to live has been your refuge.
I watched one of my uncles do this 20 years ago, and he lost his ass. Of coure, he a lot of ass to lose, so his widow is now back in California, but living like a pauper by comparison to what they once owned here (now at least $10MM).
Warning to all to read this: Once you bail from the desirable areas, you will never be able to afford to return unless you are the next Bill Gates. Chances <= 0.
Sorry if I sound like a shill here, but I have seen it happen too many times. California coastal real estate may crash, but it doesn't go to zero. Texas, Alabama, Arkansas, the South in general - it can go to nothing - and beyond!
In fairness to the South, the Midwest can suck too. Loaned money to a cousin (many years ago) to buy a 4 unit "State Historical Building" apartment structure in Ohio.
ReplyDeleteWent to Zero, and beyond.
These days, look for a major crash in Joliet, Illinois coming soon to a theater near you....they have been building like crazy and there's nobody home. Joliet is an exurb of Chicago with no viable industry except for high-polluting chemical plants and a state prison.
This is off topic from Craigslist... "Must Sell at current price CANNOT sell at lower as I am breaking even on this deal. Need to sell due to Military Move back to east coast."
ReplyDeleteEven though he's using all caps I think he WILL sell at a lower price.
I've noticed a few things in the last couple of weeks on Craigslist. Listings for Florida are popping up across the country, the use of exclamation points and CAPS LOCK are on the rise.
Maybe I'm reading into this too much.
sm_landlord said...
ReplyDeleteWarning to all to read this: Once you bail from the desirable areas, you will never be able to afford to return unless you are the next Bill Gates. Chances <= 0.
Are you a realtor(tm)? I have seen this good 'ol RE plug more than once on this blog. Remember, real estate only goes up! ;-)
"Are you a realtor(tm)? I have seen this good 'ol RE plug more than once on this blog. Remember, real estate only goes up! ;-)
ReplyDeleteNope, anything but.
I was simply pointing out that some places are better than other historically. I have been burned too mnay times over the last 30 years trying to diversify out of California, and watching members of my extended family trying to diversify out of California. Every attempt has been a disaster. Even my great-great uncle, who lost a fortune in California real estate during the depression, would have been better off staying with the more desirable property. My great uncle sold property on the Las Vegas Strip too soon (in 1965).
The point is, real estate is a speculative, but speculating in the best places is potentially profitable. On the other hand, places like Texas, the South in general, and the Midwest ( generally less desirable places) is almost always a bad bet. Please like Alabama are ALWAYS a bad bet, because no one in their right mind would even want to live there, do business there, or even be from there.
Real Estate is a bad bet everywhere at the moment, but my point was that going to places like Texas to find value is a losing proposition. As it would be for anyplace that is basically an undesirable place to actually live.
Auction,
ReplyDeleteIf you can't see that last one, try rebooting.
They first attacked Vegas, then Pheonix, and now all over Texas. They will drive prices up based on their own speculation
ReplyDeleteAccording to Benengebreth, prices in Texas have been flat for quite some time. They won't be driving prices up here.
On the other hand, places like Texas, the South in general, and the Midwest ( generally less desirable places) is almost always a bad bet. Please like Alabama are ALWAYS a bad bet, because no one in their right mind would even want to live there, do business there, or even be from there.
These places are horrible only to sniveling snots who live in a self-absorbed bubble of their own.
I do believe in "the bubble" however, you are so right on about leaving desirable areas. You will NEVER get back if you sell and "wait it out" in Denver, Austin, Dallas, Omaha...life happens and unless you have incredible cash flow or serious assets you can kiss the coast(s) goodbye if you get caught swimming naked.....right on!
ReplyDeleteI've heard it described like this: you've got to plan your life around the coastal RE cycle...timing is everything...if you don't have a downpayment saved when the prices revert to affordable levels then you'll have to wait until the next swing.
For example, coastal condos that went for $200K in 1999 now go for $550K. Buying at $550K may result in financial ruin or eating rice and beans for life, but prices have never ever dropped below $200K (inflation adjusted).
By this line of reasoning, nobody moving to California from another state would be able to own a home. That seems unlikely.
ReplyDeleteWell...entry level houses in CA run $500K at present. You've either GOT to use a high risk interest only loan or have a level of equity that's impossible to build in most other locations.
As noted in a previous post, it's possible for average people to buy into the market at the right time, but one must plan carefully to do it.
OT, but I walked into a title company office in Palo Alto, CA today to settle some business.
ReplyDeleteThere were about ten people working there. I casually asked how the market was doing and the manager told me it was 'very slow.' I asked how it compared to last January and they said it was nowhere even close to that level. I sensed a lot of fear and pessimism in that office.
The last time I was there, last spring, the place was humming with activity. Everyone was all smiles. I noticed at least 25 people were working there at the time.
Today it seemed very ominous looking at all those sleek, but empty cubes. The scene reminded me of the aftermath of the dot.bomb in SV- Lots of layoffs and plenty of fancy, empty offices.
I'm "ditto"ing few others who did or will sell for a loss in Austin. We bought our new home in 2002 for $262K and sold it last year for about $50K loss. The market here is pretty bad since there are so many new homes available, at least in the suburbs of Austin (downtown is doing better since it is more desirable and less new developments).
ReplyDeleteIt used to be that you can be cash flow positive renting out here but as the interest rates have risen, we may have crossed into the negative.
A $250K home would cost about $2,300 per month with 30 year loan @ 6%, insurance, tax and PMI. You can get people to rent for about that much (but keep in mind the marketing cost of finding a renter and any extra maintenance cost due to renters).
Employment picture hasn't improved since the dotcom bust so I can't see the home prices improving anytime soon.
sm_landlord said...
ReplyDeleteReal Estate is a bad bet everywhere at the moment
You've got my vote on that.
Lou Minatti said:
ReplyDelete"These places are horrible only to sniveling snots who live in a self-absorbed bubble of their own."
You go for it, dude.
Happy Trails.
Kropotkin_Austin said...
ReplyDeleteWhere are the "end users", as they say these days-- people who actually live here and have well-paying jobs?
...aka the "bag holders."
Didn't you know? Retiring baby boomers are coming in droves and wealthy S. Americans will be dying to buy! ;-)
Ben, as a web designer/software guy I can say that a reboot might work but it's a lot easier to do a Ctrl+F5.
ReplyDeleteThat said, the problem is with the Blogger database. Vanishing posts are a design flaw in their software. If you need advice making the switch to Wordpress email me at mckirkus@bigcrazybubbleyahoo.com except remove the 'bigcrazybubble', it's there to prevent spam bots. The hosting fees wouldn't be much becuase this is mainly a text based site. Heck I'd work on it for free because I love the blog.
Oh and Wordpress has great spam blocking tools which allows anonymous people to post, maybe Greenspan would pop in and yell at us. There are lots of interesting things Wordpress can do that blogger can't.
If you want I can set up a test version and demo some of the features that blogger doesn't have.
CA can be a great place. I live in Napa Valley. Bought in 1993 with a lowball. I love it here. The food, wine and culture is wonderful. It's very slow-paced here, but if I want a little more action I can always drive an hour to SF. No plans to leave!
ReplyDeletesm landlord:
ReplyDeleteYou are SO right. I've tried to make that point but others know better, or so they think. Having lived in San Diego a short time (too short) and Dallas a LONG time (WAY too long), there is no comparison, high shitbox prices in SD notwithstanding. I'd rather rent in San Diego for the rest of my life than own a McMansion in Dallas. The notion of paying 500K or more to live in a downtown or uptown Dallas condo just borders on the ludicrous. Nobody but NOBODY will do that long term and those properties will rapidly lose value as they become perpetually for sale or rent, as so many of the currently built ones are.
I've said this a million times. If you think you're going to beat the market by dumping a Cali property and moving to a dump like Dallas, any of those gawdawful midwestern cities, or any of the so called "cheap" areas (they're cheap for a reason!), you're not. You will piss away the gains on a big house you will not be able to resell for profit, or even what you paid for it. You will be so bored that you will then piss away the rest of the money on shopping and other forms of "entertainment" since the beach, mountains and Cali lifestyle are now gone. Trust me, this I know! Going from SD to urban Dallas as I did is bad enough. Going from SD or other parts of Cali to the Dallas suburbs is akin to be sentenced to twenty to life in the penitentiary. You will spend all the time you are here trying to get out and go back.
Hotel Texifornia:
ReplyDeleteYou can check out any time you like . . . but you can never leave.