Enough about the Housing Market Already!
[We want to welcome new poster Katie Fluegge to the discussion. She has started off with a bang, and I trust a very meaty subject for you all. Welcome Katie.]
Every time I turn on the news I hear the headlines about “record foreclosure” and nationwide home sales being down. But when you look at home sales in our area the truth is Central Wisconsin has a strong economy and hasn’t been affected the way that other parts of the nation have been. Locally, we have seen a decrease in the number of overall home sales by about 22% in 2008 from 2007, according to our Central Wisconsin MLS system.
Some people associate the national down-turns with our local community, and this of course is contributing to the fear factor and decline in home sales in our area. There is no doubt you would be nervous about purchasing a new home when you hear that home values have decreased and foreclosures are up. But what people are forgetting is that home values in our area have historically held there value very well. We are very fortunate to live in an area that hasn’t been affected as much as other areas and where housing is still affordable and obtainable to the average consumer.
Contrary to what is being said and may be happening on a national level, it is a great time to buy a home. Interest rates are at a historic low between 4-5% and there are some great deals out there right now. I only wish I wouldn’t haven bought my home two years ago, so I could take advantage of the deals. Many people don’t realize that 20 years ago, buyers were required to have 20% down and interest rates were between 12-13%. Inventors are taking advantage of these opportunities and spending money to make money, which is great.
As the director of marketing and sales for a residential new construction company, we are seeing a lot of second and third time homebuyers both upgrading and downsizing and keeping busy with quotes and home showings. Of course we could always be busier but we are much busier that you would think from the crap the media keeps jamming down everyone’s throat. Our lender affiliates have informed us there are some great deals out there right now for first time homebuyers and don’t forget about the $7,500 tax credit buyers receive if they purchase a home prior to July 1, 2009! You can buy a home now for as much as you are paying in rent.
With the rising energy costs, investing in an energy efficient home has never been a smarter idea. Select quality builders build their new homes to energy standards and include Thermax insulation in the basement, which provides an extra insulation and moisture barrier and our insulation standard exceed what is generally required by code. These homes need to comply with a series of heat-loss standards, which they well surpass. Some builders also install high-efficiency furnaces and water heaters in our homes so you can rest assured that you won’t be wasting unnecessary money in the winter months. Homes built to energy star standards are at least 15% more energy efficient that even homes built to the 2004 International Residential Building code and include features that make the 20-30% more efficient than standard homes. Select local builders also pride themselves on many “green” building techniques and materials used, which is important for the future of their homeowners and our community. You just cannot get these energy saving features in an older home.
As a community, we are not helping our local economy by keeping our money tucked away in our mattresses. If we are hoping to put an end to the economic down turns, the best thing we can do as consumers is to spend and take advantage of some of the great deals that are out there right now in our community. This includes taking those steps towards purchasing a new home and or vehicle, if you are in the market for one. We can help sustain our local economy by being smart and enthusiastic buyers and by spending locally. By doing so, we can insure that both you and I will make it through and have a successful 2009!
Mohawk Matt said:
Not that this isn’t a worthy issue, but it sounds like an ad to buy a home.
December 31st, 2008 at 12:34 am #
Theresa Stevens said:
I second Matt’s comment. All that’s missing is the name of her employer so we can run right out and buy from her.
I think there are more factors at work than just what’s being said on the news. I know of people who won’t buy a new house and/or car because they’re worried about their income and unemployment. They can afford it now, but what good would it do them if they lose their job?
December 31st, 2008 at 8:57 am #
matthew said:
A certain irony when this post appears reassuring us that the local economy is good and go out and buy a house when the headline in the Wausau paper is that the requests for public assistance to get food are overwhelming the officials. The idea that people are keeping some excess money under the mattress is just wrong. A lot of people, too many people, don’t have enough money to survive. Matt and Theresa are both right. It’s nothing more than an advertisement.
December 31st, 2008 at 10:00 am #
Dino Corvino said:
In putting on my founder and Executive Editor hat, I will admit it does smack of advertising. We are not getting paid for content, and we are not getting paid by Katie to put here article up.
My hope with this article, was the community would respond to her points substantively, and not simply reject them out of hand.
In full disclosure Katie does work for one of the development or construction companies. I forget which one, and we did ask her to take that part of the post out.
But, I think it is an interesting perspective, given the absolute bottom that the financial sector this country has taken on right now.
As we look at our checkbooks, and retirement fund (oh how I wish I had one of those, but nay I am not that smart), we see the direct results of the financial policies of this country. We all have a perspective, and I think it is interesting that this person would want to make theirs known here.
Take a second reading, I think you might find more discussion material there.
December 31st, 2008 at 11:18 am #
Theresa Stevens said:
I’m not rejecting anything out of hand. I did take a second reading and it still says ‘advertisement’ to me. The bottom line is this…if people can afford something, they will buy it. If they can’t, they won’t. Yes, if I had the money to buy a house now would be the time to do it because of the deals. I know young people who are planning on buying now because they can afford it and didn’t think they could 6 months ago.
December 31st, 2008 at 11:25 am #
robertmentzer said:
Gently disagreeing with matthew’s comment, I do think there is a real psychological effect of being in a recession even on people who have not actually been laid off or whatever. Like me: I have a job, I’m not worse-off than I was last year at this time. But I still FEEL like I’m worse off, somehow, and ought to cautious about money, should put off vacations or purchases or whatever and prepared for calamity. It’s not entirely rational, but it is my experience and I think other people’s experience too.
I mean, look, this post is obnoxious in several ways — and I don’t disagree that it is distinctly self-serving. But not all the points are wrong! Wausau’s housing market HAS been relatively insulated from national trends. Interest rates ARE really low right now.
I don’t think the message is necessarily, “There has never been a better time to buy a home!” Maybe it’s not. How secure are you in your job, or how sure are you that you won’t need to move in a couple years? And I definitely don’t blame “the media” for “jamming down our throats” information about what IS the biggest economic crisis in our lifetime.
I am just saying, the poster is not necessarily wrong about the local housing market.
December 31st, 2008 at 11:25 am #
Theresa Stevens said:
Rob’s first paragraph is exactly what I wanted to say without knowing how to say it.
There are a lot of people out there who took advantage of ‘great deals’ with mortgages and did ARM and/or balloon loans because everyone said they were so great, and those people are now losing their houses. I think people in general are being more careful with their money because we don’t know what’s going to happen.
Perfect example… the auto manufacturers closed the plants here in WI. Several thousands lost their jobs. Because the plants closed, the utility companies are asking for emergency rate hikes in 2009 to cover the revenue they’re losing. Who pays the higher rates? We do…which is less money for us to pay other bills. Just because we might be doing well personally doesn’t mean that something won’t happen elsewhere and have a huge impact on us.
December 31st, 2008 at 11:32 am #
Dino Corvino said:
I truly encourage Katie to respond openly and honestly to the comments on this blog.
The fact remains, it is a good discussion starter about the housing market, and how you see it. I hope to hear those stories.
I know a few people who have bought homes just recently.
December 31st, 2008 at 11:41 am #
Andy Sutton said:
I have to agree that this entry is a shameless plug. The National Association of Realtors has been running TV spots with this same propaganda out of desperation for a few months now.
While it’s true that our local housing prices haven’t seen the same percentage haircut as those in CA and the East coast, home prices have still dropped in Central WI.
Now is a good time to buy - but I don’t think the bottom is in yet. With the Greenheck layoffs there will be even more houses on the market. Odds are you’ll get a better deal if you continue to wait.
December 31st, 2008 at 12:55 pm #
Dino Corvino said:
Andy,
Could you please expand your comment with some source material?
How many people were laid off?
December 31st, 2008 at 1:01 pm #
Mohawk Matt said:
I wasn’t really rejecting anything either. It just sounds like an ad even after reading a second time. I think when you title a post “Enough about the Housing Market Already”, you shouldn’t put in the article that you are the Director of Sales and Marketing. Seems like if you had enough of the housing market, you’d be looking for new work.
Anyway, to comment on some of the other posts, I agree with Rob that I have a job, the same job I had last year, and I’m no worse off. In fact, I’ve gotten a promotion so I’m doing a little better. I don’t see the economic downturn at my place of work. It’s a little slower, but it’s usually slower this time of year.
As far as people wanting free food, there are people out there who need it. However, because the rules are so lax on benefits for things like that, I know people who can afford to go shopping at the store but they don’t just to save money. Real nice, huh?
December 31st, 2008 at 1:30 pm #
drrent said:
Let’s talk about housing for a minute (I am taking my Dr Rent hat off and removing my assumed bias toward rental housing).
There was a housing bubble. Many people saw it coming. It had more than one cause, there were a number of factors leading up to it. This is an over-simplification, because there were many other issues at play… but it gives you a general idea.
Housing values tend to increase over time. Over the last 30 years or so, we are probably looking at a 3-5% annual increase. Some years more, some years less. However, the way money for homes got lended changed. First small changes. Interest rates were lowered to stave off inflation. This combined with easier to obtain loans (fueled by federal economic policy that concentrated HEAVILY on home ownership) meant that there was more demand. As demand increases, so do prices. Home values were now increasing at nearly 10%, some markets saw return on real estate doing better than the “more risky” stock market.
With houses increasing in value 10-15-20%, people started speculating. Lenders started counting on this appreciation, lending houses with no money down because in a year or two, they would have their 20% equity ratio. Lending to unqualified borrowers, because if they forclosed, they would have equity in the loan because of how quickly home values were going up.
The prices increased with demand, and demand increased even more with the entry of real estate speculators. Why invest in the stock market when you can buy a house and sell it 6 months later pulling a double-digit return.
The growth in housing values was not caused my normal market conditions.. the growth was caused by speculation and much like tech stocks some years ago, this growth was unsustainable. At some point, it would collapse under its own weight, in the much dreaded “market correction”
The greater Wausau area missed out on much of this, we tend to be more reasonable. We were still hurt (check out how many foreclosures we have each month)… but we did have job growth and other economic growth. Our housing values will probably see a decline… it won’t be a very big one and it won’t last for very long. Our housing market did outpace “normal” demand, but not by very much and therefore our “correction” will not be very severe.
HOWEVER, the U.S. Economy has been growing at a pace for the last 50 years that also, could not be sustained forever. Remember when we had one-income households and savings accounts. The growth in our economy outpaced wages. How? Well… look… we went from one income households.. to two income and often three income. We went from healthy savings accounts to large amounts of consumer debt. When the credit cards hit their limits, we tapped the equity in our homes.. not to improve that asset, but for more consumer spending…. at some point, it couldn’t keep going. We are there.
So… we have the bubble bursting on the housing market, which played a big role in triggering the end of unsustainable economic growth.
Is now a good time to buy a home? In this local market… if you have 10% down (20 is better)… if you qualify for a 30-year fixed at a locally owned bank… if you are fairly secure in your job/industry and dont plan on relocating in the next 5-7 years… it is a VERY GOOD time to buy.
But… spending for the sake of spending… that is what got us here.
December 31st, 2008 at 2:31 pm #
matthew said:
Assuming the economy continues to turn down, and most experts point to another year of bad news followed by a gradual upturn at the end of the year it makes sense not to buy right now. The housing market will continue to drop. More houses will become available and the people whoi want to sell now will become even more interested in selling so they will drop the price. Some experts are predicting that 25% of retail stores will be closed by the end of next year. Look in the legal section of the paper. Everyday four or five more foreclosure notices. All of these houses are available. Dr. Rent is right. We are somewhat insulated from the drop because we never were a part of the unsustainable rise. But it seems to me that the real bargains would be in existing homes. The supply clearly exceeds the demand and will probably continue to do so. So a buyer’s dollar would probably go farther. If you’re in the market to buy, now seems a good time because it is a buyer’s market. But six months from now might be better. I’m certainly not an expert but buying a new home today doesn’t seem the way to go. I would like to ask Dr. Rent if the rental market is effected. Has the rental rate stabilized or dropped in the recent past? Because it seems to me it would be wise to rent a place for a year or so, save more money and see what the situation is then.
As to people needing food, let’s assume there is always a percentages of cheaters. It is undeniable that the numbers have greatly increased. But I doubt if they are all cheaters. Some probably are, but a lot are truly in need. The number of people who need food assistance this year is greater than last year. Maybe more cheaters but also more honest people in need. I think it is a good indicator of how the local economy is.
December 31st, 2008 at 4:33 pm #
robertmentzer said:
matthew, I’m sure you’re right about the market getting worse before it gets better. But remember that these things move very slowly no matter what — most people get 30-year mortgages, and very few non-commercial entities buy more than a few houses in their lives. A year here, a year there, most people buy houses on a timeline that is much more stretched out than that. So while this very likely isn’t the absolute bottom of the market, it’s still fair to call it a good time overall.
December 31st, 2008 at 4:44 pm #
drrent said:
The residential rental market tends to be counter-cyclical. That means that a bad economy tends to be good news for owners of residential rental properties.
Again though, there are many different forces at work.
Our current market is currently saturated. There has been a substancial amount of building recently. Hundreds of new units in Weston, hundreds of new units in Wausau, and that is just in the last 12 months.
If you wait to build apartments when the demand is there, you miss it.. so you build in anticipation of the demand that comes from a prolonged bad economy. Interest rates are low and for well qualified developers, you almost can’t afford NOT to build right now. Also, new building codes went into effect that will require sprinkler systems in apartment buildings, so the rush was on to get the building permits before the new requirements went into effect.
So… had all things remained the same, the rental market would be looking pretty good. But with hundreds of brand new units, and to “lease up” you normally have to severly discount rents to get that cash flow going to make the bank happy, that causes high vacancies in existing units and drives rents downward (good news for renters.. not so much for me).
You will hear a great deal of talk about all of these people being foreclosed now needing rental housing. Although that is true, it is not the big boost to our customer base that one would expect.
The great majority of the foreclosures that were caused by sub-prime lending are from people that made good renters but got in over their heads on the purchase of a home. They most likely will again be good renters. Of course, you have those who were borderline renters who bought homes using sub-prime lending so that the landlord wouldn’t evict them for non-payment. Their habits didn’t change. Money for nice car, money for plasma TV, no money for housing. Once bad priorities, always bad priorities.
And when they talk about all of these people being forclosed on that now are renters… they forget about those renters who are living on the edge.. doing all they can to just scrape by… but they are only one missed paycheck from being homeless. And gee… now even Hardees is closing up shop. So.. for each new decent renter you get who is a foreclosed homeowner… there are 3-4 renters who now can’t afford to pay their rent because they lost their job.
Let’s not even get into the “shadow market.” - This is home owners who bought a new house but can’t sell their old house decide to rent it out instead. This adds more rentals to the market, but unfortunately many of these new “incidential landlords” don’t realized their are risks involved, and more importantly rules to follow.
December 31st, 2008 at 4:55 pm #
Dino Corvino said:
As a cofounder, I officially love you guys.
December 31st, 2008 at 4:58 pm #
drrent said:
as a dumbfounder… I love you too Dino
December 31st, 2008 at 5:33 pm #
Lisa Shilts said:
Honestly, it really IS a good time to purchase a house!
Our first home, bought in 1980, had an interest rate of
13-7/8%! I said thirteen and seven-eight’s percent! Rates are low for both purchasing and remodeling right now. I understand we are all being cautious, even if the downturn has not directly affected us.
Our City Pages cover story in late November was interviews with a mixture of people/businesses in the area (real estate, construction, chamber of commerce, charities, etc) and the consensus seems to be that yes, things are slower, but as we keep hearing, we are a little better insulated from the recession than most areas of the country. Yes, we should be cautious, but we are only hurting ourselves, local businesses and the local economy if we get so paranoid that we are afraid
to shop, dine out, or spend our money.
I hope the new year brings an abundance of good news and an upturn in the economy of the area. Happy New Year to all the CW folks!
January 1st, 2009 at 10:32 am #
robertmentzer said:
Here’s a cartoon from 1992 that gets right at this point:
http://www.calculatedriskblog.com/2008/12/cartoon-some-things-never-change.html
January 1st, 2009 at 2:00 pm #
Katie Fluegge said:
Wow, I am overwhelmed by the feedback and appreciate all of your comments. I have been gone over the holidays so just getting back into the swing of things. I first off want to say that this was not an advertisement to by a home. Had it been, I would have certainly included where to reach me at. I do realize that there are several factors to consider right now for someone who may be in the market or thinking about purchasing a new home. People are scared that they might not have a job or that their economic means may change and that is certainly a factor that comes into play. But on the other hand, there are several people out there right now that ARE in the position to make a move and if it is something they are considering, it is a great time to buy or invest based on prices and interest rates. I agree with Theresa’s comment that the people who don’t have money to buy won’t. Of course no one would encourage you to buy a home right now if you can’t afford it. My main objective with this post is to emphasize what robertmentzer said about the psychological effect of being in a recession and constantly hearing about it, even on people who have not been laid off and feel. Everyone in our community is somehow effected by the decrease in the housing market and the layoffs, etc in our area, whether it be personally or psychologically. I don’t agree that the National Association of Realtors ads are run out of desperation, but rather in an effort to promote the housing industry, as we all promote the industries we are in. It is true that with the way lending was in the past few years, it was incredibly easy to purchase a home with little or zero money down at a very decent interest rate and some buyers opt for the ARMS, etc and are in trouble, but not all. I believe it is our duties as consumers to figure out what we can afford and what the best options are for us, not a bank. I was preapproved for a home loan 2 years ago that was about $40,000 more then I would have felt comfortable or could realistically afford and I was astonished! But there are buyers our there that say, ‘hey, if the back says I can borrow $210,000 then I must be able to!’ A lot of this blame is placed on the banks, and I agree that some of it should be in that they provide their borrowers with the information but I don’t think the borrowers always understand all the terms, etc. But isn’t it our responsibility to ensure that we don’t take on more than we can handle or purchase a home that is $40,000 more than what we actually can afford?! Ignorance is no excuse and that is why I don’t think ALL the blame should be placed upon the banks. Thank you Lisa Shilts for you post, as I think you summed up what I wanted to say in less words. Yes, we should be cautious with our money, but we are only hurting ourselves, local businesses and the local economy if we get so paranoid that we are afraid to spend our money.
January 6th, 2009 at 9:27 am #
Barry Liss said:
These were interesting comments. If prices fall A LOT more maybe we’ll buy a cabin - for my job and my family I watch the markets/economic indicators pretty closely…I see no reason for short-term optimism and I would wait to buy if you’re looking for some economic bottom price…it is my opinion that foreclosures will modestly increase and housing prices will continue to fall at a moderate level (due mostly to the fact that Wisconsin never really had a boom so our housing prices didn’t balloon) for the next 2-3 years (30 months from now will have a bottom)…however, the cost of vacation properties in the Northwoods will plummet - people will sacrifice their cabins to save their primary homes…I bet vacation properties lose over half their value…but what do I know though?
Barry
Barry
January 12th, 2009 at 9:17 am #