Is it a "Recession" yet?
Submitted by scott on Wed, 01/16/2008 - 8:27am.
It is all over the news, so it must be true. I can not necessarily gage any slow down at this time, but my IRA portfolio certainly looks horrible! Applied Materials is cutting back, Intel is warning, there is a credit crisis and housing started going down months ago. But, Microsoft spent over $1B on FAST and Oracle is buying BEA......and oh, this just in Sun (remember them?) is buying MySQL for $1B!
What does this mean for Austin?
Yes, it is a recession, the only question is how bad and for how long. Austin doesn't appear to be taking it as bad as a lot of other places, at least not yet. I doubt we will be spared though, because from what I've been reading the construction bust which spread into mortgage and then into the general financial industry is starting to work its way into other related businesses. One of the major employers where I used to live in the north just shut down one of their plants lock, stock and barrel. They make windows and light fixtures, which is of course directly related to construction. The speculation from people I know that work there is that production will probably move to China once the recession ends.
I work in the title (real estate) industry, and things definitely are not pretty. Seems like every time I walk by a competing company's office it's closed. Unfortunately, it does seem to spreading.
That being said, Austin has taken it much better than other areas of the country. Technology seems to drive businesses more than in the past, so perhaps we will be spared.
--
Christopher Iamele
Email: ciamele at austin dot rr dot com
I posting on this somewhat dormant thread as I expect people see things worse now than it was when this thread was started.
I work in the title (real estate) industry, and things definitely are not pretty.
It was the real estate industry and the whole foolish belief in real estate as an investment for everyone that got us where we are today. It really did get out of control.
We (USA scope not Austin) have been in 25 years of booming times. We have had almost nonstop inflation and very little deflation. It can't last forever.
I think a lot of people are going to find out the hard way: Real estate is a place to live, not a source of income. A house doesn't "do work" or add productive value to society.
Glad to see door64 and similar things, that is what our future is - our ideas. Not our 'buy and sell to the next guy' real estate market ;)
P.S. Look at the average income in a place like San Marcos, it has declined in recent years - but housing has gone up substantially. This is not a good thing for people who just want a place to live.
Here is a good graph depicting the nationwide real estate boom of the past 7 years.
http://www.iaconoresearch.com/BlogImages/08-02-26c_case_shiller_indices....
I've been "upside down" on my house since it was new in 2001 (August)... By that I mean if I sold my house today I'd likely get less than what I owe (after commissions), let alone what I paid for it. I placed my order during the height of the previous boom in 2000, and since then my area at least, has gone down and stayed down in values. A large portion of the people in my area work at nearby employers like Dell, IBM, Samsung National Instruments, etc. When those employers (with the exception of NI) laid off massive numbers in 2001-2003 a lot of the houses in my neighborhood went to foreclosure. Since then there has not been much sign of recovery. Yeah, I know, the Statesman is always blathering about how "hot" the Austin housing market is... maybe for McMansions near downtown. Houses in my neighborhood over the past several years have taken months to sell, and in some cases have failed multiple times to sell (sellers not willing to take a big loss). When houses have sold they have generally gone $15-20k below what they sold for new in 2001. Its been so brutal that my tax appraisal actually went down considerably (like over $20k). Now with the real estate market even in formerly "hot" areas cooling quickly, I bet that it will get even worse in my area. It is a good thing I don't have any plans to move, because I don't have the $$$ to buy out my negative equity.
thanks for sharing your experience. Real estate agents are all so desperate to proclaim that Austin is one of the few places that is still holding on - that they ignore the bigger picture.
One thing I'm curious about - do you feel the quality / safety of your neighborhood has changed even with the decline in housing value? That is one area that Austin seems to me does a better job of most. I spent 5 of the last 7 years traveling in the West and South (Seattle to Florida via LA/Vegas/Phoenix).... and despite the major Austin crash of 2001/2002 - people behaved well.
Your other point about McMansion doing well vs. your more traditional house/older houses. I think these McMansion houses were all about having higher square feet to justify the cost. But the quality of construction, heating and cooling cost, etc make these a horrible purchase. I think these will never return to their selling prices - unless we keep destroying the value of the USD $. But that is a cheating way to keep housing prices going up.
Sorry to hear you are negative. The inflation since the time you bought has to catch up at some point, but probably your best bet is hopefully people will catch on the value of thees more established areas with less commute, less energy wasting houses, lees wasted square feet. Texas has been known to bulldoze entire new neighborhoods of unsold houses after such overbuilding.
The quality/safety of my neighborhood is more or less unchanged. The only dodgy people we've had around have been people renting houses that people were not able to sell. For the most part even those people didn't really cause much trouble. The houses aren't selling, but its not because the area has become a ghetto.
I agree that eventually inflation will have to catch up, but what has kept that from happening is that DR Horton is still building large numbers of cheaper houses not too far from my neighborhood and they are depressing the market. Once they finish their build out or slow their rate down it should help the rest of the area level out and eventually start to rebound.
As for inflation and destroying the dollar -- I personally believe we will see even the fudged government inflation numbers into double digits soon. I also believe real inflation (counting energy and food) is already there and getting worse. Because of that I think it is inevitable that the dollar will continue its slide against the Euro and other world currencies.
The reason I mention McMansions is the areas that seem to not be hurting are mostly near downtown or UT. I believe a lot of that is California refugees who don't think $400k is a ridiculous price to pay for crappy houses if they are near downtown. And they are willing to buy houses, tear them down and build those McMansions.
My neighborhood is great commute if you work at the tech employers in the area, but of course not so great if you work downtown and completely untenable if you work south. Then again, there are a lot of silly people who pay a lot of money to live downtown when they work at Dell, and their commute has to be awful.
Despite the "it's different here" attitude I keep encounter, the evidence is that the Real Estate market in Austin is heading down just like the rest of the USA. The crazy cocktail party of 'make money fast' has been shut down by the banks.
Sorry to those impacted, as frankly Austin got little of the upside.
Reference:
http://www.statesman.com/business/content/business/stories/realestate/04...
Friday, April 18, 2008
"March sales drop for ninth consecutive month"
The median home price being up happened in California for a while before that started to decline. Rich people with cash are the ones buying - not the average buyers.
That Sun buyout of mysql is awesome. I totally depend on mysql but have yet to find a great front end for it (not counting phpMyAdmin) Maybe Sun will deliver this. Technology will keep moving even though there's a housing bust. I've always done much better during busts than booms at finding opportunities.