I meant to post this the other day and somehow it ended up getting lost in the shuffle. I was remindined of it again when it appeared in the most recent JLC update e-mail newletter.
The latest State of the Nations Housing Report 2003 (PDF) from the The Joint Center for Housing Studies at Harvard University came out back in June and I thought the business minded folk here might find it interesting and helpful.
Plus there is also the (PDF) Measuring the Benefits of Home Remodeling 2003 report from earlier this year.
I always find this information to be very valuable. There are also other research categories that the Center does reports on too that might be helpful such as: Community Development, Finance, Government Programs, Homeownership, Industry Studies, International, Markets, Remodeling, and Seniors.
View Image
“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it’s the only thing that ever has.” – Margaret Mead
Replies
Okay maybe it was because I posted this on the Fourth of July weekend no one saw it or maybe no one here is all that interested in this stuff so I'll try talking to myself for a while on this.
Starting on page 6 of the Measuring the Benefits of Home Remodeling 2003 report there was some stuff I though was really important and revealing. Under the heading of:
Interesting,..joining forces with one another. I've actually been thinking that would be the case for a while now but I've always thought felt and experienced that a prevalent "lone independent cowboy" attitude amongst contractors seems to be a major obstacle to that. Small contractors always seem to be dubious and skeptical of any attempts and effort to form teams or virtual companies that benefit them as a group rather than as individuals.
Then on the next page a section on the Emergence of the High End Market begins. In there is says:
Wow! "64 percent of
the nation’s 9.0 million homeowners with incomes over $120,000 made improvements to their homes!" What does that say about that group as a target market?
While all that's very interesting and the report does go on to say "Somewhat surprisingly, high-spending
households are important players in the
D-I-Y market." I think and underlying lesson for a lot of people here should be that they should be directing (marketing) their efforts towards this end of the market rather than slugging it out in the low-ball category where price is the biggest dominant consideration.
While price may still be somewhat of a consideration in some parts of this high end market in many cases it is not. Convenience and assurances of the project meeting the clients real needs are of bigger importance and in many cases these high end clients are willing to pay more for those kinds of things.
I think for a lot of people whose posts I read here where they are complaining about people price shopping them they might need to consider the Pareto Principle AKA "the 80:20 rule" which says
a minority of input produces the majority of results. In other words if 89% of their (our) clients are dickering on price then we as contractors need to concentrate on that other 20% and that other 20% will probably be responsible for 80% of our profits and return on investment. Forget about (or at least don't devote so much time) to figuring out how to sell in the low price driven market and work developing the skills to sell to the higher end market.
View Image
"Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has." - Margaret Mead
Talking to yourself isn't a problem, Jerry, as long as you don't find yourself answering back...lol. How ya been?
Bob
Hey Bob. Nice to see you back around again. My condolences regarding you dad and congrats on your kid on the way. Whens she/he due? Later this month I think?
Yeah I'm always talking to myself but you knew that right? I don't know, I just think this stuff is very interesting and it certainly makes me wonder why so many contractors are out there busting thier humps on the market segments that don't really want to pay for professional service.
View Image
"Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has." - Margaret Mead
Well I thought I'd resurrect this topic again even if I am just talking to myself since there is an interesting new article that's been published on The Joint Center for Housing Studies at Harvard University website. This article entitled The Changing Structure of the Home Remodeling Industry (PDF) has some pretty interesting information in it. Well at least I find it interesting.
It goes on. And there are some very interesting tables in the article that show you where the money in this business is being spent. Remodeling seems to be in good shape for the future even if the new home segment cools off (page 28).
View Image
Wow- looks like we can finally finish our conversation from almost two years ago- all it took was for the study to get updated and re-issued....lol.
I'll be reading it at the office in the morning.
Bob
So what is it? Are you and I the only ones who are interested in this stuff?
View Image
I'll read it and be back in the AM with comments.
Jon Blakemore
I am keenly interested in this trend and hopeful that I can discover how to position my business to benefit from it.Edit to add: Thank you for pointing these resources out!
Edited 5/11/2005 9:39 pm ET by basswood
jerrald...
<<<
It goes on. And there are some very interesting tables in the article that show you where the money in this business is being spent. Remodeling seems to be in good shape for the future even if the new home segment cools off (page 28).>>>>
haven't read it yet.. but my concern is this ( having been thru a housing recession in every decade since the '70's):
more and more mfr'g jobs have disappeared.. for a large part... those workers have transferred to the const. trades....
any contraction in the economy ( or upturn in interest rates ) is going to turn the spigot off on new construction.
either those individuals working in new const. will move into remodeling.. or the same economic restraints will aslo affect additions and major remodeling..
for most of us , the only thing left will be repairs.. and all of it will become so cut-throat that most will be working at a loss and trying to live off cash-flow..
in short.. i am very concerned for the future health of the residential construction trades...
now should i stop what i'm doing and read that report, or just keep my nose to the grindstone ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike Smith "more and more mfr'g jobs have disappeared.. for a large part... those workers have transferred to the const. trades...."
They have? I haven't seen that at all. That may very well be true but I certainly haven't seen anything like that here.
"ny contraction in the economy ( or upturn in interest rates ) is going to turn the spigot off on new construction."
True, quoting from page 8:
"either those individuals working in new const. will move into remodeling.. or the same economic restraints will aslo affect additions and major remodeling.. "
I think both would be true. The market would tighten up.
"for most of us , the only thing left will be repairs..."
Repair and maintenance represent about 20% of the current market. Quoting from page 5:
Which I think should mean if all that should come to pass that maintenance and repair would then become a larger percentage of a smaller total market.
".. and all of it will become so cut-throat that most will be working at a loss and trying to live off cash-flow.."
Yeah that might be an outcome of that IF the whole market tanks. But that is an IF.
"in short.. i am very concerned for the future health of the residential construction trades..."
Why? What makes you think everything is going to tank? What would cause a sharp drop
in home prices? What do you see coming that would cause a spike in mortgage interest rates? I am aware and alert regarding of those things but I not really worried or concerned about those scenarios playing out right now.
What we can however do as individual businesses to protect ourselves is get smarter about our business operations and practices TODAY while the going is easy smooth sailing (i.e. Lean, Theory of Constraints, and Six Sigma practices). That way we can survive and possibly even flourish if and when times get tough. And by developing those practices in the current market we can benefit by better larger margins now.
I was just getting started in the trades back in the recession of the 70's but I guess I was very lucky to be working for some ultra high end builders in an affluent market. I did however get beat up pretty bad back in the mild recession that followed the Black Monday Crash of 1987. Most of that was due to my own ignorance about business. I am very confident today that if something like that were to play out again I would fare much much better.
"now should i stop what i'm doing and read that report, or just keep my nose to the grindstone ?"
Well that's up to you. If you don't really have the time to read it you have another perhaps more pressing problem on your hands. It's been said that "Chance favors the prepared mind" (Pasteur) and that "Luck is the residue of design" (Branch Rickey). I am arming myself with information so that I can design a durable sustainable business operation.
View Image
ok... so .. let's explore what would trigger another recession ?
rising fuel prices that outpace inflation and income expansion ..
competition for foreign investment in US Treasury ...
what is the traditional ( historical ) mortgage rate ?
would you guess 8 % ?
so, if we move from 5.5% to 8.5 % , what happens to house prices?
how much contraction does it take for housing prices to fall ?
what's driving your prices?.. around here it's wealthy retirees moving in from other parts of the country
it's a given that there are no more working class people moving into town... more and more the only tradesmen left are sole -proprietors with no employees.. the ones with employees don't have workers who live in town....
my personal experience was in each of those recessions.. the last one ran from '87 to about '96 here.....and it was definitely simply survival mode for me...
since i am convinced that the Fed is the ONLY thing syustaining these low interest rates, i have no faith that they will continue to sustain them...
what's the base? GM ? Ford? US Steel ? big Oil ? maybe it's MicroSoft ..
if your strategy is to market to the high income retirees, i think it's right on.. the problem is that there are numerous companies pursuing that same market now.. and a small contraction is going to weed them out.. so .. all of a sudden the company that employed 30 people will shrink to 10... spawning 20 new companies ... all convinced that they can grab the same piece of pie..
well .. they can't .. and the pie will be smaller...
in an area like mine.... prices may level off... probably not decline.... but sales will STOP... and the additions and remodeling will stop with it
when i look around there are so many construction companies in existence, it has become one of the two main sources of employment for the same people who used to work in mfrg in Rhode Island... now i talk to men that i used to build for... they were pattern makers in the jewelry industry.. now they are carpenters..( the other main one is "landscaping companies" )
they used to work at Brown & Sharpe.. now they are electricians or plumber's helpers
the next round of Defense Dept. cuts was announced today.. base closings... cancelation of shipbuilding contracts.. sounds like more carpenters and more people moving into areas where there is still building going on..
i don't see any basis for continuing an expanding economy...
some of the reports you sited referred to the smaller portion of society controlling larger portions of our net wealth.. each of those family units can only occuppy so many homes .. of so & so size..
most new contruction here is already "tear-downs" how do you sustain a building trade economy on "tear-downs"?
i see more and more architects acting as contractors.. and more and more builders acting as designers.. again .. more competition for a shrinking pie..
some will survive.. some always do... but most are going to experience a whole bunch of misery
Mike Smith Rhode Island : Design / Build / Repair / Restore
Edited 5/12/2005 11:45 pm ET by Mike Smith
"what is the traditional ( historical ) mortgage rate ?would you guess 8 % ?"Where did you get that from?How was it computed?
bill... i made it up out of whole cloth...
i didn't look up a damn thing.. figgered i'd leave that to youMike Smith Rhode Island : Design / Build / Repair / Restore
One of the reasons is that I would not even know how to start defining it.A simple average over the years will give equal weightt to the 70's when it prime was over 18 and mortages where ?? (16-20).But that would not be meaningfull because a lot less mortage written at those rates than the 5% of the 50's and 60's.But if you do it averaged on number of mortages then there are a lot more house now, so it would give a lot more weighting to 90's and 2000's.And should refi's be count?
bill .. how many mortgages have you had?
what was the average rate you paid ?..
i bet mine was 8%
i bet anyone over 50 will say 8%
and i bet they'll tell you the average interest rate paid on a savings account was 5%
like i said.. i simply made it up ( ie: my reality is just fine with me )
most of our modern housing industry is based on a model developed since WWII..
so if we average the mortgage rates from 1945 to the present , on an annual basis.. what would the number be ?
and what is the comfort zone of the american homebuyer...
i think it's 8%
i think 5% is like FREE money..
i think 10% is onerous
i think equilibrium for the last 50 years was 8%Mike Smith Rhode Island : Design / Build / Repair / Restore
I was in Lowes this afternoon to order a pair of red oak 30" bifolds - $238 - vs. $360 at our local lumber company.Anyway, here's what was glued to the laminate on their millwork counter:http://accurateestimates.com/
I think that is really enlightening information Sonny. We haven't seen that service here but I imagine its coming! DanT
Heres a little voice;
Whats happening somewhere means nothing unless its all around info and then its useless to a select area.
I just got back from Florida. St Augustine . I visited Orlando but ended up for two days on an island. I found out that it doeant make a damn bit of difference whats going on in Arkansas.
Im going to make an offer on a small two bedroom house here thats a 100 years old. My offer will will be 12,000. I just saw one just like it in St Augustine that just sold for 210,000. I studied real estate for 3 hard days with out a break while I was there visiting my old broker from home that resides there now. She pumped lots of information to me and has the MLS. Im going to build apartments here that will cost me 34,000 a peice. Those almost same units will sell there as condos for 350,000 a peice. My 200,000 home here is a million there +. If it sat on the island , add another million.
Those people on that island dont care what interrest rates are nor fuel prices. There are 10,000 per year retirees moving there per year.
Tim Mooney
So,..... I guess we are now going to talk about speculative "what could" and "what if" scenarios and look at "what might happen" rather than reading the report and looking at what the report says is actually happening now?
View Image
So,..... I guess we are now going to talk about speculative "what could" and "what if" scenarios and look at "what might happen" rather than reading the report and looking at what the report says is actually happening now?
Isn't what is happening now the result of the "what could", "what if" and "what might happen" of the past? I mean shouldn't we be looking forward to plan our various strategies? And isn't a report just a repetition of what has already happened?
I tried to download the report, but I am on dial-up and after 1/2 hr it was still downloading so I gave up.
But thank you for bringing this up. If it doesn't stop raining here, I'll post some more thoughts about this later.
Bowz
Bowz - "Isn't what is happening now the result of the "what could", "what if" and "what might happen" of the past? I mean shouldn't we be looking forward to plan our various strategies? And isn't a report just a repetition of what has already happened? "
Do you happen to know what is really driving and fueling the remodeling market today? Do you know where all the cash is coming from? While I think I probably should have figured it out I was surprised to find it was not coming from where I thought it was. Talking about "what could's", "what ifs" and "what might happens" is pure speculation if you don't really know what is happening now. You could spend a lot of time talking about a "what if" that really wouldn't have any effect at all. If the stock market slowed down would that necessarily stop remodeling? It might hurt it a little but surprisingly (at least to me) that is not where the bulk of the cash that people spend on their homes is coming from.
"I tried to download the report, but I am on dial-up and after 1/2 hr it was still downloading so I gave up"
You gave up? Why not download it while you're out working or overnight? Maybe I'm getting spoiled. I just checked the download for me and via a cable modem it took all of 6.5 seconds for me to download the file and for my Safari browser to render it.
View Image
Do you happen to know what is really driving and fueling the remodeling market today?
What is driving it is client's desires and needs, the only problem is if they can pay for it or not.
Do you know where all the cash is coming from?
Everything for me in the last year, except 1 insurance job, the clients have had the cash. Now most of my projects are smaller, but these jobs included a $75K kitchen, and $90K for kitchen, handicap bathroom, storage closets, and some maintenance.
The $90K was spent on a 2 BR ranch for an 80 year old and her daughter. Daughter will be inheriting the house, and was spending a sliver of her inheritance, to get the house done as she wanted. Electrician pointed out it is a good way to avoid the inheritance tax.
Where do you think it is coming from? In the last 2 years I have found inheritance and parents gifting to children to be a scource of funds, more than home equity loans. Is this an anomoly? Or is it what you have found also?
These are not the "Home Depot Installed Sales" type of client. They are not spendaholics. Really they are the prototype "Millionaire Next Door" types, whether they have the actual million or not. And again, I am small so I only have a few of these projects, but they are my large projects.
Bonds and CD's are where the money comes from. The handicapped bath, was more than the homeowner expected. But that wasn't the big issue. The big issue was the capital gains tax that would have to be paid because she had to sell some more bonds.
Overall I fall on the Mike Smith side of the fence, as to where construction in general, and manufacturing is headed. Our area just lost a bunch more jobs to 2 plants closing, and 275 office jobs are on the block due to another place getting bought out.(Oshkosh B'Gosh clothing)
I have not seen a residential construction job advertised in the paper for quite a while, and there is a lot more advertising going on. This tells me that it is getting slower, because when things were booming, there was very little advertising and a job could be had anytime. Commercial has picked up though, according to what I have read locally.
New homes are still supposed to be strong. But I have to wonder if they are strong for induividual companies, or just in general. I mean the homebuilders are building the same number of homes, but are there are more builders now in business, making the number per builder less? Seems to me there are a lot of new companies popping up, but that is only my observation.
Some more thoughts later.
Bowz
Where is the cash for home improvements coming from?
And
And
The dramatic increase in Home Equity amongst homeowners is where that cash is coming from. Provided we (or should I say the builders) don't over build the stock of housing in the U.S. homeowners should be able to continue to improve their homes by tapping into the equity they are accumulating thanks to the apprecition value of their homes.
View Image
jerrald.. both reports are very good.. but it's yesterday's news... the reports are dated 2005.. but the last data included in the reports is for 2003
two years is like a lifetime...
no... i'm not happy one bit... the high end cannot sustain business as we know it...
i see dark days ahead.. and these reports will be very useful.. for wrapping fishMike Smith Rhode Island : Design / Build / Repair / Restore
Mike Smith - "jerrald.. both reports are very good.. but it's yesterday's news... the reports are dated 2005.. but the last data included in the reports is for 2003"
Your own companies P&L is yesterdays news too but I'll bet you use it to plan for the future. There are even older reports than on that site that still contain valuable research.
"i see dark days ahead.. "
You keep on saying that or inferring that without saying just why you see dark days ahead. I've learned not to listen to and take proclamations and predictions on face value. (remember that guy Rick from Detroit on the old Remodeling Online forums? He was predicting this country was going to break out in riots like an armageddon with the turn of the millennium and was telling everyone to precious metals. Obviously nothing like that ever happened). What evidence or trends do you see (and some recitations to back up your hunches would help clarify things too) that would indicate things are going to tank. I've been reading articles predicting the imminent burst of the housing bubble for probably three years now and while they are helpful in giving us signs to look for the bursting that they have all predicted still hasn't happened yet.
If the market is going to tank why aren't the trade magazines warning about the impending crash and why didn't the researchers at The Joint Center for Housing Studies write about it in their reports? ( A right wing conspiracy suppressing the truth?) It may have been based on data that is two years old but it was written in 2004 for a 2005 publication and the data that they have collected goes back a lot farther than just 2003. They have been tracking, researching and reporting on the state of and direction of the American building industry for years and I haven't know them to be off in what they have reported on in the past.
And you'll find that when you read the report(s) they have written about what could potentially derail the direction of the building and remodeling industries too. Baring a bone head move on the part of our administration like going to war in Iran or North Korea what are the threats that have you seeing "dark days ahead"?
The biggest decline in new housing starts in something like a decade and a half was just reported last last winter. (And that data reported in January was for October so it yesterday's news when it was reported too). Is that the sign of a Housing Mt. St. Helens or just a tempering of the new housing market (which absolutely needs to cool off somewhat so that we don't over build and over stock the market!!).
"and these reports will be very useful.. for wrapping fish"
And if you have better data and better reports let's hear about them. Ya know I don't write this stuff or any stuff really for that matter with out research and study. I'm not that smart to make economic and market predictions. (It turns out I often have coffee downtown with an older fellow who actually is one of the people who is smart enough to make economic and market predictions and I am in awe and blown away whenever I get a chance to talk with him. While housing isn't exactly his field, its global manufacturing issues. I am sure he has something to say on this. I will give him the report and ask him for his thought the next time I see him. I read somewhere the other day here where you wrote something about Chinese engineering students and it sounded to me like you must have been talking with him.)
View Image
Just kind-of thinking out loud here:
The rapid accumulation of home equity has become one of the major drivers of consumer spending in general, and of home improvement spending in particular
What is equity? It is the price someone else is willing and able to pay for your property, less what you owe on it, correct?
What becomes of your equity when someone else's ability to pay is reduced or eliminated? It goes down, or it goes away, doesn't it?
When interest rates rise, Monthly payments go up. When monthly payments go up, the other person's ability to pay goes down, or am I missing something here?
The other point that I wonder about is this: Say someone buys a house for $150K. They have stretched themselves, but they can make the payments. 4 years down the road, the place is worth $300K. Granted, they have the equity, but has their income gone up enough to afford pulling that equity out? I mean you can take another loan out, but it is still a loan, not a gift. It has to be paid back. I don't see as sharp of a rise in the ability to pay it back.
How does Blue's tag line go: "just because you can, doesn't mean you should"?
Something else that has me a little freaked out is an incident a few weeks ago. I parked at a place and went in to look a storage shelves a customer was considering. When I came out, I was approached by an aggresive and pushy mortgage salesman. Pushing a handfull of his business cards through my truck window, telling me how they will beat any rate, my customers need to talk to him, yada, yada, yada.
What happened to qualifying for money? When are they gonna start paying us to take and use their money. I'm telling ya, it is just getting weird. And I'll admit there is a good chance I am wrong, but I have this nawing at the gut feeling that the easy money is no longer a good thing.
No statistics to back it up, just a feeling.
Bowz
we have between 6000 and 7000 people.. don't know... last census said 6000..
smallest buildable lots are what nobody in their right mind would buy .. selling for $150K ... need a $6K well & a $40K septic system..
LEAST expensive house ( more like a tear-down ) is $400K
some are selling and financing is 100%... some are doing ARM's
all of the coastal comunities in RI are in the same boat.. similar situations across the southern tier of the state..
i don't see how it is possible for some to hold on if the ARM's go up, or their income takes a hit thru job loss
sure.. it will creat a buying opportunity for some.. maybe then they can afford to help their kids finance a home in the same town.. but ..
as builders, this is a very competitive market... we don't compete on price, we compete on reputation.. if we have to compete on price we'll go T&M .. but the rates will fall below the cost of employing help..
my problem in reading the reports is that you can find almost anything in them to support your outlook.. IE: both doom & gloom..
but my reality is the memory of the last recession... how fast it turned off the money.. how quickly the bankruptcies started... how many people i really admired as businessmen and women ( not builders.. but auto repair shops.... restaurant owners, etc..) they became upside down on their mortgages and were overextended on their ability to pay....
they lost everything to the auction block..
i am proceeding on the basis of cash will be king again.. and will try to get my own house in order..
the downside risk is we may miss some fabulous opportunites for additional real estate appreciation.. the upside is we may be still standing after next big thing..
and no matter what conclusion we can draw from those reports.. we do know that nothing will sustain these rates of growth in real estate equity..
in the meantime.. i'm still highlighting jerrald's reports.. more laterMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
While I might tend to agree with your gloomy economic outlook, I'm not sure entirely why you feel this way. Plus, I'm a bit of a cynic myself.
I say you got burned pretty bad in the last down turn, and you just can't get rid of the bad taste in your mout. Not that I can fault you for that.
Having met Jerrald, it is easy to see the differences in your opinions; Jerrald is a collecter od statistics and other arguably usefull facts, and that is where he bases his opinion.
While you on the other hand seem a bit emotional about it all based on a gut feeling.
While I have not read THE report, I do constantly read that the demand for housing nationwide has, is and will continue to outstrip both inventory and new construction availability.
If that statement is true, can you still say you feel the same way about the economy of housing and remodeling, or are your theories based on a wider economic base than housing?
I just read an article on Toll Bros, their stock is doing incredibly well, and they are #5 or 6 down the list of builders in production of units or $.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
eric.... look at a merchant builder like toll bros.
do they have an extremely efficient delivery system for providing homes for people and delivering them at a profit ?
look at blue's construction thread.. can you conceive of trying to compete with him and make a profit?
i believe that jerald may in fact be positioning himself to ride out a recession and make lemonade out of lemons.. of course.. some alway do..
i , in fact can ride out a housing recession, but not at the debt level we carry... it costs too much to make the monthly nut... we do it ,but it's too close to the bone..
so.. assuming my basic premise ( same one i've always had ).. that i'm mr. average middle class wage earner... i gotta think that half the people are in worse shape than me... they are living at a higher cost -to-income level than we are..
and the other half are in better shape..
so , where does that put you and me ?
what do you think is going to be the fall-out of the announced base closings ?
what is the fall-out of the cost of gas and oil increasing.. do people start putting more money in their oil tank and cars instead of going out to eat ?
what happened last year to the insurance premiums of the avearage builder ? did they keep up with inflation , or exceed the rate of inflation ?
would you say that the construction trades are fully employed now ?.. i would.. great!
but what is the flip side of that coin ? there are more people working in the trades now than ever before.. and they are working more efficiently... we are doing the same work with 3 guys that we used to do with 5.. better tools, better materials.. better suppliers..
so..
what happens when we get a contraction ?.. or ... a recession?
and .. is one or the other inevitable ?.. and if so.. where is it on the horizon ?
greenspan retires next year.. what happens to congress then ? who will hold thier hand when he's gone.. who's gonna fill his shoes in calming the financial markets of the US and the world?
i really do appreciate this thread and the debate that it is generating.. because the debate is mostly with myself.. and so it continuesMike Smith Rhode Island : Design / Build / Repair / Restore
Shid, you're gonna make me cry!!
I can't argue with much of what you said.
The base closings will have some benefits to the other bases remaining open, but for the mom and pop business' relying on that traffic, they're screwed. But then, they knew that might happen all along.
SOMEONE has got ALOT of money Mike, I know it ain't you and me. I live within earshot and sight of a two lane State road and near a traffic light. I can hear and see what is moving past here on any given day, kind of a snap shot of the economy.
Let me tell you that I can see millions of dollars pass by me all day long, every day of the week. And the way some folks come off that red light, you'd think they have nuclear reactors for power plants.
As for the rise in prices of consumer goods, in particular oil; just put it on the home equity line of credit! WTF. If anything will be the downfall of this economy, I predict that will be a major factor.
I see folks all the time I KNOW gotta be living beyond there means.
Keep your fingers crossed Mike. I've been through a recession or two and it ain't purdy. Gonna go lookin for Andy's TP this time!
Fudamentally, what does a body do to help recession proof their lives or business?
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
jerrald.. i printed out both reports.. to peruse at my leisure..
so what is the prognostication ?
my assumption is the same as yours and tim's.. the wealthy will continue to buy prime property...that's the top end.. but if the middle class pulls in it's horns... there willbe weeping and nashing of teeth in the construction trades..
back to the grindstone... more laterMike Smith Rhode Island : Design / Build / Repair / Restore
Mike Smith - "if the middle class pulls in it's horns... there willbe weeping and nashing of teeth in the construction trades.."
I would have thought that too. But according to this report the middle class isn't really a driving force in the market at all. (Except for the possible middle class family that has a "High Value Home")
That says that 25% of homeowners (the top income households) are responsible for more than 50% of all home improvement spending. And those high income households are responsible for 61% of he growth in the market too since 1995.
And regarding the middle class segment of the market for what they do spend on home improvements a large percentage of that is DIY (about 1/3) whereas in the top income segment only 15% of the spending is DIY. (I was actually surprised it was that high). And the more complicated (and larger too) the project is the higher the incidence of hiring a professional contractor too. (See page 15).
I would think that if the middle class pulls in it's horns the segment of the industry that would get hurt by that are the Orange and Blues. That is precisely their market.
View Image
Mike,
You've just voiced my copncerns almost exactly. I think however that the trend of disappearing manufacturing jobs is localized to areas that had heavy industrial zones nearby.
I'll have to read it Monday as I'm on my way to the field tomorrow morning for a few days.
Might read it twice, I'm looking for encouragement. I would much prefer to put my tool belt back on than have someone pin Master Sergeant or First Sergeant stripes on me but I'm also scared to death of retiring poor.
I heard Walt Stoepelworth speak last week and he made mention of a recent Harvard study that implies that building and remodeling nationwide will see another 5 years of better than we have seen in the last 5, and it will probably go on for 10 years.
HD and Lowes are priming their rifles as we speak. Within the next 5 years HD and Lowes will offer installation on almost every product they sell.
I have yet to read the recent study though.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Where was Walt and what was he speaking about? I wasn't aware he was still going around giving seminars.
"HD and Lowes are priming their rifles as we speak. Within the next 5 years HD and Lowes will offer installation on almost every product they sell."
Well I'm not sure that bothers me in the sightest. They are in, and in big, in a different market segment. You'll want to read that section on the Emergence of the High-end Market that I mentioned.
View Image
He spoke up here at an Expo hosted by Dill Best.
I was thinking that I should be discreet about this but I'm going to lay it out. He should not be speaking. At least not if what I witnessed is common for him.
I did however speak with him privately afterwards, and he was coherent at that point.
To all, I'm no fan of HD, never been in a Lowes, but if you think they aren't a threat to remodelers nationwide, then I would suggest you get your head out of the sand.
I think Walt said something like HD is looking for 10 BILLION in installed sales by the end of the next 5 years. I think right now they are near 5 billion.
That's right folks, Billion.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
HD and Lowes are priming their rifles as we speak. Within the next 5 years HD and Lowes will offer installation on almost every product they sell.
God bless home dildo and lows for trying to snatch up the tyre kickers that are blowing up my buisness phone, I am so tired of listening to folks putting their front door replacement out for bid.
It was kind of nice when my old partner and I put up shop together but still maintained our own respective adds, if we received one call after another we were assured of a tyre kicker.
james
There will plenty of work to had be fixing what "at home services" did.
I confess to not having read the report yet, though I think I have seen excerpts in the newspaper. But one issue that never seems to be brought up in any 'house' market is that housing is a HIGHLY localized market, certainly down to the local area and in some places down to the neighborhood. I'm going crazy right now trying to figure out if we have over improved our home. Three blocks away is a house on the market for 3/4 of million. Next door are section 8 apartments. A block down from that, everything is boarded up.Tell me again how the national home market effects me?
BryanSayer "....one issue that never seems to be brought up in any 'house' market is that housing is a HIGHLY localized market, certainly down to the local area and in some places down to the neighborhood."
Well yeah, I would say that goes without saying.
'"I'm going crazy right now trying to figure out if we have over improved our home. Three blocks away is a house on the market for 3/4 of million. Next door are section 8 apartments. A block down from that, everything is boarded up."
You're talking about selling your home, not about the prospects of running a remodeling in you locale. And those are two different things. You may very well have made a poor ill advised short term decision in over-remodeling your home. I say short term decision in that over a long term the money you have invested in those improvements might very well pay off handsomely. In other words once the rest of your locale catches up to you will have already made improvements and probably have spent less on them. That is IF they catch up.
I know a guy who years ago bought and improved small homes in the town of Chappaqua NY where I grew up that well all close to or inside the village. Now Chappaqua is never going to be seen as a depressed area but these homes were tiny and were not the luxury homes that appear elsewhere in the town. He improved them and rented them out and year later sold them at a huge profit as the town further gentrified and it then became fashionable even enviable to have a home in Chappaqua near the train tracks! But that is a strategic business decision he made. There was some risk to it (the village area might not have gentrified) and he's been paid handsomely for taking that risk when he did. Had he tried twenty years ago to sell those houses as he improved them he might not have even been able to recoup what he was putting into them.
I don't know where you are talking about Bryan but what the The Changing Structure of the Home Remodeling Industry report as well as some of the other reports that The Joint Center for Housing Studies at Harvard University website have generated (such as the 2004 Report: The State of the Nation's Housing 2004) is that because our housing stock is aging and in some cases deteriorating (the boarded up house you mentioned) that the remodeling business is a good business to be in.
I drive through places like Derby and Bridgeport CT and see lot of boarded up stores apartments and even some houses but given what I see going on around them in other communities I think those are areas where the future for remodeling looks bright. I think it's sort of funny that my brother who lives in that region looks at those communities and sees blight. I look at them and see opportunity. Given the growth in the area going on all around them they will oneday soon be invested in and gentrified too. The question is do I want a payday today or am I willing to invest and wait a few years.
On the other hand what this most recent report points out is that there is another market segment completely on the other end of the spectrum (The Emergence of the High-end Market) that is also very bright for some very different reasons.
"Tell me again how the national home market effects me?"
I'm not going to till you anything. If you don't want to read the report or any of the other reports to learn more about the future of the building and remodeling industries that's your prerogative. If you want to make some better home improvement business decisions in the future you will just have to do some of the research yourself.
Did you purchase and improve this home as a business venture or did you purchase it strictly as a home you would impore so that you would be comfortable living in it? To me those are two very different things.
View Image
We bought the house to live in of course. But we doubt that we will stay in Columbus all that long.This is a bit of a highjack, but as we are talking about boarded up housing, tell me if anyone has any ideas on how to deal with this situation:A number of boarded up buildings have been purchased by a particular individual. Our neighborhood was once the primo neighborhood in the City of Columbus (1880 to 1915 or so). We have some of the most spectacular housing buildings on some of the smallest lots I have ever seen. Anyway, the individual in question does nothing to improve or even rent out the buildings. The lots alone are not worth the prices he is paying. One house he bought from the city specifically carried a requirement that improvement work begin within 90 days. He hired some homeless people to slap some paint on. Now they know how to get into the house at night.We (along with many other people) have been complaining to the city for over a year about his properties. Their approach is to try code enforcement for high lawns, etc. It seems clear to me that business as usual is a total failure and as there is now development of a plan for re-developing our area I want to push for some sort of change that will really make a difference. It seems obvious to me that what we need is people actually living in the houses, not more code enforcement about vacant buildings.Has anyone else ever been in a similar situation? Does anyone have any suggestions? I think this individual is expecting everyone else to do the work of improving the neighborhood, and when it does he will sell for a large profit without actually doing any work, other than purchasing the properties. Reportedly, he has already turned down a 1/3 profit on a building.
I agree with your forcast. History is always doomed to repeat itself and always has emonomicly over and over again. The trick of course is if we only knew when. But again I agree with your assesment that positioning is key. Better low or no debt position with cash on hand you can be the better for survival and possibly prosperity. DanT
So if you guys all agree with Mike's gloom and doom forecast where is the supporting evidence? Who are the researchers, writers, and reporters that are reporting this imminent crash or bursting of the bubble? What has shaped your opinions. Something you recently read in the Wall Street Journal? CNBC? Did I miss something? Where is this this coming from?
Somebody please show me the supporting evidence.
You guys are talking folklore. You're not basing your predictions on anything other than "feelings". There no logic in your predictions (at least that I can see so far). Please what evidence do you have that support your gloom and doom. Geez, you have a report that says things look good (although it also says things are going to look different in the future) if there is something in that report that you can refute and argue with point it out and debate the issue on it's merits rather than your emotions. This is really getting sort of silly in that your all saying things are going to tank but not one of you can say why.
And how many of you all who actually predict the gloom and doom have actually read this report from The Joint Center for Housing Studies at Harvard University or any of the financial reports from any source for that matter on the state of the building and remodeling industries?
View Image
jerrald...like i said .. i've printed both of them out and am busy dissecting them.. i think you could use another read of them.. they have a lot of qualifiers and are not as rosy as you seem to be saying
since i'm also busy trying to position myself for the next big thing.. i have to balance my review with taking care of business.. but i am not sloughing off your reports , nor your opinion..
now.. c'mon.. you've been thru almost the same things i have.. did you miss the Nixon recession?..course it was harder on RI .. the bastid closed Newport and moved the destroyer fleet to Norfolk...
i admit that you in particular, may be one of those companies that will do well .. ( if we have a recession ).. and i admit that a lot of the wealthy will do well.. because cash will be king..
but don't you agree that there are more working int he trades than there ever were before..and that it is more fragmented than it ever was before..
everyone is a sole-prop.. very few companies with bonafide employees.. a contraction is going to pit contractor against contractor... and initially.. it will be dog eat dog.. after the shake-out there will be opportunities..
it sounds to me like you are denying that there will be a change in our economic picture.. do you really buy these rosy forecasts that we can continue ?
don't you think that what is really going on is further consolidation of wealth ..
isn't WalMart the future ? what does that say for the middle class ?
do i need to quote a report to draw a conclusion that this is a different world than it was 10 years ago ? 10 years ago you could still buy a house in my town for $40K.. now the same piece of junk is fetching $400K.. and this will continue ??????
ten years ago i could have my pick of great carpenters and subs.. now .. you have to beg them to return phone calls... can we say " full employment " boys and girls ?
so... where do we go from "full employment"..... if we have a contraction.. either thru mortgage rate increase.. or economic downturn .. or both... then those people who have joined the trades since '95 are agoing to panic.. they are going to go bust.. they are going to lose their homes.. and they are going to work for below our costs..
what is your basis for saying that we can continue this level of housing expenditure?
those two reports ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Nobody's mentioned who is propping up the US economy:The Saudis.The Chinese and the Japanese.The Saudis are in trouble. They've overestimated their oil reserves and may not be able to prop up US treasuries for much longer.The Chinese and the Japanese have been taking big hits on their holdings of US treasury bonds as the dollar declines. At some point they must decide that there's no point in throwing good money after bad. Bellicose rhetoric from DC may only hasten a confrontation. In case people haven't noticed, we are up to our ears in hock to the Chinese.The Dow is ridiculously overvalued. There's a bubble in real estate. Treasury bonds are held up by foreign governments who may turn against us any day.How does one go about investing in gold?
Wow,
How did your message get out of your Y2k bunker? If I believed all that I would go into canned goods. Do you still have your generator?
Things are generally not as bad as the doom and gloomers think and not as rosy as the "blue sky" people think. We'll muddle through.
Well put. Thanks.
View Image
well.... gud on u..
however, i'm here to report on the two reports..
basically.. to summarize on the more recent one: Changing Structure of the Home Remodeling Industry.. 44 pages of small brown ink... damn ..was that hard to read or what
it's a composite picture of remodeling from '95 to '03..
and it says that the wealthy will survive and continue to spend.. it also says there are 63 million owner -occupied homes
pg. 5 says that remodeling is extremely fragmented ... almost 96 % of remodeling revenue comes from OTHER than the top 500 firms.. which is different than new home construction
pg. 6 says there are grave threats to the continuation.. namely: possible spiking of mortgage rates... and/or a plummeting of home prices.. wiping out equity
pg. 10 talks about high end demand accounting for an increase in remodeling from 4% of homes in '95 to 11% of homes in '03
pg. 14 talks about specialization and fragmentation again.. and about small contractors being increasingly out of step by reamining Generalists instead of specializing
pg. 26 discusses at length the danger of rising mortgage rates and home price inflation.. most of which is attributable to increase in land costs
pg. 28 talks about immigration offsetting the decrease in home buyer population due to the aging of the baby-boomers
pg. 29 is a paragraph which i call "whistling past the graveyard" to wit:
<<<< it would take an unexpectedly large drop in home prices, a precipitous escalation in mortgage interest rates, or some unanticipated shock in the economy to keep real growth in home improvement expenditures far below the 3% annual rate averaged over the last 10 years.>>>>>
the rest are appendixes...
the 2d , older report is 2003 The State of the Nation's Housing.. this one is more dated and less applicable .... 40 pages.. same small print.. but at least it's black ink on white paper
it does talk about "persistent challenges"
dscusses "refinancing" as a source of the funds
pg . 18 talks about the increase in problem loans
pg. 19 talks about the base of the prosperity being the purchase of "starter homes".. but there are no "starter homes " being built.. so there is no push from the bottom.. only pull from the top
pg 25 talks about the affordability problem and the pressures on the working family to absorb a higher percentage of their spending dollar on shelter
after pg. 29 all are appendices
my problem with both reports is that they discuss the consumer... IE: our customers
but they do not give any numbers for the producers..
and my point is that we have moved from a nation of manufacturers to a natio of service workers.. our construction trades have been the safety net for all who used to work in the manufacturig industries..
i think .... bu cannot quote chapter and verse.. that we have more people chasing the same construction dollar.. any reduction in that construction dollar is going to have profoundly negative results on our livelihoods
i would like to see some numbers about percentage of population of workers in the trades for each of the years those studies covered.. '95 to '05..
to sum up the reports.. the better run companies , able to cater to the wealthy, will continue to prosper... the rest of us are going to eat our young if we have a contractionMike Smith Rhode Island : Design / Build / Repair / Restore
Mike
I hope i wasn't too flippant. I have not read the report. I just can't read 40 pgs off of the computer.
I think that you are putting your mind in a very conservative place. I did the same thing for a long time. We could have grown our company much much faster, I was uncomfortable with that. So we did not. I was GC a house in the early 80's. Before interest rates went to 20%. And that left a mark on me. I know a lot of the country recovered before Oregon did. But people here were 500 deep for $5.00/hr. And this went on until about 86.
I think that that recession was a once in a lifetime thing as Volker wrung out the inflation from our mindsets. And there probably will be some shock coming that no one can foresee. Like 9-11-01. But the country got through that. And we will get through the next one.
I would think you are positioned well if all the rich people are buying homes in your area. Better to sell to rich people than poor people in a downturn.
Actually one of the things that is propping up the the US economy has been housing.
(I highlight in red the he second part of the text that was on page 6 because I think that is so true and that is where the change is going to come.)
The Dow is ridiculously overvalued.
The effect that the DOW has on building and remodeling is not what everyone thinks it is at all. People are not spending on their homes with cash they have accumulated from the market. They are spending money on their homes that comes from the increased equity their homes have earned.
There's a bubble in real estate.
I don't know. We've have been hearing that for 3 to 5 years. I would still invest in real estate. Over the long term real estate has never gone down in value.
So I am wondering did anyone read this:
That is very true and no one especially the current administration and leadership in the house and senate ever seems to talk about that. They have their heads in the sand and divert our thinking with talk about weapons of mass destruction in Iraq. The debt is what we need to worry about and look after. I sometimes think in 50 years people will look back on Bush's decision to go to war with Iraq as his Operation Barbarossa.
What we do need to worry about is a country like China pulling the plug on us. That may be one of the possible "unanticipated shocks
to the economy" that could possibly tank things.
"How does one go about investing in gold?"
I'm sorry but I think you're just being redicoulous. That is sounds like something Chicken Little would say as he runs around saying the sky is falling. Like that guy I mentioned in my msg# 32424.37 from the old Remodeling Online forums.
View Image
seems we both read the same reports after all...
"thru a glass darkly" ... or " the sun 'll come out tomorrow" ?
Mike Smith Rhode Island : Design / Build / Repair / Restore
its organizational structure is locked in the past.
I highlight in red the he second part of the text that was on page 6 because I think that is so true and that is where the change is going to come.)
I would be interested to know what you mean by this.
With strong growth .......in household income,
Maybe in your area, but I'll give you three examples from here that dispute that.
1. One client of mine works in the state prison system. There is a salary freeze, and she has not had a raise in 4 years.
2. DW is a teacher. Wisconsin has a law that if a school board offers at least a 3.8% total increase in salary and benefits, then they can arbitrarily impose that agreement on the teachers. With the skyrocketing costs of health insurance, a school board can actually give the 3.8% increase, but if costs have gone up say 4.8%, the teachers get a pay CUT of 1%.
3. A friend of mine worked for 25 years in a plant that manufactured paper making machinery. He was laid off and the plant shut down 2 years ago. He went from $22.50/hr with good benefits to around $15/hr with lesser benefits when he found a job.
Curiosity question: If improvements are still growing, do you think it reflects that people are putting in more expensive things like granite, and Viking appliances, and that the reality is, while expenditures are increasing, the the percentage going to contractors and carpenters is actually decreasing, or not growing? If we operate on the PROOF system, wouldn't it be true we are not getting a slice of that?
In a previous post you asked for articles to back up our "feelings". Well I don't have any. But I will list a bunch of observations that the academics at Harvard haven't seen, or experienced. Not that the sky is totally falling, just observations that things are "different".
Bankruptcies listed in the paper take up 2 or 3 times as much space as they did, say 3 years ago.
Phone calls are down for work, by at least a third. I thought it may be just me but:
Talked with another remodeler the other day. We started in business at about the same time, '91. Asked him what he was up to. He said he is just trimming out a project. Asked him what is next. He shrugged his shoulders and said,"Got a few windows to do but after that????........"
Got a call about a repair a couple of weeks ago early in a busy week. Agreed to meet with the owner later in the week. When I called to confirm the appointment, someone was already there doing the job.
Today I met with a HO. Oshkosh is a college town, so it was graduation. I was a couple of minutes late because I went through the college area and got caught in traffic. When I told the HO why I was late He sarcastically said "Good luck to them finding a job in this economy."
Talked with an excavator earlier in the week. He has dug 6 holes this year for a guy who used to be a framer last year, but now is GC'ing houses. Maybe my pessimistic side is coming out, but these houses would show up as a big plus in the surveys. Based on the failure rate of new contractors, what are the chances that any real money was made on these houses?
Well that's enough negativity. Today I also saw a crew working on a Saturday, and an excavator doing a final grade, so some people are still working a little OT.
Thanks again for the discussion.
Bowz
"its organizational structure is locked in the past.I highlight in red the he second part of the text that was on page 6 because I think that is so true and that is where the change is going to come.)'I would be interested to know what you mean by this.' "I can only guess what Jerrald will say, but I think the remodeling business is dominated by Jack-of-all-trades sole propietorships. I am one of them and while it is still working OK, remodeling is going to be subjected to the same trend as the new home market where big business is increasing market share (and trade specialists do most of the work).I am in transition, each time I print a new version of my business cards, I drop something off the list of services I provide--becoming more of a specialist.As the big boxes push into the remodeling services, they will be employing more skilled specialists in remodeling--each trade with it's own subcontractor.I do cabinet installing for HD about 25% of the time now. They are increasingly courting high-end customers also. Just did a cherry entertainment center shaped like a bay window with built-up 3-step crown for them. They pay about $45/hr. (or per cabinet--same thing). When I bid kitchen remodling I charge $75 per cabinet (but I have to do marketing, estimating, collect payments, etc.). When I install cabinets on my own jobs it is some of the more profitable work and helps to make up for the lower wage I get for hanging drywall, etc.I resist moving to full-time cabinet installer and maintain my own remodeling client base. Don't want all my eggs in the big box basket. HD and Menards referrals do fill my schedule enough that I can bid my other work higher and not worry about getting every job I bid. Skilled tradepeople working in remodeling for the big boxes can approach six figures and will have less overhead than other remodeling contractors. If new home markets cool down this will create a sucking sound as specialists move to remodeling.
I am in transition, each time I print a new version of my business cards, I drop something off the list of services I provide--becoming more of a specialist.
OK, I can buy your explanation of what Jerrald refered to and what you are doing. When I started, one of the things I didn't want to do was "everything". So my point of view as to what he is saying is skewed. I started off specialized. Strictly interior remodeling, but have added some services.
Not by any great plan, I just didn't want to spend the coin to buy all the tools to do everything, and I really hated working outside in Wisconsin winters.
As the big boxes push into the remodeling services
I don't disagree, but I take the view that the big boxes will not be able to deliver the same level of service. But I can already see their impact.
Case in point: Last week I sat down with a prospective client, to go over a proposal for a bunch of smallish projects on their place. One project was to replace the sliding Andersen patio door with a swinging french door. My cost on the Andersen 400 series Frenchwood door, with 3-point latch and Estate hardware was $1800. Add the labor, disposal of old, sill flashing etc. and I quoted them $2775.00.
At which point HO pulls out the Home Dumpo flier from the paper and point out a Peachtree swinging patio door on sale for $399. Plus HD can install it. They are going to think about that part of the proposal.
But the other parts of the proposal they went with.
Bowz
What I want to know is how BossHog can get off on sayin' the Dow will hit 5000?
...all I need is the air that I breathe...
jerrald.. just saw another article in Qualified Remodeler..
touting a book called " Are you missing the Real Estate Boom?"
the review boils it down to laying out a strong and comprehensive case that reak estate will continue to climb for the rest of the decade:
historically low interest rates of under 8%
anticipated job and income gains as the economy grows
low levels of inflation
and reduced closing costs and greater convenience of home buying as a result of internet listings and new financing vehicles
my reaction ( as you can guess ).. is the whole thing is a house of cards..
long term rates are being held low by the fed.. short term rates are thru the roof
where will the job growth come from?
income gains for whom ? the middle class ?
low levels of inflation ? really ? what does double digit growth in housing costs/prices do to the new home buyer ?
and fuel costs ?
greater convenience of buying ?.. is that code for financing people who can't other wise get financing ?
i'm really looking to hedge my bets... decisions , decisions.. what's a fella to do ?Mike Smith Rhode Island : Design / Build / Repair / Restore
I saw so much about what you are talking about on that island and in St Augustine.
[lets see if I can put this together]
My old ladyfriend broker that was always against gambling and shook her finger at me for taking chances , to me has her butt hanging out the window in Florida.
She has taken her sale of her brokerage here and invested the whole thing plus some.
She paid 300 thousand for a new home to be built custom for her. She thinks shes in it dirt cheap. Its on a golf course and she can ride her cart to the club or start playin in her back yard which is really the golf course. She practices there . She intends to sell the house for 435,000.
Shes put 100,000 down on a new townhouse thats being built. She put 120,000 down on a condo thats not even started yet.
She says that you gaurentee the builder the sale money by down payment before it starts and he builds wholesale. She designs and decorates hers as far as interior finishes. She has killer taste with all the selling experience she has , Ill give her that.
She gonna be in debt a million if nothing sells which she isnt concerned with or at least she doesnt breath uneasy talking about it .
So Im trying to figgure her dealings. Where are the jobs ? There are no jobs. People who work cant afford to live there . People drive 40 to 65 miles to work there . Who lives here then? People with money either live here or have a vacation home . Okydokey. ............ How much will they pay for a tomato? We dont know but things keep going up so much every year! It really doesnt matter what you pay for it if you hold it at least a year. When or how will this climbing race stop? We dont know but the people here dont pay interrest . Okeydokey.
The contractors are fully booked and what ever you do , dont pizz one off or he or she will write you off and move on. They have that much work Im told. She saw an add advertizing for a lead carp in the price range of 15 dollars. I didnt understand that one Mike. She planning on netting 100 to 200 thousand per year. She doesnt see any negatives ......................
What do you think Mike ?
tim.... dammit .. it sounds like deja-vu...
it is so similar to the '80's hot real estate market that it's scary... people were flipping properties back then..
it was everyone ( 'cept me.. i was too dumb to jump in )... everything was on speculation..
a friend sold his great restaurant for a fabulous sum... invested all of the proceeds in a condo and 3 vacant lots
the the music stopped...
the credit unions failed.. and half of Rhode Island got burned... the state closed the credit unions.. formed a corporation called DEPCO.. ( Deposit Insurance Corp). and called all of the loans ..
the middle class borrowers were easily making their payments.... but the loans were called and thye couldn't pay them off... the middle class borrowers lost everything to the auction block... the wealthy , connected borrowers delayed.. negotiated.... eventually repaid 50 cents on the dollar... $30 million dollar loans repaid 15 years later for $15 mill..... no interest..
the middle class borrowers lost everything... they even invented a new verb in RI.... they got "DEPCOED"...
now i see the same thing here and now again...
they are nearing completion of a twenty unit luxury condo... i know of two people who formed a partnership and bought one ... pre-construction.. for $630K....
at closing they will not even take possession of it.... they have resold it without ever closing... at closing they will simply take their profit... $200K... it is being flipped for $830K..
if it sounds like the old stories of shoe-shine boys giving stock tips in 1929 before the crash, it is not surprising to me..
when the stories start surfacing about your friend .... and my acquaintences... flipping properties... don't you think someone is gonna get screwed ?
remember "Silverado " ?......
nope... i think there are some very clever, very rich, people who know what's what.. the rest of us are just along for the ride..
so .. tell me... if i cash out.. can i really buy a nice house in AK for $20K ???????Mike Smith Rhode Island : Design / Build / Repair / Restore
If this person was one that drank coffee every morning studying the racing line in the paper , I would have wrote it off.
This is the most respected person in real estate that I know. She was my agent for 15 years and I never needed another date with another one. Shes a very honest hard working person that ran for state senate. She was an instructor at a university here. She taught classes in college and she was also an instructor in real estate school. Shes been an officer of the Arkansas Board Of Realators. Shes a very successfull business owner that had the biggest agency here with 22 agents under her roof not counting herself. Her and DW are also friends and event planners which put them together quite a bit. This lady is very social. She can hold a function of 30 people at her home or 300 in a public place without her breathing or blood pressure ever changing. Thats how cool and collected she always appears.
This part has always impressed me ; She says , "I dont know ", a lot. You would think she is the editor of a paper and is afraid of letting out wrong information. She doesnt give her opinion unless its correct. That must have come from the teaching field.
Shes been very successful but she has always appeared to be ultra conservative. She taught me to render decisions when all the information has been gathered or enough to pull the trigger in an instant. When someone opens their mouth when they should have it shut , you put a contract in front of them. You make quick decsions that are caluculated and appear very deliberate. If something doesnt smell right , turn and walk away and be deliberate. I practiced that stuff under her advice.
Now , shes doing this ,............ blowing me away. She is in a big stakes poker game in my thinking . I know she doesnt feel that way. Shes well schooled and I know it. I dont have to ask to know that shes done her home work.
My problem is that there are no negatives visable. What is going to make the music stop? We all know that people cant live fairy tales. Rich people owning an island that seem insulated to common peoples problems. Certainly a trip. Who wants to become a millionare?????
I can buy houses that are fixable to be nice to be for 20 thousand , but they arent plentiful. They are also very modest and most of the time small. I did buy a nice one this year for 25500 thats 3bed, 2ba , 1500 sgft. That was a great deal I didnt hesitate on. I just offered 38 on 1600 ft and bout the same equipment. Needs a little work but is located on Country Club Road. Yea, you can retire here.
Tim Mooney
Is your island this way?
Yall are talking about the same thing I noticed, otherwise I wouldnt be in this thread.
You seemed concerned about the future . Ive got some stakes entered as well. If rates go up above 8 percent or gas does something radical say above 2.50 per gallon, then Im also wondering about the future. I dont know how many figgure different interrest rates and their impact but with rising values a rise in rates would have a drastic impact creating a double whammy. The lumber association what ever its called are looking for 5 years out to be solid so Im told by the manager of a lumber yard thats here that is also a chain.
Just some history and my out look; { Jerald you jump in here any time if you wish or anyone else]
In this small southern town that produces chickens and turkeys as the main stay of our economy, we hardly noticed the recession you spoke about. Our jobs are strong and have always held solid. When ground chuck years ago went to .99 per pound , whole chickens sold for .39 per pound unchanged. So when the high prices of beef hit the market , we didnt buy it. Here we were buying from the plant for .25 per pound from a Tyson outlet store. Tyson then entered into the turkey and hog market and did the same thing driving prices of beef back down . Then medical reports came out and actually was advertized that we should not be eating red meat. That little peice of information has made the poultry industry swell. Tyson then dropped hogs on that same information. So, what Im trying to say is that this area has done well weathering rough times . All the people who live here have to live in moderate housing at moderate to cheap prices. These people are are on the bottom of the food chain which have remained unaffected. If they cant buy at high interrest rates , they rent . When interrest rates hit 10 percent buying nearly stopped and repos flourished. Their were 5 auctions a day to attend more or less from lenders calling in loans that were made below 6 percent. Prices dropped to a bottom for there wasnt enough buyers that were qualified for 10 percent rates. Thats where I picked up the majarioty of my rentals at 10 percent rates. I held on to 8 nice houses by the skin of my teeth just trying to survive and keep them. Big stakes gambling . If I had got sick then, I would have lost them. Interrest rates dropped to 5 percent . I refinanced every thing long term. With the lowered rates came increases in prices that now are soaring in difference to the prices I bought those 8 houses. Rents followed suit and raised 4 times to a difference of 40 percent increase. Chicken futures were strong with the raising prices of fuel. Crop prices were also strong inside the state for they are raising chicken and turkey food.
Now we have seen construction prices and land prices soar . Many of you have been enjoying it .
Just because something bad in your eyes happens doesnt mean there isnt a reverse effect that is good. Figgure both sides of the problem and someone will be benifitting . They have outlawed buring in this town with out an approved buring system. Someone is going to make money hauling out of the city and I know where a bunch of turkey feeders are for free that are more or less cone shaped . Add a hinged lid with an ignition screen and viola ! Im able to help those people with a problem. Im sure there will be out side buring pits built out of masonary. Good time to start them with advertizing. When the high interrest rates occurred new store dealerships offered huge rebates , but what really abounded was , car part stores, mechanics, salvage yards, used car stores , and people selling a few cars a year just to name a few.
Theres an answer to to this problem if we first decide what will happen as the outcome. If we could decide that we have 5 years of the same ole , then lets make hay while the sun is shinning. If this present deal is comming to an end and the sky is gonna fall then lets build some sky shelters. Make lemonade out of lemmons and be the first to think about it. Just my thoughts. ...
Tim Mooney
Bowz- "Curiosity question: If improvements are still growing, do you think it reflects that people are putting in more expensive things like granite, and Viking appliances, and that the reality is, while expenditures are increasing, the the percentage going to contractors and carpenters is actually decreasing, or not growing?
What do I think? I think (and see) on the high end of the market sure people are spending money on more expensive items. As for your statement "...and that the reality is, while expenditures are increasing, the the percentage going to contractors and carpenters is actually decreasing, or not growing?" that's just not true at all and I have no idea where a conjecture like that is coming from. Why would that happen?
If we operate on the PROOF system, wouldn't it be true we are not getting a slice of that?"
That doesn't make any logical sense to me, and I don't have a clue as to why you would think that. Whilethe basis of a Capacity Based Markup (aka PROOF) is to tie OVERHEAD recovery to your billable labor both the PROOF manual (How to Survive & Prosper In the Contracting Market) and Ellen Rohr's book How Much Should I Charge? say "all categories of cost, should include a profit markup.*(*- pg. 84 of How to Survive..and he is referring to Net Profit).
I just got done happily negotiating a contract with a client who upgraded maybe 90% of material choices I originally specified. No complaints here. 12% Net profit of $100 is greater than 12% of $50 ( or even $90 for that matter). Why wouldn't we get our share of the pie?
View Image
Jerrald,
We are miscommunicating.
I'll try to explain it a different way.
"As for your statement "...and that the reality is, while expenditures are increasing, the the percentage going to contractors and carpenters is actually decreasing, or not growing?" that's just not true at all and I have no idea where a conjecture like that is coming from. Why would that happen? "
Well, no, it wasn't a statement, it was a question.
I am not talking about percentage as a component of markup. I am seeing a lot more granite and expensive items being installed. I think the grwth rate should reflect more than 3%. Because it doesn't, I think that some other component in the "total price" has to be weaker. That weakness being the money contractors and carpenters are putting in their pocket.
Does that make sense?
Bowz
Actually one of the things that is propping up the the US economy has been housing.
Housing has been propped up by very low long term interest rates, which have also helped to prop up real estate values.
One of the scary things about the present economy is the widening gap between short term and long term interest rates. The Fed cannot explain why long term rates have stayed low as they raised short term rates. But historically this widening in the yield curve has predated some very bad things.
Long term rates are probably being held down by foreign investment in US treasuries. It is not a question of when this will stop, but how quickly it will stop. The worst case scenario is pretty disastrous. Probably the only reason it may not happen is that countries like China would hurt themselves by decimating a major export market for them.
The US economy can "muddle through" a lot because it is so big. But sometimes even it cannot survive disastrously bad management. The LTCM meltdown in the 90s would very likely have triggered a global depression had it not been for some exquisite management of the situation. I am not predicting the next depression, but I would say there are some very worrying trends, chief among them the twin ticking time bombs of the US trade and budget deficits, both of them currently being financed by foreign governments for their own purposes. Eventually there must be a correction, the last country to try to suspend the laws of economics was the USSR. Again, it's not a question of if it will happen, it's a question of how rough it will be.
The U.S. economy can't be taken in isolation anymore. We borrow about $2 billion a day from the savings of people in Japan, China, etc., to keep up our consumption of goodies like granite counter tops, 8000 pound SUVs, and $4 cups of coffee. Of course without our ridiculous consumption, the economies of those countries would fall hard, and there would be riots in the streets over there. So the central bankers just pretend that everything is OK, and they keep the credit flowing.When I bought my first house, the banks would let folks leverage the purchase 5 to 1. Then in the '90s they let home buyers have 10 to 1 or even 20 to 1 leverage. Now with zero-down loans, the leverage is approaching infinity - you can purchase any damn house you like as long as you claim you're able to make the monthly mortgage payments. The Feds recently put out the word that 40 year mortgages will be the norm in five years.One minor problem with this little scenario. In order to keep the gears turning, ever more credit has to be created and pushed out into the markets to foster consumption. There is a limit to everything. I suspect we'll not have to wait more than a few more years to see what that limit is.
"So if you guys all agree with Mike's gloom and doom forecast where is the supporting evidence? Who are the researchers, writers, and reporters that are reporting this imminent crash or bursting of the bubble? "
My opinion is simply based on my recollection of economic history in my area. And the fact that over history we have been through numerous rises and falls in economic fortune. And history does repeat itself.
I considered researching this as I have a number of books on the subject but frankly I decided it wasn't worth the argument. I think I am conservative in my view but that is what has helped me prosper with a certain level of success and what has held me back at times from being more successful. But I am comfortable in my own skin sort of speak so that is just how it is in my mind.
In my area during the early 80's there was a real estate role back of about 20% of value. If you had a baloon loan many were not refinanced as normal but called in and a number of investors (doctors and lawyers too) lost property in the down draft. When other areas recovered during Reaganomics we didn't. It wasn't until the 90's when we saw economic recovery here. We were (just like Mike pointed out) a heavy manufacturing center, rail repair yard, postal service hub, phone company hub. Within 4 years all moved the hubs elswhere and two major (2k jobs +) factories shut down and left. 2 more downsized by 2/3. The town size by the way is 40k.
Needless to say this was devistating and took years to recover from. This all happened in a town that was written up in magazines as having a very balanced economy to the point of being recession proof because it had so many hubs of a variety of different businesses that even if one or two were struggling the others were doing ok. Then just like in Billy Joels Allentown they all drove away. And we starved.
Now we are a bedroom community to Columbus 35 miles away and have gained 2 prisons. The prisons by the way are talking about downsizing and have had a wage freeze for the last 3 years. We have a service based economy here. Just like Mike predicted. We are a microcosim of what Mike predicts will happen.
So in conclusion to my opinion, I have simply lived it. No one wrote a report to warn our area of what might happen. We were the text book economicly balanced community and yet it happened to us. So I will continue in my conservative mind thinking that it could go belly up anytime. And if you and the report (I did look it over but didn't study it) are right then great. But if you and the report are wrong I will be prepared. Hope you are too. DanT
The State of the Nations Housing Report
I see low income housing better en' mine!
I just caught up on all the recommended reading.
I find myself conflicted. I see the great opportunities presented by the growth of the high end. I also was struck by the affordable housing shortage at the other end. I knew it was a problem, but I did not know the enormity of it.
The allure of fat margins at the upper end will only make the scarcity of low end dwellings worse. I see this as a problem, but I trail after $$$ like a bug to a light.
I make a lot of donations to Habitat ReStore, but have been too busy to volunteer on their projects (working and renovating my own house).
I would like to get the Taunton book on quality/affordability by Ruiz. But wonder if I will do much for affordable housing before I retire.