It's a misperception that Californians are driving housing prices up (Gillette: mortgage, loans)

[dictionary]

If I hear someone say that, "Well, it's those Californians moving in with bunches of money" that are driving the cost of everything up I'm going to scream. or "those rich snooty folks from back east."

As far as I've seen, there aren't any planes of Californians unloading with suitcases of cash to snap up overpriced dumpy ranch style homes. If one or two buy a large ranch or luxury home in the mountains it doesn't neccessarily drive prices in town up based on market comparisons.

The rich snooty folks from back east? Again, they aren't going to mess with some little dump in town that's worth 120, but priced at 350K and hasn't been renovated since 1945. Nope. They'll buy, again, a large gentleman's ranch or build in the country - they wouldn't touch the stuff in town, most know better.

So, want to know what I think is driving up the prices? Middle class people moving in from other states for the CBM industry, young couples moving in that don't have much money but overpay for dumps anyway because they need a larger place to live.. and guess who is driving those housing prices up? LOCALS. The locals are making 150K plus on their houses by taking advantage of the housing shortage so they are moving up and are being dumb enough to buy 429K new homes that should be worth 225K..

and by the way, The Powder Horn, that "supposed pillar of out of state wealth."??? 85% of homeowners are from the state of Wyoming.

Just had to give my opinion as I'm soooo sick of hearing "It's those Californians"

Someone let me know when the planeloads of "californians with cash" start arriving.

[NVDave]

We've been looking around the Sheridan area at real estate for the last six months. There are really two markets here:

1. The under-$300K market. This is supported by actual folks working at actual jobs in the area, or by middle-class folks moving into the area with the resource boom.

2. The above $300K market. And in this market, it should be noted that there's very little in the market in the $300's - you suddenly see a whole lot more properties priced in the $400 to $600K range. This strata of the market is almost certainly priced upwards by Californians and people moving out of eastern urban areas; the local wages/salaries won't support people buying properties in the $500K range with conventional mortgages unless they have a large amount of equity from a previous property.

What I'm seeing now are prices on the $500K properties starting to come down. The first adjustments downwards started late last autumn; now we're seeing properties that have been on the market since last summer getting their second price reduction. This, I firmly believe, is because the "creative" mortgages and the influx of out-of-the-area equity has dried up.

And it doesn't take a planeload of people. It takes surprisingly few people to manipulate prices in smaller cities/towns. Remember realtors and appraisers work off "comp sales" -- so let's say you own a house in an area and two places sell in 2005 for vastly inflated values to Californians (who, it must be said, are utterly retarded about real estate valuations and the RE market in CA right now proves my point). You want to sell your place in 2006 after those two places sold. You think your place is worth $125/square foot, plus some for acreage and outbuildings.

Your realtor(s) look at the recent sales in the area and they see the two sales to Californians and they use those to price your place. Instead of $125/square, you're up near $180 to $190/square foot on your asking price - not because YOU think it is worth that much, but because your realtor sees what your neighbors' places sold for. No plane load of people needed, only two sales in proximity to your place were needed to drive up the price of your place.

Prices are going to go back down, but it will take a while. It is quite clear to me that the out-of-state equity and high LTV mortgages are gone from the market now, and all we're waiting for is reality to catch up to people trying to sell their property.

BTW -- I'm a farmer from Nevada. I know the price of ag land based on what it can produce. The price of ranches and farms in the Sheridan area is completely driven by out of state money and (quite frankly) idiots with more money than brains. I see places that can't support 100 head of cows selling for $4.3 million. That's insane. For the same amount of money, I can go down into the Lander area and buy a ranch that will run 1,200 cows and sell excess hay. That's more in line with what the real ag value of the land is.

[dictionary]

Great points, I agree with a lot of them, but again,

85% PLUS of the PH homes are owned by Wyoming natives. Which doesn't mean they didn't move out of state then come back bringing their money with them.

In addition, may I point out Mountain Shadows in Sheridan, several homes are in the 375-525K range. Owners and Buyers? You guessed it. Majority locals.

Again, I believe the majority are buying because of the equity in their last home. How else would a school teacher and a police officer from Wyoming afford to buy a 500K plus house? this is an actual example.

Or let's say the local contractor who just finished his 899K home in the Powder Horn, or the retired plumber from town who sold him home and bought an historic house with 20 acres for 500K plus? All local.

I could go on and on and on.

Any examples of homes that you know where actually bought by Californians? Ie. natives?

The californians I know, actually complained that they could get more for their money in certain areas of California than Wyoming. The two I know live in smaller, modest homes.

1.7 million custom home at the PH, you guessed it, a local moved back here after living in Denver.

So again, where are all the so called Californians?

[dictionary]

one more thing. Of course the wages in town wouldn't appear to support such high end home purchases, of course they don't.

What I'm saying again, is that locals are making an INSANE amount of money on their homes.

Another example. School teacher and welder, young, young, large family. Built their home 4 years ago for 130K including land.. Just sold it to an engineer moving in from Gillette for 350K, that's 220K profit in 3 years.

Cash, now where else in the world or in what other market would a couple like that get that kind of return? (and the house really should still only be worth 130K)..

And guess what? They are building a 4,200 sq foot home in Big Horn on 12 acres. And guess how much 12 acres cost out here? So when it's said and done, let's see, that home is probably in the 700K range.

Again.. NOT californians.

[NVDave]

Originally Posted by dictionary

Another example. School teacher and welder, young, young, large family. Built their home 4 years ago for 130K including land.. Just sold it to an engineer moving in from Gillette for 350K, that's 220K profit in 3 years.

Cash, now where else in the world or in what other market would a couple like that get that kind of return? (and the house really should still only be worth 130K)..

And who told them their property should be priced at $350K? Did they just decide on that number themselves? Probably not. My point is that someone else sold their property to someone willing to pay FAR too much to enable that valuation to become something other than an aberration.

There are other markets where people with insane ideas of valuations for real estate have come into a market; places like Reno, NV. Seen the exact same thing happen there -- locals moved up in the house price ladder... same types of gains you're talking about. It has been done in other places. Many other places.

And as soon as the influx of people from CA who were coming into Reno ran out, the market dropped out. House prices in Reno are now undergoing a really severe adjustment. What saves Sheridan in this aspect is that there is a relatively tight housing market, with much less speculation by outsiders, but even so, realtors tell me that in the last six months, they now have a 12+ month supply of homes and lots on the market in Sheridan. I'm looking at the Sheridan MLS and seeing homes that have been on the market for 6+ months - some more than 9 months. When I get a "pull sheet" on a house, I keep it in a file. I'm seeing houses changing listing agents, price reductions, etc.

Another thing powering a market with gains like the one you cite: easy money. Californians and eastern urbanites are much more used to using very high LTV loans on their property. To me (a rather conservative guy), mortgages should be 20% down, 30 year fixed. Period, end of discussion. The reason why we're seeing the melt-down in the mortgage business is that they wrote paper at 100% LTV. The only way the people you cite above make those kinds of gains in real estate is that they caught a convergence of the peak of the market, a mortgage industry that was absolutely idiotic in how much money they'd loan on over-valued real estate, and people who were utterly ignorant of historical real estate (and commodity, esp. energy) cycles.

As a result, some people won the lottery.

But trust me on this: I heard the exact (and I do mean EXACT) same line of reasoning from people in the Reno market a three years ago. We sold a house in Reno in 2001; sure, we wished we sold it in 2005, we would have made double what we made on the house. But I saw the RE market in Reno reaching insane an unsustainable levels in 2005; I had a good idea of what salaries were like in the area. They simply wouldn't support the RE valuations being demanded. People said "Oh, it is just the locals moving up" and "the prices are supported, after all, people are buying, buying, buying!"

When you scratched the surface and started asking around, you found just how absurdly leveraged many people were to get into these homes. YOu found valuations rocketing upwards on comp appraisals where out-of-area people had bought into houses with high prices and no negotiation. No money down. Interest only notes. Seconds. They wanted to buy as much house as they could, realtors and mortgage lenders/brokers knew all sorts of tricks to qualify people for more than they could afford.

True story: when we sold our place (2001 - four years before the peak), a guy from California bought it. He put in the offer the very day it went on the market. We had priced the place at about a 20% gain for owning it for only six years, which we thought was aggressive.

Guy puts in the offer at about 5pm. We were headed out to dinner, told our agent we'd look at the offer when we got back from dinner. During dinner, out at a restaurant, the buyer's agent is calling my cell phone, after badgering my agent for my number, frantic that they had not heard from us. It was about 7:30pm, they'd put in the offer at about 5 pm, I figured we'd look it over that night and get back to them the next day.

No, said the buyer's agent (also from California) -- they wanted to hear from us NOW.

No way, I said. You're interrupting my dinner, and I get very, very pissy when someone interrupts my dinner. You'll hear from me tomorrow, by 12 noon.

I thought this agent was going to come unglued.

Never have I seen that behavior out of anyone other than Californians about real estate. And yea, we made a nice sum on the place, because they were willing to pay and not negotiate very hard. Such is the nature of Californians around real estate: they've been programmed by an entire generation of realtors to "buy, buy, buy!" and "move fast! it might not be here tomorrow!"

Yes, some locals who had been in Reno for 20+ years made out very, very well... but they weren't enough to support the market. Reno's market will go down further than Sheridan, simply due to size and how absurdly overheated it is, but the one thing that no one wants to admit is that Californians were the people most responsible for the mortgage industry inventing idiotic mortgage instruments, which then were adopted all over the country. Those instruments are going away. Only this morning, I read another internal memo from yet another lender that says they're getting out of the Alt-A paper business - both direct and wholesale. We're not even 50% of the way through the mortgage melt-down yet. Rules on lending are being re-written, rules on property valuation are being re-written at Fannie and Freddie, high LTV loans are simply going away, especially on non-conforming loans. Another memo this week I saw showed that on jumbo paper, another big lender wants 25 to 35% down, *minimum*, depending on the market.

With the way liquidity is being pulled out of the mortgage lending market, the Sheridan (and other WY markets) will come down. It will take time, but they will come down. The California era of real estate lending (where increasingly unsupportable valuations were supported by ever-more creative mortgage products) is over. That will affect RE valuations across the entire country.

[dictionary]

Wow, that is the best reponse and well thought out opinion I've heard on this board, thank you so much, seriously very interesting.. this market does scare me terribly especially in Sheridan.

and it's funny I was just talking to a woman (sheridan native) who said she bought her brand new house for 220K (1,200 sq ft) and all brand new furniture because she made so much on her old home.. the new home. totally paid off. And it's a home really should be worth 120K anywhere else in the U.S. She's a bank teller.

It makes a lot of us that saved, earned advanced degrees, worked hard, but are still middle to young with families. I didn't expect the moon, but when I moved here I never thought the house I lived in during grad school (one that was the semi-ghetto) would be nicer than what I could afford here! Unfortunately, we too, like so many of our friends will move if the COL doesn't go down.

I do think Sheridan will have a reckoning.. and a pretty big one real estate wise. I smell desperation on the realtors.

[dictionary]

and it's true about lenders, when they initially told us what we were approved of, we laughed hysterically and said NO WAY.. We actually took 1/2 that number and took out a very sensible, traditional 30 year fixed loan (and had a downpayment). I would never want to get into too much house..

but at the same time, people pay those prices because have you seen what you get for 900-1,000 in rent? worse dumps than the houses!

[ElkHunter]

California may be a loose term. But I look around the neighborhood and there's Minnisota folks, South Dakota folks, Montana Folks, Illinois folks, and there's one couple who are Wyoming Natives.

Some of the folks been here a while, 15 years or so. But they came here with money, invested in a work place of some sort, and now they've sold and made their money. Now they had a house built.

So, did the money specifically come from Cal? Probably not.

[Kristynwy]

I think both of you have key points... There are many explanations of who, what, where, and why housing is crazy in Sheridan at the moment....

I just think it is a shame that young families like my own move here to have a slower pace of life and assimiliate into the culture, or young families that were born and raised here are suffering if they didn't buy before the boom... or even older families who just hadn't bought real estate before prices exploded. My parents are in Oregon & never got to buy a home cause of their lower income, before the boom in the market in Oregon and now my dad has a salaried position and a college degree after my sis and I left home and can't buy a home because they are out of his reach... and is stuck paying outrageous rent. The one plus there is rentals aren't as hard to find... but that is about it, we got tired of everything else in Oregon and had to leave... but that is another story...

One of my favorite mottos is "You Reap what you Sew" ... those who look more towards the long term and the big picture will come out better in the end...

People will be humbled and things will level out eventually I think... I just can't believe people complain cause they can't make 100k on their home and aren't happy with 10 or 20k over 5 years (just a number of the top of my head)...

I think who is responsible is many realtors(not all) and appraisers. They set the market values in addition to supply and demand... And people need to learn to stand firm to their values and quit selling over priced dumps or selling their land to developers that come in and jack up the so called "affordable" housing rate... I find it ironic that those who made 100k or more on their first home and then turn around and gripe about the hosing market are full of double standards... If people would just stick to their guns and say no more, that could really help turn things around...

I know up in Montana there are a bunch of conservatives tired of the inflated housing, politics ect that are standing up and speaking out against it and trying to get more conservative leaders elected in local elections to try and turn the wave around a bit...
I am not as familiar with Montana but I have contacts, and there are a lot of people born and raised there as well as newcomers that are banding together to try and save Montana to what it once was...

anyways.. sorry about my ramblings... just a lot of different angles, perspectives and reasons... it is hard to blame one particular reason why... whatever the reason, it is really unfortunate....

[NVDave]

Originally Posted by ElkHunter

California may be a loose term. But I look around the neighborhood and there's Minnisota folks, South Dakota folks, Montana Folks, Illinois folks, and there's one couple who are Wyoming Natives.

Some of the folks been here a while, 15 years or so. But they came here with money, invested in a work place of some sort, and now they've sold and made their money. Now they had a house built.

So, did the money specifically come from Cal? Probably not.

I'd wager that most of them made even a half-hearted attempt at negotiating when buying new housing.

When I have remarked on Sheridan prices while looking at houses, here's a quote from two different agents:

"The only people who aren't put off by Sheridan prices are Californians."

First time was curious, the second time put up a flag.

As I was pointing out above, it doesn't take "plane loads" of Californians to drive up the price. It takes a handful who look at an absurd price in a non-CA market and say "Hey, that's cheaper than California... what a bargain." The way realtors use comps to set prices, plus easy loan appraisal standards do the rest.