Whats fundamentally different about real estate now?

[MrBojangles]

Another thread inspired this one.  My unscientific observations, could be right or wrong.  Am I even close?

Trends in this country, other than big city like NYC, which always increases, more or less.

Beginning of time to WWII.  Real estate a place to live.  Buy it, live there a lifetime, sell it.  Sells for what you paid for it, maybe little more.  Not an investment at all, a roof over one's head...

Post WWII, GIs return, marry and start families.  Demand for housing high.  Prices increase for a generation, maybe slows a bit in the 1970's briefly.  Housing is roughly 2.5 to 3 times a working wage, one male breadwinner in the household.

1980's, baby boomers of the age to buy houses, women enter workforce.  Two workers to support a mortgage.  Prices increase 50 to 100%.

1990's, start out with a softening due to recession and most baby boomers having purchased.  Late 90's into 2000s, dot com boom, easier money, a movement out of the big city, prices skyrocket, only to fall in the recession.  Some rebounding since then.

Of course some areas are better than others.  Seattle is different, etc.

But, for small town America, it seems gains will be nominal UNTIL wages increase, which might be changing, hopefully.  Until then, a home cannot increase in value much as it is forever based on the wages of two earners and is stuck at 2.5 to 3 times their annual wages.

Any truth to my hypotheses.

From someone trying to sell a house in small town America...

[clarkfan1979]

I have never lived in small town America but your analysis of real estate in small town America seems accurate. I think the concept that real estate is related to the wages of two working adults is accurate.

When you get to a town with more expensive wages like Seattle you have wages increasing at a faster pace than inflation. This causes the price of real estate to go up. Then you have people speculating on how much it will go up, which adds an additional layer. They are also speculating on how much they think wages will increase.

Boulder, CO is a tech hub with very high wages, very similar to Seattle. If you buy real estate in these areas you can become very wealthy in a short amount of time due to leverage. Some people experience sticker shock and can't do it.

Do any rich people from the bigger city ever buy farm land in your area?

My brother and I used to go hunting in rural South Dakota 2000-2006. The local people were concerned because rich people from out of town were paying an elevated price that would make it impossible to turn a profit if you were to farm the land. The rich people did not have any plans to farm it. They just wanted to have their own personal hunting grounds.

[MrBojangles]

Any farm land that sells, which isn't often, is used to build McMansions.  Not many lately.  I think the relatively few in the area are about 15 yrs old.

[Another Reader]

What is fundamentally different is the high paying jobs are concentrating in the large cities, primarily along the coasts.  Other areas are dominated by local businesses serving local customers, unless there is a factory, university, or other large employer locally.  As the economic status of these areas declines, so will real estate prices because of weak effective demand.

I would look closely at what is happening in your local economy.  Not the city two hours away, but within commuting distance.  If business conditions are weak and unemployment and underemployment are consistently high, I would look at getting my money out of the property soon.  With a recession likely in the next couple of years, your market could deteriorate and you could be sorry you did not sell now. 

If there is economic growth and businesses are moving into the immediate area, sticking it out for a higher price could make sense.  However, if you are in a one employer town, you need to accurately assess the likelihood that employer will be there in five years, even if that employer is growing today.

[Bracken_Joy]

I think we're seeing a huge swing to urban living and density. Especially among those of us starting out in our careers. Husband and I were both 'small ish' town kids. But we moved to a city for schooling and work and WAAAAY better wages. Post schooling, we moved back to Hometown and bought a house, but it's true what they say- you can't go home again. We missed the friends and community we'd built in the city, and much greater work opportunities. So we sold and came back, and we're back to renting now.

Long story short there, I think demographics matter a lot. And what work is being done where and by who.

https://graylinegroup.com/urbanization-catalyst-overview/
and https://www.economist.com/united-states/2018/04/19/high-prices-in-americas-cities-are-reviving-the-suburbs

[MrBojangles]

This trend towards urban living is quite a surprise to me!  I would have thought that increased teleworking would have led to a significant increase in rural living--a la the Frugalwoods.  Apparently not.  Just proves you can't go wrong with New York or DC real estate.

There is a small manufacturer nearby that produces soups or salads I think.  A few empty mill buildings.  One industrial complex, I think warehouses some building supplies and such.  Not high tech, not a huge number of jobs.

Thanks to you folks, I think I will market more aggressively this time around.  Last time, I thought I was in the driver's seat and I would have a much greater interest.

Anyone have any idea what's going to happen to small town America over time?  It's sad...

I think those McMansions were built in the post 9/11 boom and a trend towards moving away from the cities.

[Bracken_Joy]

This trend towards urban living is quite a surprise to me!  I would have thought that increased teleworking would have led to a significant increase in rural living--a la the Frugalwoods.  Apparently not.  Just proves you can't go wrong with New York or DC real estate.

There is a small manufacturer nearby that produces soups or salads I think.  A few empty mill buildings.  One industrial complex, I think warehouses some building supplies and such.  Not high tech, not a huge number of jobs.

Thanks to you folks, I think I will market more aggressively this time around.  Last time, I thought I was in the driver's seat and I would have a much greater interest.

Anyone have any idea what's going to happen to small town America over time?  It's sad...

I think those McMansions were built in the post 9/11 boom and a trend towards moving away from the cities.

A lot of teleworking is still only partially that. Take my husband for example- not the quintessential millenial example because he's in big industry and not tech, but close enough ;) He works from home every day he's not at a client site. That doesn't change the fact though that he goes to client sites anywhere from 1-7 days per week depending on the phase of his projects. When we lived in our hometown, it was often 3-4 hours each way to get to a lot of his clients. Because even industry is consolidating. Greensite work is often cheaper than rehabbing an old site in a lot of industries. Anyway, it made a heck of a lot more sense for us to be in the city hub, and then he has access to all the clients around that hub. And then it's a run away train- work shifts to cities, so people shift to cities, so even more work shifts to the cities where the workers are, so then.... positive feedback loop.

Good luck with your sale. National markets really have minimal bearing on local ones- yes it will influence, yes some will properly track, but a lot have factors all their own. We benefited from Oregon's popularity boom and saw a lot of appreciation. But for people to be moving to Oregon, they're coming from somewhere else, which means less housing demand there. Economics are complicated an intertwined, for sure.

[LWYRUP]

This trend towards urban living is quite a surprise to me!  I would have thought that increased teleworking would have led to a significant increase in rural living--a la the Frugalwoods.  Apparently not.  Just proves you can't go wrong with New York or DC real estate.

There is a small manufacturer nearby that produces soups or salads I think.  A few empty mill buildings.  One industrial complex, I think warehouses some building supplies and such.  Not high tech, not a huge number of jobs.

Thanks to you folks, I think I will market more aggressively this time around.  Last time, I thought I was in the driver's seat and I would have a much greater interest.

Anyone have any idea what's going to happen to small town America over time?  It's sad...

I think those McMansions were built in the post 9/11 boom and a trend towards moving away from the cities.

Sometimes I wonder whether things go in waves and whether a smart move might be to pick up undervalued assets.  For example, one can buy property pretty cheaply in some mountain towns in PA.  Perhaps in 10-20 years people will recognize the value of those town and they will get a second life as place for early retirees / remote workers to live cheaply (particularly if they are traveling a lot and use the town as a "home base") or as a low-hassle second home for city dwellers. 

Some towns will likely just fade and die, while others that are near a place of scenic beauty might have a rebirth.  What does everyone think?

[BicycleB]

This trend towards urban living is quite a surprise to me! 

It may be, but the trend toward "new urbanism" as it's sometimes called has been going on for a couple of decades. If you are going to use broad trends as an investing thesis, consider researching them to the point where you are not surprised very often.

I don't mean to be harsh. But a lot of investors do reach that level. At least, the ones who make money do. That money comes from the other people in the market - the surprised ones.

"Caveat emptor" is not a trend!

Just proves you can't go wrong with New York or DC real estate.

Ah...it probably doesn't prove that at all. To avoid investment losses, I suggest vetting investment theses carefully before acting on them.

Anyone have any idea what's going to happen to small town America over time?  It's sad...

Yes, though nobody knows yet which ideas are right!  :)

Mine are: The few children will grow up and some of them will move away, as I did. Whether towns grow or shrink will depend on a variety of factors. I have no idea which factors will dominate, but I bet that most of them have had previous examples in US history.

By the way, US history has a rich field of past examples. Almost every generation has seen a wild mix of national and local factors causing a number of towns to grow, but for over a century, some towns shrank or died while others hung on before rebounding. Look up ghost towns in the West - some towns have been dying since our grandparents were born.

Popular sources:
https://en.wikipedia.org/wiki/Urbanization_in_the_United_States
https://en.wikipedia.org/wiki/Ghost_town
https://en.wikipedia.org/wiki/Borchert%27s_Epochs

I think every era has some trends happening, and sure, it's better to recognize them soon enough to invest in a winning direction rather than in a losing one. But smaller scale factors of investing competence predominate in most cases. I urge anyone investing to get reasonable mastery of both sides of the coin, whether you invest in towns or cities. One trend idea is not enough to make money.

For what it's worth, I don't think towns are sad in general. There's just more action elsewhere in most cases, and a lot to be careful about before you invest. Whether you find a sad or happy  role to play in the story depends on you.

[Another Reader]

Sometimes I wonder whether things go in waves and whether a smart move might be to pick up undervalued assets.  For example, one can buy property pretty cheaply in some mountain towns in PA.  Perhaps in 10-20 years people will recognize the value of those town and they will get a second life as place for early retirees / remote workers to live cheaply (particularly if they are traveling a lot and use the town as a "home base") or as a low-hassle second home for city dwellers. 

Some towns will likely just fade and die, while others that are near a place of scenic beauty might have a rebirth.  What does everyone think?

Have a look at the drug problems and crime rates in some of those towns.  Not the bucolic places they may appear to be.

[BicycleB]

Sometimes I wonder whether things go in waves and whether a smart move might be to pick up undervalued assets.  For example, one can buy property pretty cheaply in some mountain towns in PA.  Perhaps in 10-20 years people will recognize the value of those town and they will get a second life as place for early retirees / remote workers to live cheaply (particularly if they are traveling a lot and use the town as a "home base") or as a low-hassle second home for city dwellers. 

Some towns will likely just fade and die, while others that are near a place of scenic beauty might have a rebirth.  What does everyone think?

@blinx7, I think you're right. I just don't know which ones are worth it.

Maybe the thing to do is find places where you individually would love to live, and then live there during FIRE using investment income (or work remotely from there using a telework job during accumulation).

Then I guess you could buy extra property cheap with money you don't really need, or at prices where rent provides cash flow even if the properties don't appreciate. Then if it appreciates, you get a bonus. Still the investing part is risky as far as my primitive brain can tell.

In my home area, it appears that most real estate declines in value over time. I can't tell that even maintaining property is worthwhile. Despite the national strong economy and the beautiful scenery, a major local employer teeters on the brink of collapse. Some houses there are maintained, but others are run down. Not sure what the future brings.

[LWYRUP]

Sometimes I wonder whether things go in waves and whether a smart move might be to pick up undervalued assets.  For example, one can buy property pretty cheaply in some mountain towns in PA.  Perhaps in 10-20 years people will recognize the value of those town and they will get a second life as place for early retirees / remote workers to live cheaply (particularly if they are traveling a lot and use the town as a "home base") or as a low-hassle second home for city dwellers. 

Some towns will likely just fade and die, while others that are near a place of scenic beauty might have a rebirth.  What does everyone think?

@blinx7, I think you're right. I just don't know which ones are worth it.

Maybe the thing to do is find places where you individually would love to live, and then live there during FIRE using investment income (or work remotely from there using a telework job during accumulation).

Then I guess you could buy extra property cheap with money you don't really need, or at prices where rent provides cash flow even if the properties don't appreciate. Then if it appreciates, you get a bonus. Still the investing part is risky as far as my primitive brain can tell.

In my home area, it appears that most real estate declines in value over time. I can't tell that even maintaining property is worthwhile. Despite the national strong economy and the beautiful scenery, a major local employer teeters on the brink of collapse. Some houses there are maintained, but others are run down. Not sure what the future brings.

I would think the best thing to do would be to look at assets.  So, near a national / state park = good.  Near a college or hospital that's financially stable = good.  Near a highway or airport also better.  County seat would also be a plus. 

Basically, is there a reason people would want to live there other than "well, some people have always live here."  We don't need as many agricultural laborers anymore, and we don't need as many "trading towns" for the people who do live on farms or out in the woods because of Amazon, Walmarts, etc.  So, there has to be a reason why someone from outside would LIKE to come there for some purpose (there's a lake nearby, there's a lot of family farms and a foodie scene could develop, it's the county seat and only 2 hours from a reasonably-sized city, etc.).

I'm aware of the crime / drugs issue.  Of course, both DC and St. Louis had huge crime issues in the 90s.  DC has since boomed like crazy and STL has not really.  Why?  Strategic assets.

So I'm not thinking all PA towns are going to come back.  Just that some of the reasonably-well maintained towns, in the right location, where well-constructed historic houses can be had for $100k, might still have some life that creative and entrepreneurial people could tap into. 

[clarkfan1979]

I read that baby boomers are retiring in small towns "on the fringe" of big cities, typically about 1 hour outside of downtown of the big city. It is far enough from the city so that housing is affordable, however they are close enough that they can still take advantage of the big city every now and then.

[Bracken_Joy]

I read that baby boomers are retiring in small towns "on the fringe" of big cities, typically about 1 hour outside of downtown of the big city. It is far enough from the city so that housing is affordable, however they are close enough that they can still take advantage of the big city every now and then.

I would assume they're looking for a more 'age in place' home though. A sloping-floors 100 year old house that likely has stairs isn't as likely a target as a newer single level home that reads being lower maintenance. So I could see that being a trend, but certainly not one that applies equally to all similarly priced RE.

[Another Reader]

I read that baby boomers are retiring in small towns "on the fringe" of big cities, typically about 1 hour outside of downtown of the big city. It is far enough from the city so that housing is affordable, however they are close enough that they can still take advantage of the big city every now and then.

My view of these articles is they are poorly researched clickbait.

Baby boomers are getting older.  I'm pretty sure more than half have reached the traditional retirement age of 65.  My early baby boomer cousins are 73 this year.  One older spouse has already passed away.  The baby boomers are thinking about being close to the grandkids and good medical care, not escaping to a small town an hour away from the best hospitals and an airport.  The smaller generation after baby boomers might want to retire to the fringes, but they are not as wealthy overall. 

[mbl]

  The baby boomers are thinking about being close to the grandkids and good medical care, not escaping to a small town an hour away from the best hospitals and an airport.  The smaller generation after baby boomers might want to retire to the fringes, but they are not as wealthy overall.

Something else that I thought of,  for some baby boomers who want to stay in the same general area but purchase something that allows them to age in place, sometimes they can't make a lateral move in housing(cost wise) due to the high costs of real estate.  Let's say for example Long Island, Northern New Jersey, Westchester.    If they haven't upgraded their existing home to garner a good price in the market they might have difficulty selling for enough to cover the new, one level home that is better suited to them as they age.  Also to consider(even with the NY state STAR program) is the expense of property taxes.



 

[MayDay]

  The baby boomers are thinking about being close to the grandkids and good medical care, not escaping to a small town an hour away from the best hospitals and an airport.  The smaller generation after baby boomers might want to retire to the fringes, but they are not as wealthy overall.

Something else that I thought of,  for some baby boomers who want to stay in the same general area but purchase something that allows them to age in place, sometimes they can't make a lateral move in housing(cost wise) due to the high costs of real estate.  Let's say for example Long Island, Northern New Jersey, Westchester.    If they haven't upgraded their existing home to garner a good price in the market they might have difficulty selling for enough to cover the new, one level home that is better suited to them as they age.  Also to consider(even with the NY state STAR program) is the expense of property taxes.

I suspect this is common. Most older people I know who have lived in the same house a long notice aren't doing major upgrades, or even small aesthetic upgrades, to their home at ages 50+. 

That means when they sell at age 65+, everything is pretty out of date if not run down. Most of these folks that I am thinking of would INSIST their extremely outdated house is amazing, and not understand why younger buyers wouldn't be willing to pay $$$ for it.

Then they can't get the money to buy the nice new condo. Because they want to nice bright new condo but someone else should be thrilled to buy their dark cave of a 70's time capsule.

I can think of multiple examples that I know personally. Some get good advice (one couple's realtor told them not to bother replacing their old people carpet with new old people carpet, because the buyers would rip it out). Some believe till the end that millennials these days just don't understand (that would be my in laws, with their gorgeous yellow cracked vinyl flooring and gold specked tile and wood paneling and different color carpet in every bedroom).

[Adam Zapple]

My uneducated opinion is that there is a major shift that continues to trend towards city living.  My anecdotal local observation of my NYC suburb is that any commute longer than 20 miles to a reasonable sized city is no longer desirable to younger workers. 

People are not willing to put down roots in smaller, more remote towns, in my opinion, because employment is less stable and people don't want the hassle of maintaining a home just to move in three years.  This may just be a local phenomenon, but the bottom has completely fallen out of the real estate market in most of the bedroom communities with more than a 40 minute commute to a city.  These once "elite" towns are now within financial reach of commoners like myself.  Property taxes may play a role as well. 

What does the future hold for small town America with self driving cars and remote workers more prevalent?  No clue.

[LWYRUP]

  The baby boomers are thinking about being close to the grandkids and good medical care, not escaping to a small town an hour away from the best hospitals and an airport.  The smaller generation after baby boomers might want to retire to the fringes, but they are not as wealthy overall.

Something else that I thought of,  for some baby boomers who want to stay in the same general area but purchase something that allows them to age in place, sometimes they can't make a lateral move in housing(cost wise) due to the high costs of real estate.  Let's say for example Long Island, Northern New Jersey, Westchester.    If they haven't upgraded their existing home to garner a good price in the market they might have difficulty selling for enough to cover the new, one level home that is better suited to them as they age.  Also to consider(even with the NY state STAR program) is the expense of property taxes.

I suspect this is common. Most older people I know who have lived in the same house a long notice aren't doing major upgrades, or even small aesthetic upgrades, to their home at ages 50+. 

That means when they sell at age 65+, everything is pretty out of date if not run down. Most of these folks that I am thinking of would INSIST their extremely outdated house is amazing, and not understand why younger buyers wouldn't be willing to pay $$$ for it.

Then they can't get the money to buy the nice new condo. Because they want to nice bright new condo but someone else should be thrilled to buy their dark cave of a 70's time capsule.

I can think of multiple examples that I know personally. Some get good advice (one couple's realtor told them not to bother replacing their old people carpet with new old people carpet, because the buyers would rip it out). Some believe till the end that millennials these days just don't understand (that would be my in laws, with their gorgeous yellow cracked vinyl flooring and gold specked tile and wood paneling and different color carpet in every bedroom).

I have seen this myself too.  The cost of renovating someone's split level from 1976 that they haven't put a penny into other than patching things that broke since 1992 is really high -- could easily be $100k to do deferred maintenance and to bring things up to a "modern" look that could compete with the new condos. 

We ended up buying a (well-constructed) home from the 1950s with hardwood flooring, some amount of renovations and some amount of classic features.  The home completely escaped the wood paneling, shag carpet, pink toilet catastrophes of the 1970s and someone updated the kitchen in 2011, so it was just dated enough that it was not "premium" but still looked really nice and we didn't need to spend a penny.  It helps when people do renovations that are "neutral" and then you make it your own via art or curtains or other things that are easily removable. 

Even some of the McMansions built in the 1990s are starting to look dated.  It's tricky because it's wasteful to renovate when things still work fine, but the type of people that are going to buy a $4,000 sf mcmansion are the type that also want things to look at spiffy.  But then they spend all the money on "more house" so they can't.  So the houses have trouble selling. 

[MayDay]

^^^ haha, yesto mcmansions going out of style! And they are so huge that it costs a fortune to rip putall that beige tile!

We also bought a 50's time capsule that aged very well and had only minor renovations. I like all styles @~1965 and earlier. Things really went off the rails in the 70's and after- probably mostly because it's not only ugly, it looks so cheap.

Dark hardwood trim in 1900 house= beautiful.
Cheap pine trim poorly stained dark in 1970 = awful.

[Evildunk99]

I think there are three huge fundamental differences that occurred post-WWII.  1)  Access to credit.  Pre-WWII, if you owned a house, there is a decent chance it was paid for in cash, or maybe a 50% down payment / 5-year mortgage.  Anything longer than that was almost unheard of.  Through various regulation changes, financial institutions began to blur the lines between traditional bank, lender, and investment bank.  This allowed millions of Americans the chance to buy a home via a 15-year or 30-year mortgage, who were previously stuck renting.  The term "mortgage" in itself loosely translates to: 'til death!  Simply put, both supply & demand for housing surged post WWII. 

2)  The elimination of red-lining tactics and even the build out of America's highway system greatly expanded the mobility of our society.  This in turn increased the variety of housing that was built.  Terms like inner-belt suburb, ex-urb, vacation home, timeshare, apartment complexes, condos, ski lodges, retirement communities, assisted living facilities, country clubs, etc. etc. became mainstream, while expanding the demand for housing outside a basic metropolitan core.  Folks who were previously denied mortgages due to red-lining could all of a sudden take part in the "American dream" of home ownership. 

3)  Lastly, the impact of technology transformed our connectivity from local, to national, to global.  In local terms, everything you needed to live was supplied more or less by your local town.  This included employment, shopping, religion, civic organizations, entertainment, and public services.  Fast forward to today, and a geographic diversion has occurred between locations that have  an international presence, and those that do not.  Themes such as a major airport, shipping port, high speed rail, wifi access, an educated workforce, and sadly even an Instagram following determine a location's demand for housing.  Think about Amazon's HQ2 criteria for reference.

Of course there are many other factors regarding real estate such as immigration, demographics, social class, weather, etc. but I think they are minor.

As for the future of small towns, that is a tough question.  On one hand, our society is more comfortable with working remotely, and the future of transportation should eventually improve accessibility for rural areas ie) the hyperloop.  On the other hand, some small towns would benefit from consolidation just because demand is so low.  But hey, there are plenty of folks who are happy with their peace and quiet. 

The trend of millenials living in cities is certainly true, but another factor is that they may be priced out of suburbia.  Living in an ex-urb or rural area that is cheap is simply too far from 21st century jobs, so they live in cities.

That's how I see it, feel free to debate!