US House Prices: Cheap Now, But Will Sink 15% More by 2010

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You’ll recall, dear reader, that your editor is moving to Florida. He does not intend to actually live there, only to become a resident. He lives in Europe, but he needs a place to call home in the United States too, for tax reasons (that he can no longer recall). Florida seemed like just the place, since it has no state income tax. Besides, we don’t really like the sun or the beach…so it makes it easier for us to stay away; otherwise, we might get homesick.

But we’ve been wondering about Killeen, Texas. What’s it like?

America is a cheap place to live. Especially if you don’t live in the major metropolitan areas on the two coasts. According to USA Today, you can buy a four bedroom, 2 ½ baths, 2,200 square foot house in Killeen, Texas, for only US$136,000. That’s less than 100,000 euros – a price that would be unheard of in Europe. That’s not only the cheapest price in the United States…it might be the cheapest price in the entire world. Even in Granada, Nicaragua, the price for a similar house would be about US$150,000. In Mexico City, you’d pay US$277,000. And in London…well, don’t even think about it.

Meanwhile, other cheap alternatives in the US are Minot, South Dakota, where the house would cost you US$139,000…or Canton, Ohio, with a US$146,000 price tag.

Here’s an obvious idea, dear reader: Sell the digs in Beverly Hills; buy in Killeen. But wait. You say there’s nothing to do in Killeen? We don’t know…we’ve never been there.

Maybe they have no Starbucks…no TGIFs…no multi-plex cinemas…no super-shopping domes…no sports stadiums…no fancy restaurants. C’mon, use a little imagination. There must be something you can do. How about rodeos and bull riding contests? Maybe they hunt and fish. Maybe they spend long, slow Sunday afternoons rocking on the front porch. Or, maybe they just hang out at the local saloon. Hey…this is sounding like the sort of place we might like!

Maybe some Dear Reader from the area can tell us what the heck people do there. Besides, if you don’t like it, you can always do what we do with our home in Florida – not live there. Just to make the math easy, let’s say you sell your house in Beverly Hills, or San Francisco, or New York, for US$2,136,000. Then, you buy a house in Killeen, put your furniture in it…and keep driving. You’ll have US$2 million left over. Invest it safely; shoot for a 5% after-tax yield. That’s an annual income of US$100,000 – the equivalent of about US$150,000 before taxes. Rent a little pied-a-terre in Paris…hang out on a Caribbean beach…or simply rent a house wherever you choose. We’re not clairvoyants…but it could be a very smart move.

The Case/Shiller housing index tells us that housing prices in the United States have fallen every month this year. If prices keep going down at the present rate, the average house in America’s top 20 cities will lose more than 5% of its value this year.

But that’s just the beginning, says an expert interviewed in the Las Vegas paper. Houses there are already down 5%…and he says they’ll probably keep going down at least until 2010, probably sinking another 15% or so.

In Las Vegas, people speculated on houses…they didn’t merely buy them to live in. What is a teaser-rate, no doc, ARM anyway? It is just an option to buy a house – if things go well. If they don’t go well, you’ve got no equity in the place; you just walk away, just as you would from any other option contract that expired out-of-the-money.

There are now some 30,000 housing units for sale in Las Vegas – and another 23,000 in some stage of construction.

Meanwhile, out on the coast, house sales in California are off 28% from a year ago. And the poor builders! Lennar (NYSE:LEN) has been cut in half. Toll Bros. (NYSE: TOL) is down a third.

“If those numbers were not bad enough,” writes The Survival Report ’s Mish Shedlock, “the number of ARMs that are going to reset in the next six months is staggering.”

“We are unlikely to find ‘a’ bottom until May 2008. ‘The’ bottom can be years away. It all depends on how much the Fed fights the slowdown (the more the Fed fights a needed recession, the longer the recession will be).”

And the recession has not even started.

Bill Bonner
The Daily Reckoning Australia

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
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Comments

  1. Prices can’t be cheap – they can only be low. Products can be cheap…

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  2. Pessimistic, defeatist thinking — “Move to Killeen. Move to Minot.”

    How about getting yourself smarter and earning cash at a faster rate than Banksters can inflate the amount circulating — become the optimist!

    Reply
  3. I don’t know about TX and SD, but have done some research on Ohio housing and the housing is super cheap, and in Cantons/Dayton/Columbus and other inexpensive house markets there is plenty to do, you still get 4 seasons, major malls, new home communities, almost all houses have full size basements, movie plex, night clubs, hotels, restuarants etc. Check out the 2007 International Affordable Housing, it shows the cheapest cities, worth a look. http://www.demographia.com/dhi-ix2005q3.pdf

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  4. OK, I’ll be the one to do this. I lived in Killeen and the reason why the housing is so cheap is:

    A) It’s Texas and there’s an over abundance of cheap, illegal labor. Housing prices across Texas are low.

    B) Killeen is the home of the largest military installation in the world. Housing prices are so cheap here because the Army pays so little in this region. The economy in Killeen relies heavily on the population of Ft. Hood. Civilian pay is adversely affected by this as well because businesses can’t afford to pay normal labor rates. When I moved from a Chicago suburb to Ft. Hood, my pay was cut by 52% – both my former and current jobs were nearly identitcal.

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  5. We moved from Washington, DC to New Castle, PA, bought a 1600 sq’ home for $49,500, and love the area. Easy access to Pittsburgh–a great city–a world class airport–lot of museums and sport. This is a town about to surge, and home prices have not caught up yet. Search zip code 16105 in Realtor.com. For info on the town see:http://www.seniorark.com/Less%20than%20a%20Shoestring/Less%20Than%20A%20Shoestring.htm

    Robert Fassbach
    December 3, 2007
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  6. I live in Killeen. I’m putting my house on the market in 6 months. 3br, 1.75 bath. 1162sq. ft. 4 sides brick, renovated bathrooms, and renovated kitchen. Tile and carpet throughout. Big fenced in back yard. 75K. Prices are great here!! Killeen is a military town, due to Ft. Hood the largest military installation. While the downtown part of Killeen really needs some work, Killeen is a fast growing city. Yes if you move here from a large city like Chicago you will take a pay cut, but Austin Texas our beautiful capital is so close by. They say there is nothing to do? There is plenty to do! Go to a rodeo, drive to Dallas and go to a nascar race, go to San Antonio to the riverwalk, and make sure you stop by San Marcos to the outlet malls. Go check out the caverns in Round Rock. Go out to Topsy Ranch in Copperas Cove and see all the animals they have there. Belton lake is 20 minutes away, and it a great way to kill a saturday afternoon. Go fishing, have a picnic, take advantage of the water slide or go camping. Round Rock, and Austin Texas are 45-60 minutes away. Salado Texas a tourist town is 20 minutes away. Lots of shopping, and entertainment. Killeen is becoming a restuarant hub. We have many restaurants, (Starbucks included), Texas Roadhouse, Red Lobster, Outback, Logans, Chili’s, Bennigans, Bostons, and many many more. You can go 1 mile in Killeen without passing a Wal-mart, which is really weird. Brand new Super Target being built in Harker Heights, 5 minutes outside Killeen. It is accompanied by a strip mall with many stores and restaurants. Round Rock Expess minor league baseball season just started. Oh and did I mention we have great colleges! Central Texas College, Tarleton State University which will soon be a part of A&M. Temple College is a 20 minute drive in Temple Texas. It’s where I got my associates.
    When I hear about people living in Chicago barely paying their bills claiming they have no opportunities in life. Move to Killeen, Go go college. Live in a affordable nice housing, and better yourself people. There are options out there! Do some research!

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  7. Ok So I guess i have to be the one to say “Where in the world did you get your info from?” I have been living in Killee for about 20+ years and maybe there was no starbucks and such a few years ago but over the past few years Killeen has developed very quickly we have 2 starbucks 2 super walmarts a mall (not that big but its there) and we have a sister city called Harker Heights which is pretty upscale and that is currently building a shopping center that includes supertarget,barnes and noble a cinemark theatre cheddars restaurant and many other stores. Not to metion the row of restaurants that flow on either side of our main highway: Applebees,Texas roadhouse,Chilli’s,buffalo wild wings,Fridays,Texas land and cattle, and many more to come! So killeen, is not just some slow little town with nothing to do especially with the military base being next door.

    Shaniqua
    May 14, 2008
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  8. Forget Killeen! Why not try Ft. Wayne, Indiana? There you can buy a house for $7,500- or even less. The mortgage calculator shows your payment to be $44/month with nothing down. Can you handle that? I have no idea what quality of life is like there, but from prices like these you’d expect to be surrounded by crack houses, with radon gas pouring in from the foundation, tornadoes season lasting most of the year, agent orange permeating the soil, and other small disadvantages. There may or may not be a roof included in the price.

    Actually, the picture of the place looked nice enough, and the roof is there. And the owner was a “motivated seller” so you could even negotiate off a bit more!

    It a house in San Francisco really worth EIGHTY TIMES more? Why not live in Ft. Wayne and just visit S.F. any time you wanted to check out the view? Stay in a youth hostel, see the most expensive homes in the USA and laugh at the struggling fools who may lose their place in a huge earthquake any time now (and very few can afford quake insurance).

    Live in the new, devaluated U.S., where the ‘government’ has totally destroyed the economy in just 7 years!

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  9. I live in Killeen, and was born and raised in downtown Chicago. What hasn’t been said is the quality of the homes here. In Business Week this last summer, our $136,000 home was said to be the equivalent of a 2.2 million dollar home in Belair, California. Our home is 1660 square feet and has beautiful, quality materials as well as an exciting and unusual layout. I was an interior designer for 30 years all over the country and this home is as fine as I’ve seen anywhere.

    The people are friendly, I went home to Chicago and people would bump into you on the street and not look up or say, “Excuse me”! Here people smile a lot and aren’t afraid to make eye contact!

    We have beautiful natural recreational areas, Stillhouse Hollow and Belton lake. We have a small shopping center with Dillard’s and lots of stores, as well as the new Market Heights, in Harker Heights right next door, that is very upscale.

    The thing I love about having Fort Hood here is that it pulls people from all over the country, so instead of being a small, hick, Texas town of 112,000 we have a diverse mixture of cultures, races, and religions, making it more urban and we all get along.

    Downtown is in sad shape right now, but we have started a downtown revitalization as many big towns have done and in about 5 years it will be fantastic.

    I’ve lived all over this country, Chicago, Denver, L.A., the east coast and up North in Minnesota, and we love Killeen and are making it our forever home!

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  10. In Serviceton, Victoria Australia I saw a house for sale on 1000 m2 block for $25000. Needed a great deal of work but that’s a hell of a lot cheaper than the examples above. Not quite as chaep as http://www.smh.com.au/news/technology/house-bought-on-ebay-for-221/2008/10/02/1222651211380.html

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  11. It’s exciting to find these comments. But those were written during 2007 through 2008. Time has changed last part of 2008 so much that I cannot see clear what is front of me anymore.

    Let me tell you all….being closed to age 60. Retirement went down more than 60% of totall asset without home. It has been nightmare thinking about what if…case gets worsen in 2010. I must do something to prevent from on the street asking for money.

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  12. Hope people provide good location for people like me.

    So, where is cheapest place for house and accessiable to we usually go. Forget about Starbucks, it charges you arms and legs. I look at people who spend that price in Starbucks NOWADAYS..they lost their mind. This is truth, I am closed to age 60, I need a house(2/2 with garden) which less than 35,000. Anyone know where I can find it?

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  13. Killeen is the absolute worst place I have ever lived. Never go there, there is absolutely nothing to do, for fun we used to sit in Wal-mart parking lot, watching people go in and guess what they would buy. Once we saw a fat guy go in and my friend said, “I bet he’ll either come out with beer or donuts.” Well, he came out with both. Other fun things to do in Killeen area are: go to Stillhouse Lake and look for bobbers that have washed up on the shore, walk around in H-E-B when it’s 110 degrees to get away from the heat and look around at food you can’t afford, or go to nearby Copperas Cove (a small city west of Killeen that is even lamer than Killeen) to the one coffeeshop for the worst service you’ve ever had. In case you missed the sign when you came across the state line, Don’t Mess with Texas!

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  14. Bradley, Serviceton Vic (pop 337) is 294km from Adelaide – itself a boring little city – and 437km West of Melbourne. There’s a world of difference between paying $25,000 for something so essentially worthless and paying a similar amount for a house in a town with at least some semblence of life.

    I’ve just spent four hours reading housing ads in the Australian market, and would do almost anything to be able to move to the USA right now. At 57yo and having lived through decades with interest rates in the 15-20% range it looks like I will never be able to afford to buy a house here. Regardless of government grants, the deposit is never enough to satisfy banks when housing prices are constantly spiralling, and being single means I don’t have sufficient income to repay them anyhow.

    About 12 months ago I saw a block of four flats sell on eBay for less than US$10,000 and anyone with a little skill could have renovated them,
    rented three out and promptly retired. No such opportunities exist in Australia, where falsely high land values are further bolstered by opening the market to Chinese speculators.

    When this happened in Sydney in the 70’s the “value” of my semi-detached rented cottage in Bondi Junction jumped from $28,000 to $250,000 in under two years. It’s happening all over again right now.

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  15. ‘At 57yo and having lived through decades with interest rates in the 15-20% range it looks like I will never be able to afford to buy a house here.’

    Good grief. Never heard of decades of interest rates of 15 – 20%.
    Which country are you living in, Rob?

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  16. Reading these comments back to 2008, it’s clear that leaving the purchase of a home until your fifties or sixties isn’t all that wise. I’ve never forgotten the picture of a bent old bloke with a walking stick, staring at a very basic house, with the caption: “This is a picture of a young man waiting for the price of housing to come down.”

    For those who believe the US offers far better opportunities in housing, work, weather and lifestyle, don’t leave the move until too late in life. There are some surprises in store for you… so don’t burn all your bridges back home; keep your Aussie citizenship… and bank your airfare (in an _Aussie_ bank) just in case.

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