REO & ERC Forecasting in a major job loss Market

[Ray Miller]

How do you figure this into the equation of ERC and REO property now?

The GM plant in Janesville is closing by 2010. That will be 2600 jobs lost in addition to the related industry that fed the plant. They figure around 5,000+ jobs in all for a small rural city in southern Wisconsin.

I think the plant was opened in 1918, it had a long run and weathered most of the storms a business could. The SUV market killed it.

Now when forecasting value, where do you start to build your data from. I would think there will now be a lot more homes on the market, more foreclosures and a major downward trend in values.

 

[Dee Dee]

Wish I had an answer for you, Ray.
You certainly can't ignore it, but any predictions of how much negative impact on values there might be will surely raise some hackles.

On a similar note, now that I've sold my place in the high country and (thankfully) won't have to deal with it, I wonder how appraisers are going to address the issue of the massive pine beetle infestations and how it effects home values here in Colorado.

Deaths of Trees "Catastrophic"
Lodgepole die-off imperils recreation, supplies of water
http://www.rockymountainnews.com/news/2008/jan/15/beetle-infestation-get-much-worse/

Every large, mature lodgepole pine forest in Colorado and southern Wyoming will be dead within three to five years, killed in a mountain pine beetle infestation unprecedented in the state.

In 2007 alone, the infestation once centered on the Western Slope tore through another 500,000 high-elevation acres and embedded itself along the Front Range, exploding in Boulder and Larimer counties where affected acres grew by 1,500 percent.

State and federal foresters, calling the numbers "catastrophic," said recent aerial surveys reveal the dead and dying lodgepole acreage now has grown to 1.5 million since the first signs of outbreak in 1996.
With 22 million acres of forest in Colorado, the beetles won't kill it all, but they could do away with most of the "pure lodgepole" stands as well as many of the trees within mixed systems of lodgepole, spruce, fir and ponderosa that cover several million acres in the state.
It will take decades for the stands to return.

Rick Cables, the U.S. Forest Service's regional supervisor described the die-off as "a huge, unprecedented event" with major social and economic implications.

 

[Doug Smith SRA]

Demographics

How do you figure this into the equation of ERC and REO property now?

The GM plant in Janesville is closing by 2010. That will be 2600 jobs lost in addition to the related industry that fed the plant. They figure around 5,000+ jobs in all for a small rural city in southern Wisconsin.

I think the plant was opened in 1918, it had a long run and weathered most of the storms a business could. The SUV market killed it.

Now when forecasting value, where do you start to build your data from. I would think there will now be a lot more homes on the market, more foreclosures and a major downward trend in values.

The place to start is demographic data. In a very heavily unionized area, workers remaining at the plant in 2010 are likely to be the oldest due to union seniority rules. If the support industries are unionized, these too will likely have a work force skewed to upper ages. The older the person is, the less likely they will move on. They are more likely to remain put and live on a subsistence job and their severance pay until their pension and Social Security kicks in. Don't underestimate the role of government and retraining dollars that come into a community facing a downturn. These dollars also tend to keep former workers in place.

The real impact comes in 20 years. When the plant closes, most workers will be 55 or 65 and most will stay put, lessening the effect on the housing market.As time goes on, if no replacement employment comes into the community, the housing stock gradually enters into over-supply as these older workers croak, go into rest homes or move in with their kids who have moved on.

By keeping an eye on the demographics, deaths over births, in and out migration, housing inventory trends can be derived.

Classic case is Butte Montana. Anaconda's open pit mine closed in 1983. Mine workers as well as the workers with the companies in Butte that supplied the mines stayed put. Then by 2000, population began shrinking and a huge number of homes were available. Appraisers talk about the Butte 1/3 Rule. Any appraisers going to Butte will find property values 1/3 of any place in the state. Only recently has the population come into balance and now real estate agents report a shortage of listings. The market impact in Butte came 20 years after the mine shut down because the older workers did not pack up and leave.

Doug

 

[Restrain]

Look at what is happening in Detroit. It's a "the last one out please turn off the lights" situation. Values have fallen significantly and the probability of recovery is minimal.

 

[Esox]

Since you have a year and a half before the plant closing, I think I would base my forecasting for relocation on the same market factors I always do; typical marketing periods, supply, new construction competition, etc. You're only looking out 120 days. If you're wondering if the market has been impacted at this early point in time by the 2010 closing, I think you would start by comparing marketing periods, list prices, and inventory levels from before the closing was announced, to after it was announced. See if there were any abrupt changes in those indicators coinciding with the announcement. Look for an increase in REO listings that could indicate those in line to lose jobs may just be saying "the hell with it". Any impact specifically from the future closing will obviously be difficult to separate from changes that have been caused by the overall market malaise.

Actually, this far ahead of the closing, most of your best info may just be anecdotal. Starting now, I would ask every real estate agent I speak to in that market if they feel the plant closing is affecting the motivation of buyers and sellers. You'll get a lot of "oh it hasn't made any difference" replies, but you might be surprised how some quality agents are already thinking about it currently, and down the line. The good ones can be a wealth of information, and they often love to talk about the market.

That's going to be tough in Janesville. I feel for those people. Unfortunately, American car makers fell behind the foreign car makers, and I'll be surprised if they ever catch up. I grew up in Waukesha, WI, and when I was a kid the City was filled with manufacturing plants and foundries. Hardworking people that took pride in their jobs. My Dad was one of them. In the seventies a lot of those manufacturing jobs went elsewhere, downtown went to crap, and the older properties lost the owners that took pride in owning them. It's a completely different type of community now. It's a shame.

Kevin

 

[Kali the Boston Terrier]

Look at what is happening in Detroit. It's a "the last one out please turn off the lights" situation. Values have fallen significantly and the probability of recovery is minimal.

There's a problem here in Detroit?

In one neighborhood last week, my range of sales was $10 to $31,200. My subjecy was closer to the lower

 

[ghrousseau]

Wish I had an answer for you, Ray.
You certainly can't ignore it, but any predictions of how much negative impact on values there might be will surely raise some hackles.

On a similar note, now that I've sold my place in the high country and (thankfully) won't have to deal with it, I wonder how appraisers are going to address the issue of the massive pine beetle infestations and how it effects home values here in Colorado.

From the article:

"He said the die-off is a reminder for forest managers of the need to use controlled fire and other means to create a "diversity of age classes" so that "one insect or one pathogen cannot destroy an entire forest at once."

Climate change may play a part, but the suppression of fires out west has been a major contributing factor. Intrusion of residential and recreational structures and the practice of fire suppression is also unhealthy. I'm sure there is a balance somewhere in between. Kind of a double whammy for trees...............lack of nutrients in the soil and overgrown and overcrowded conditions on the forest floors.

 

[ghrousseau]

Since you have a year and a half before the plant closing, I think I would base my forecasting for relocation on the same market factors I always do; typical marketing periods, supply, new construction competition, etc. You're only looking out 120 days. If you're wondering if the market has been impacted at this early point in time by the 2010 closing, I think you would start by comparing marketing periods, list prices, and inventory levels from before the closing was announced, to after it was announced. See if there were any abrupt changes in those indicators coinciding with the announcement. Look for an increase in REO listings that could indicate those in line to lose jobs may just be saying "the hell with it". Any impact specifically from the future closing will obviously be difficult to separate from changes that have been caused by the overall market malaise.

Actually, this far ahead of the closing, most of your best info may just be anecdotal. Starting now, I would ask every real estate agent I speak to in that market if they feel the plant closing is affecting the motivation of buyers and sellers. You'll get a lot of "oh it hasn't made any difference" replies, but you might be surprised how some quality agents are already thinking about it currently, and down the line. The good ones can be a wealth of information, and they often love to talk about the market.

That's going to be tough in Janesville. I feel for those people. Unfortunately, American car makers fell behind the foreign car makers, and I'll be surprised if they ever catch up. I grew up in Waukesha, WI, and when I was a kid the City was filled with manufacturing plants and foundries. Hardworking people that took pride in their jobs. My Dad was one of them. In the seventies a lot of those manufacturing jobs went elsewhere, downtown went to crap, and the older properties lost the owners that took pride in owning them. It's a completely different type of community now. It's a shame.

Kevin

You can also check the data for Virginia. We recently had a fairly large job loss with Ford. Granted the state economy is much healthier here and the job losses are a little easier to absorb. It might give you some data.

 

[Stone]

While it is a huge loss, I'm not sure I'd characterize Janesville as a "small rural city". I believe the population is around 60,000.

I remember taking a field trip to that plant as a kid. I know several people in the area, including teachers at the two high schools. It is going to be rough.