Will Real Estate "Bubble" Derail Downtown?

[soonerguru]

I got to thinking the other night about the alleged real estate bubble. I realize that the most overinflated housing stock is in the "sizzling" coastal markets, but I still can't help but be concerned about the effects of a real estate crash on our downtown housing plans.

Condos, townhouses, etc. being proposed are all in the 200k plus category. We've all discussed how this price point is a bit of a stretch for OKC in some ways.
But on that point, whenever developments like that go up, a good percentage of the buyers are institutional or investment oriented, hoping to "flip" the properties based on the perception of rapidly increasing value.

If there is a nationwide real estate bust, will all of our downtown housing plans get shelved? Will we be facing another 20 years of relative inactivity on the investment side downtown?

What, in your opinion, is likely to occur?

Similarly, how will a fuel-price-driven recession affect such plans?

[Pete]

I think there is enough demand for downtown housing that the proposed units will be snapped up by all those who have been waiting for an opportunity.

However, if the real estate market softens in general (and rising interest prices almost guarantee this) then I think you'll see a shift to more affordable units for downtown.


And even though OKC is far less tied to the oil & gas industry than in the 80's, there are still some huge employers (Devon, Chesapeake) that benefit directly from rising oil prices.

In that respect, the OKC economy has always been somewhat counter-cyclical to the rest of the country.

[Karried]

soonerguru, I've been worried about this very same thing for months. Yes, the coasts will be hit the hardest - The sales figures came out to day and sales are down (very little but down for the first time in a long time). South sales remained flat but didn't drop. Las Vegas is getting stagnant - homes are staying on the market longer and many listings are popping up by people hoping to cash in on the market and still turn a profit.

The market is showing early signs of saturation in the hottest markets. Of course a lot has to do with seasonality and rising interest rates. But, Spring could still surprise everyone who is predicting a bursting bubble. And many people are predicting a gradual hiss instead of a pop but I think we are all hoping for a soft landing.

In my opinion, the speculators know that trying to flip properties for a fast profit might not happen since the peak may have been reached. Incomes are not supporting house prices and many people are priced out of the market.

But for the long term, real estate should be looked at a place to live instead of a get rich investment scheme. So if properties are desirable and built well and fill a need for those wanting to live downtown, we should be okay - but if investors are wanting to do a quick flip... I'm not so sure how that might turn out.

[Pete]

I can tell you that in the LA area, appreciate has slowed down but it's still very strong.

I agree with Karrie in that speculators are the ones that will get hurt if and when things take a turn, but unless you bought at exactly the wrong time and are forced to sell when things are temporarily down, even dips smooth out and head back up again in the longer term.


Most people have so much equity that they could lose a good chunk of paper value and still have plenty left. I know that's the case with me and I only bought 3 years ago and my house has doubled in price.

[BDP]

I agree that much of the bubble has been fueled by low interest rates and speculation. People still need a place to live and the owner/occupier market should not take as big of a hit. Turnover will slow as well as appreciation, but a full blown reversal usually only happens in cases of severe local market collapses, like the oil bust. I think downtown living in OKC is still simply a function of lifestyle preference and is a market where inventory has not yet met demand. Couple that with the fact that OKC has not participated in the bubble much due to overall inventory and it still should be fine. It may lower the number of developers who are successful with it, but those that do invest should still get positive returns just from increasing capacity.

The problems could come in financing for developers who can't make it work with OKC's low real estate value in general. However, I think the biggest effect that could happen is you will see less proposals for owner occupied apts and condos and maybe see more in the rental arenas which tends to do well when rates go up. If the downturn is sustained a bit and fuel prices stay high, it may actually make good sense for some to rent downtown and wait out the rates or at least until the market stabilizes and people realize that 5% rates were an anomaly compared to the long term to begin with.

[Patrick]

In general, I think high gas prices are going to keep demand for downtown housing up. Here at the medical center, there are several folks in my class that are moving away from the Memorial Rd. area to downtown simply because of the high gas prices. I think high gas prices will cause the suburbs to take a hit before downtown.