by Down but not Out in Rural U.S.A.

What is happening here is not unique but is occurring in other rural areas like mine as well, or will be soon. This is my Report from the Front. Hope it helps fellow iTulip.com members.

I live in a rural area about an hour and 20 minutes north of a major U.S. city. I moved here in 2000, selling a home in the suburbs for a $55,000 profit after living in it for three years. I trained horses for other people and was looking for a place to hang my own shingle rather than work out of other people's barns and pay to board my own horses there. Having once owned my own successful retail business, I ran the numbers and concluded I could stay home, board and train horses and earn more than I could by working off the farm. My husband could continue to work in his present job and commute.

I paid $140,000 for a fixer-upper house on 40 acres. The house needed work, but the land was everything I dreamed of. Pastures, meadow, woodland. Plenty of room to build the barn and arena, and long trails through the woods for my boards. I put $45,000 down on the property and spent a year cleaning it up: building fencing lines, a new indoor arena with attached horse barn, and so on. I paid for half that building with my own money and financed the other half with a home equity loan. To save money, I did a lot of the work myself, including installing the water and electric, building the stalls, swinging a hammer to build the barn and arena. Lots of sweat equity.

In no time at all I had horses here for both boarding and training. I was doing well. Better, in fact, than I had projected. Life was good. That was in 2002.

Family Challenge

A year later, our troubles began. A member of my family became disabled. He requires enough daily care that I had to give up boarding and training.

Last year, in 2005, we decided to sell the place and move closer to family and doctors. I spoke with real estate agents and others who had property for sale. It was boom-time for our area. People were moving into the area in droves from the suburbs. Land prices had more than tripled from the time I bought my property in 2000. “This is good,” I thought. Everything the agents, bankers and friends said was encouraging, that I’d get several times what I paid for the property, especially if I fixed up the house.

The construction was solid but the house needed updated windows, flooring, and siding to let it sell for top dollar. No problem. I did the work myself. I spent the summer fixing the house, with just a little hired help with the siding as I needed another pair of hands. I was able to put in oak lam floors, all new windows, ceramic tile, siding, lighting, paint, all for about $8,000. Probably saved two or three times that by doing the work myself.

Everyone I talked to figured the place would sell in 30 to 60 days. On the advice of my agent, I decided to split off 20 acres of the 40 and make 4 parcels and then sell the house and barns on the other 20 acres. The listing price was $390,000 for the house on 20 acres, with the remaining lots priced at $60,000 per five-acre lot. I figured I would be able to sell for near asking price -- that's what the market was doing at the time

Regional Tipping Point

Then Katrina hit in 2005. Gasoline prices skyrocketed. Most of the people in the area commute to the city for work. The cost of gasoline made that commute much more expensive. When I moved here gasoline cost about $1.20 a gallon. Recently I filled up at $2.69. When I moved here, $400 a month was my budget for gasoline. The same amount of fuel would cost me close to $900 a month. Just to commute. Because of the added commuting cost, people are not buying property out this far anymore. Real estate sales slowed to near nothing.

Soon after, the house of cards really started to fall. One local builder went bankrupt, unable to sell over 20 homes he built in a development. Those 20 houses in foreclosure fed the buyer's market, driving prices of other homes for sale down farther. Then another builder went bankrupt, then another. In the past three months, six builders have filed in the area. The number of houses in foreclosure is staggering. They can be had for next to nothing. Banks are jumping through hoops trying to find people to buy them. The local newspapers all have classified ads reading "Builder's inventory Reduction Sale."

Land prices started to fall. What had sold a few months ago for $10,000 an acre is now sitting dead on the market at $2,500 an acre.

Land and property auctions are popular in the area. A year ago, many people chose auctions rather than list with an agent because they were selling for more by auction. I spoke with two property auctioneers recently. They've both had auctions where property doesn't sell at any price. A recent auction featured a three year old home on 30 acres on the river, a beautiful four level home with vaulted ceilings and two fireplaces, decks, barn, fencing, all the bells and whistles. They got one bid for $169,000. A year ago that home would have sold for $450,000 in a matter of days. The auctioneers are scared. People looking to sell are scared.

According to my real estate agent, they recently had a number of people close on houses where the buyer had to come up with money to sell their house. He told me he has a number of clients telling him to drop the price $2,000 every week until it gets sold.

Right now, I will be fortunate to find a buyer for my property, even if I drop the price to $250,000 for the entire farm on 40 acres, an incredible contrast to the total $890,000 my agent thought we could get a year ago. At least I didn’t borrow against it.

Debt Amplifies Distress

A friend of mine had her 10 acre hobby farm appraised last year $390,000. She took out a home equity loan. The bank was happy to give her a revolving line of credit for $100,000 on an Adjustable Rate Mortgage. She drew on that heavily. Recently the bank called her and said they could re-fi that loan to for a better fixed rate. They asked for a new appraisal. She wasn't worried as they'd remodeled the home and updated it. When the appraisal came back it was for $250,000. Her banker called wondering what the heck had happened to the property. She feels that she got sandbagged by the bank. How can this be? No way the bank will re-fi that loan. She is now upside down on her mortgages. They had counted on being able to sell that place and to sell lots off of another 80 acres they own to finance retirement.

Last week three houses on the end of my road recently put up “For Sale” signs. These places are all about one and a half years old, on five-acre lots. I asked the owners why they are selling and they all said the same thing: they can't afford the cost of fuel to commute this far to work.

The falling price cascade started with higher gasoline prices and the doubling of the cost of commuting, that led to a drop in the number of buyers, that led to one builder after another not able to sell homes, that led to further supply, and the bankruptcy of one builder after another, that led to more supply, and so on. Another aspect to consider is the ripple effect these builder bankruptcies have had on other local businesses.
It's not uncommon in this area for people to sell land to a builder for greater than market value. The kicker is that the builder pays them after the home is sold. So now there are properties built on spec that will contribute to the glut of property on the market.

Homeowners put money into fixing up a house, hoping for best price, but are now beginning to understand that investment will not bring them the return it used to. This real estate slide toward the pit has impacted small local companies - everything from carpet to landscaping businesses. Given the glut of unsold houses, many of which are brand-spanking new, it will take some time this area to recover.

Surprisingly Rapid Collapse

People here were totally blindsided by how quickly property values declined. Even those of us who were aware of a housing bubble thought the decline would be slow. That's probably still true in other regions, at least for now. The larger cities and suburbs have regional real estate economies that aren’t feeling the demand pressure rural areas get from the cost of commuting. But for areas like mine where the sudden increase in the cost of commuting pushed people over the edge, once that price decline cascade gets started there is no stopping it.

This pattern is happening in rural areas of other states as well. A friend of mine has a farm in Iowa, about the same distance from Des Moines as my property is from the city nearest to me. Her place went on the market about a month before mine. They are experiencing the same difficulties. She's dumbfounded that she is not getting any showings, no sign of interest. She has a lovely place that a year ago would have been snatched up quickly.

A Community Set Against Itself

Sellers are now petitioning the tax assessor board on property valuation. They want the higher value to show potential buyers. But those who are not selling are banding together to get taxes reduced because they can’t afford the high taxes. But lower property values means less tax revenue, and that will hurt the school system, and that will further reduce property values.

Not Only Gasoline but other Expenses are Rising: Less Money for Mortgages and Rents

People here are trapped by the economic realities of more than higher gasoline prices but a general rise in the cost of living. Go into a grocery store and you'll see prices far higher than they were two years ago. Especially if you have a family, food together with heating costs and insurance costs impacts what size mortgage a family can take on. I am hearing, as mentioned on the iTulip.com web site, of more and more people who have been living off the equity in their home and are now strapped because no more equity is available. They've taken loans to pay off credit card debt but that credit card that has crept back up to where it was before. Now they have little equity in their homes, no more access to home equity loans and maxed out credit cards. People are selling things to pay off debt. Not just people in my area, but people in the city as well. If the number of people in this position reaches critical mass, it's going to impact regions were prices seem to be holding now.


Rents closer to the city are falling. My plan has always been to sell this place, move into a nice apartment, and simply regroup and get my bearings before purchasing another home. So I have been watching the price of apartments for some time. The price is falling for one and two bedroom units. I have also noticed an increase in the number of advertisements for “rent-to-own” and “you-don't-need-to-qualify” properties and an increase in the number of ads from companies telling people to pick the home they want and that the company will purchase the home and set them up with a “rent-to-own” contract.

Prepared is not Enough

I thought I was smart. I have no credit card debt. Both vehicles are paid for. The debt I took on in the form of a home equity loan was taken not for toys, vacations or expensive cars, but to add value to my property. The only debt I currently have isfrom medical expenses. I never allowed the debt secured by my property become greater that 50% of what I thought the property might reasonably sell for, based on the information I had at the time. I had enough savings that I was able to carry the family for something like nine months without any income. All in all, I was in better shape than a lot of people are. Being a good country girl, I grew a fair portion of my own food and raised chickens so grocery bills were vastly smaller for me than for many people. I saw heating costs could grow to be a real threat to my family budget down the road so I installed a woodstove large enough to heat my entire home and burn wood from my property. I have not purchased propane in four years. When my friends were experiencing sticker shock on propane, which for many people rose from $300 to $600 for 4-6 weeks of fuel, I could simply toss another free log on the fire.

The point of all this is that I had made wise choices at the time, worked hard to insulate my family from problems I saw coming down the road, and I am still getting hammered by the real estate market.

I am also reminded -- painfully so -- of tipping points and trigger events that can impact a local area. Readers need to look at not only the big picture nationally but also carefully consider their own local economic microenvironment. I missed some important cues and responded too slowly.

Lesson learned. I refuse to be bitter over all this. Disappointed, surely. Being a resilient woman, I will take what I've learned, put it to good purpose and move on. I hope my story helps some iTulip.com readers to assess their position and make intelligent choices.