Rural vs urban/suburban Stable values in a depreciating market

As housing boom corrects itself, and property values slowly depreciate to a number where they'd be had the "boom" never happened, I've been watching to see if there was a notable gap between the urban/suburban homes vs country/rural acreage homes in foreclosure rates. As is usual with rural news, and rural residents, we're often left out of the statistic equation. Then again, that "under the radar" life is what we sought by moving.

Obviously gathering data is easy when they are using large city centers for volume and comparison. And such is the case with sites such as RealtyTrac, who only uses foreclosures filed at the county level in urban areas for their reports.

However Lands of America, a website dedicated to farm, ranch and acreage properties and news, did run an article on rural values in our subprime/foreclosure era - "Rural homes foreclosed but not near number of urban suburban home losses". This is from Dec 9th, 2007, but the much of the content is worthy of repeating.

In most cases, homes are a long term investment. And this especially holds true for rural country homes. Certainly the demand for a less stressful lifestyle change - i.e. "getting out of Dodge" and back to the land - has not lessened. In fact, since 911, what used to be a smaller, more select pool of buyers, has been growing steadily.

Add to a stable and growing buyer pool my own thoughts - that land always holds value. Improvements such as homes and outbuildings can be remodeled, or replaced, changing value. But when you buy land - whether pasture, cropland, timber or view property - that value is less apt to be subject to negatives you find in the cities... such as a depreciating neighborhoods or increasing multifamily or commercial development.

Thus, my own gut has always said that you may have housing ups and downs, but having a beautiful piece of the country will always be a solid investment when compared to a city lot. Afterall, any property's resale value hinges first on buyers' demand.

Most of the spokesmen quoted in this article are from back east. However I see similarities for our Oregon rural properties.

Over the years, the dynamics of rural property ownership have changed from full-time farmers to people who want to live rural lifestyles yet work in the cities.

"These are urbanites and suburbanities trying to find a peace of America where they can have the house on the lake and enjoy the beautiful sunsets," Mr. Duffy said. "I call them hobby farmers.

"Since Sept. 11 [terrorist attacks] we've seen an uninterrupted interest in people seeking a nice place in the country. They're looking to secure a more peaceful lifestyle with less stress, low traffic, low crime, affordable homes and land."

In Pennsylvania, rural property appreciated 5.9 percent overall last year, and 6.3 percent annually for the past two years, Mr. Duffy said. "A lot of people are making investments in rural America."

Note that in PA, they kept their nominal, stable annual appreciation thru the urban price madness... both up and down. Take our own Columbia County, for instance. Prior to the "boom", we had anywhere from 3-8% annual appreciation averages. However we did see as high as 15-19% over the past two years... which did give us some of that "bubble" effect ourselves. Prices are, again, coming back down... which should please buyers still looking to "get out of Dodge" to no end.

How about foreclosures? From the article:

Foreclosures, which have roiled housing markets across the state and the nation, have had a smaller impact in Pennsylvania's rural communities, where subprime loans were rare and lenders and borrowers work hard to avoid defaults.

"Because of the nature of the rural buyer, they tend to be more conservative in how much debt they carry," said Dan Duffy, chief executive officer of United Country Real Estate in Kansas City, Mo., one of the largest rural real estate agencies in the United States.

Also, lenders who specialize in serving rural communities keep most of those mortgages on their own books rather than sell them on the secondary market. Thus, they will go to greater lengths to help property owners avoid foreclosure.

For the most part, the lenders tend to be small outfits, often nonprofit organizations with relatively few accounts. A large number of rural home loans are handled directly by the U.S. Department of Agriculture, which can provide 100 percent financing for a home purchase and even subsidize the interest to make those loans more affordable. The agency also provides substantial help for borrowers who fall on hard times.

Federal records show the USDA filed 269 foreclosure cases in Pennsylvania in fiscal year 2007 and 324 foreclosure cases in the state in 2006. This year's foreclosures represent only 2.96 percent of all rural mortgages the USDA funded in Pennsylvania.

Now there's quite a few statements in this article I don't agree with. And believe me, I'm not shy to point them out. But many urban lenders do loans on nominal acreage homes. So I'm not inclined to agree that the specialty acreage lenders hold the majority of loans in our Oregon rural areas.

However I do agree that those who move out to rural areas *do* think more about their investment and their costs of maintenance. I find my rural buyers tend to be more frugal, leaving financial wiggle room for (to name a few...) tractors, outbuildings, and costs for animals. Things wouldn't be considered in the city.

Yet we have our fair share of 100% financing, conventional and FHA/VA loans here in the country as well. So what I have seen has led me to believe the "lifestyle change" buyer includes a more conservative debt overhead attitude when they are seeking to leave urban stress behind.

But foreclosure values on surrounding homes have more of an impact in the city. When a neighborhood has multiple REO homes, it takes the neighborhood valuedown with it. In the country, not only do we have a wider diversity of home styles and values as neighbors, these homes are spread further apart. The likelihood of that multiple homes per surrounding acres goes down considerably. So the values of a country foreclosure end up having less impact on the surrounding area homes.

Which leads me to another one of those noted disagreements in this article:

"In a rural setting, it becomes a property that basically becomes vacant and falls into poor repair," Mr. McCabe said. "It affects the tax base and becomes a burden to the community."

Many rural economies often already are stretched because they are tethered to a single large employer or to one type of business, such as coal mining or farming. If that sector declines, the whole area goes into a tailspin.

People living in rural neighborhoods are more likely to have lower incomes than urban dwellers, less formal education and less experience with the banking system.

For most of the Portland rural outlying areas, this does not hold true. The majority of our rural residents are commuters, or are self-employed and perhaps do business by internet. Indeed, we have few large employers in our outlying areas to affect the county tax base as noted.

And I'd personally like to smack him for the "less education" comment, too! But I digress.

We have a wide diversity of folks in the country. Some may indeed fit Mr. McCabe's less than flattering depiction. However we also have a large contingent of well traveled, experienced professionals that are just trying to escape attitudes... especially those exhibited by this appraiser (no doubt, a city dweller himself).

Rural communities are far more tight knit. And most do not apply a class or education designation to consider being neighborly.

But at the same time, residents of small towns and backwoods communities place a high value on individuality and self-sufficiency.

They are more likely to blame themselves for financial failure and are less inclined to blame the system.

"Usually in small towns people know each other, and you might have help from relatives. Plus you have the stigma of not wanting people to know you've lost your home," said Darla Wise, north central chapter leader for the Pennsylvania Mortgage Broker's Association.

The smaller populations in rural communities naturally lend themselves to closer personal relationships, she said.

While this article isn't definitive for less than accurate statistics, it sure goes a long way to support a a decision to move to the country. Certainly land and rural homes hold more stable value during the rough depreciation periods.

And for the small percentage of foreclosuresthat are out there? It offers a great opportunity to join the other rural acreage homeowners of America... and be less of a negative statistic.