Only newbies think the market will crash..
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
Only newbies think the market will crash..
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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votesThe real risk is not buying today. The riskiest point to buy was a few months ago. This was probably most true in the commercial space where bridge lenders were offering terms based on a wish and a fantasy.
With interest rates rising, people now have a much more realistic view of the future. In the past 6 months, I cannot tell you how many commercial deals I saw go for 15% above stupid. Now, all of a sudden, brokers are calling us asking if we want to pick up the scraps of deals that have fallen apart. Unfortunately, expectations are still a bit too high (in my opinion), so prices have not yet fully adjusted.
The buyers market is coming quickly. I cannot wait!
13 Replies
- 4yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
The real risk is not buying today. The riskiest point to buy was a few months ago. This was probably most true in the commercial space where bridge lenders were offering terms based on a wish and a fantasy.
With interest rates rising, people now have a much more realistic view of the future. In the past 6 months, I cannot tell you how many commercial deals I saw go for 15% above stupid. Now, all of a sudden, brokers are calling us asking if we want to pick up the scraps of deals that have fallen apart. Unfortunately, expectations are still a bit too high (in my opinion), so prices have not yet fully adjusted.
The buyers market is coming quickly. I cannot wait!
- 4yAndrew FreedBusiness MemberInvestor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
@Marcus Auerbach - I don't foresee a market crash, but as an agent and investor, I have seen a lot less demand over the past 2-3 months. Properties that were getting 30+ offers are now only receiving 3-5 offers. The interest rates are really hurting cash flow at these higher evaluations hence it's hard to make numbers work in my area. Maybe not a market crash, but a stagnation or a slight dip.
In any event, I'm not selling. I'm a buy and hold investor and have a 10 year time horizon in mind. I still think real estate is one of the best asset classes to invest in today compared to other assets such as stock or crypto.
- 4yJared HottleBusiness MemberReal Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
To me it still always will come down to opportunity costs. A crash may or may not be coming but where else can you put your money in the current environment and make a solid return. Couple that with most investors locked in fixed or adjustable rate mortgages in the last couple years so even if they wanted to sell and by something slightly better or move into a different assest class the low rates may be making it hard to justify. Rents are still stable or going up, there is still a housing shortage so why sell. Just like Warren Buffet buys great businesses at fair prices if you own good properties in good areas for fair prices everything else is just noise.
Jared Hottle Real Estate59 Reviews - 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
There is a big difference between a 'seasoned investor' thinking there is a crash coming, and not selling your properties. Depending on your situation, it may even be better to hang on to your holdings, even with a crash coming.
I think there is a 'readjustment' coming. Could be a crash, might be more minor. Certainly not planning on selling anything, more likely to wait it out a bit and buy more....
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes4y
It comes down to time horizon. If you can hold on for a long time and don't need to sell then you can withstand market turbulence. the shortsighted ones get into positions where they cant wait for a market to recover.
- Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes4y
I have read those articles you mentioned and I laugh at the click bait headlines and foolish statements in the internet article. "home prices are going to collapse. No hope in sight for buyers looking for an affordable home as skyrocketing rents leave no relief". It's all manufactured news to elicit emotions and panic. People who believe that stuff obviously didn't experience the 1970s&80s in Texas.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes4y
In the past eight years and after reading thousands of market crash posts, I have seen one post where the OP stated what they were doing about it. Only one. None that were selling. None that were shorting the market. None that came back, said they were wrong, and have now purchased a property...in eight years. And none will buy if there ever is a crash as they will have no experience or funding. It's all hat and no cattle.
There are very compelling reasons to be concerned about the market. The fed has never orchestrated a soft landing, they can't do anything about the supply side (which is a big deal), and they plan to drive interest rates up high enough to drive up unemployment (which is rare and recessionary). Plus, real prices (inflation adjusted) have more than doubled in the past ten years after remaining largely even for the prior forty years. The comment that interest rates are still at historically low levels does not account for the other side of the equation...the higher real prices. On the flip side of the coin, unemployment is basically zero as is housing inventory; so, that's not a fact pattern that would drive a crash in the short term. And there are ways to purchase real estate and insulate against softening of the market...many investors do this regardless of market conditions. If you buy below market and/or add value of 20-30%, that's 20-30% of loss absorption capacity...and you either take that to the proverbial bank if the market stays as is or it's there to absorb a big market hit with the rare occurrence of a crash.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
I'm not sure that is a fair assessment. I have actually thought this market has been artificial since before the crash and still do. I have come to believe that the real estate market depends in large part on the government, more so then I ever used to. So if the market believes the Fed will buy mortgages at artificially low rates or that government will send out stimulus checks asset prices will remain high for a long time maybe forever. I do think that we are undercutting production with all of this debt, which will make us materially poorer but for all I know that could very well be the point.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes4y
@Mike Dymski - I am concerned about the stock market for sure, not so much about the job market - even though it seems very clear that we are headed into a recession to cool things off. The economy needs it, the RE market needs a cool down for sure and its already happening, but slowing down and crashing are two different things. I would love to go back to a market with 60 DOM or more instead of currently 7! Inflation might be with us for a coupe years; it has always been a multi year issue, and given several consecutive years that will totally shift the price landscape that we are used to.
There are two other metrics that I also consider: affordability is the first one and while we are still in the green/slightly yellow on a national average, when you break it down State by State you see big differences from super affordable (median family can afford 2 median homes) to really bad (median family can not even afford close to one median home). That might cause some more migration from the coasts to the Midwest and South.
The other metric is the correlation of new home to existing home prices (I can't find the chart anymore..) but existing home prices are basically trailing new construction cost by about 20-30%. Very interesting to see how that gap narrowed in 2005 and 2006 to just over 10% - might as well buy a new home! Now we have a large gap again. In fact new construction is so expensive in my market, that even 100 year old existing homes look very appealing.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes4y
Quote from @Andrew Freed:
@Marcus Auerbach - I don't foresee a market crash, but as an agent and investor, I have seen a lot less demand over the past 2-3 months. Properties that were getting 30+ offers are now only receiving 3-5 offers. The interest rates are really hurting cash flow at these higher evaluations hence it's hard to make numbers work in my area. Maybe not a market crash, but a stagnation or a slight dip.
In any event, I'm not selling. I'm a buy and hold investor and have a 10 year time horizon in mind. I still think real estate is one of the best asset classes to invest in today compared to other assets such as stock or crypto.
I agree 100%! We see the same thing, especially in the higher price points - entry level is still nuts. But I think there is a 3 months lag between reality and what most agents believe is reality: we have seen that when the market spooled up we were ahead of the curve for a while because my team writes so many offers every week that we all have a keen sense of what's going on. We lost that edge after a few months when at least 80% of the agents realized that 10% over list is a thing. It will be the same on the way down - I fully expect that some of our listings will sell with only 1 offer - still 10% over list! I think by fall we will look at a very different market. As an investor I am very much looking forward to that, because it has been slim pickings this year..
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes4y
Quote from @Greg Scott:
The real risk is not buying today. The riskiest point to buy was a few months ago. This was probably most true in the commercial space where bridge lenders were offering terms based on a wish and a fantasy.
With interest rates rising, people now have a much more realistic view of the future. In the past 6 months, I cannot tell you how many commercial deals I saw go for 15% above stupid. Now, all of a sudden, brokers are calling us asking if we want to pick up the scraps of deals that have fallen apart. Unfortunately, expectations are still a bit too high (in my opinion), so prices have not yet fully adjusted.
The buyers market is coming quickly. I cannot wait!
Yes and it will take a while for expectations to adjust. But we are a long way from a true buyers market I think, here is why. We currently have about 2600 units on the market in Milwaukee and we sell about 2,100 every month. In a neutral market (like 2015) we had 12,000 units on the market and also sold about 2,200 per month. In order for us to go from 2,600 in inventory to 12,000 two things need to happen: much less demand and a lot more supply. For example if demand would drop down to 1,600 in sales (which is almost inconceivable) that would mean a surplus of 500 units per month. If new listings were also to increase (which is also almost inconceivable as people will have to go from a 3% loan to a 6% loan on the new house) we'd increase inventory by 1,000 units per month - basically the earliest we could see a balanced market would be next year in spring. But when I test both assumptions it would take a massive external factor to force supply and demand this hard - I don't know what that could be.. But, even if we don't make it to a buyers market, it will be good to just get to a little slower pace!
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Marcus Auerbach Newbies Will Cause the Market Crash!
Social media is making perception more important than reality:(
Logical Property Management4.9450 Reviews - Specialist · Member since 2021 · 322 posts · 273 votes4y
Quote from @Marcus Auerbach:
The debate about a market crash has become almost as emotional as some other favorite American controversies. You don't see seasoned investors selling off their portfolios. Especially on social media no matter if it's the BP Facebook groups or other platforms. The debate has become quite emotional and a lot of it is fueled by influencers who make a living predicting the imminent crash. Entire YouTube channels are dedicated to the crash, and new investors just fall for these opinions!
You see posts that foreclosures are up 25% and they don't understand that we only have 69,000 so you can see a 21% swing but that's still nothing compared to 2,900,000 at the peak. Or my new favorite a news article that shows a graphic titled "price reductions" showing a US map and most major cities show in red numbers -21% or -29% making it look like prices are dropping and "it has begun.." comments, when in reality these are the % of listings that had a price reduction before they sold.
If you are a new investor and you are in the market crash camp, why do you think none of the seasoned investors are selling?
Enough fuel for the fire - I'll just leave this here for debate!
We are seeing big institutional investors doubling down on real estate. I think often times these guys know more than any one individual person and anyone not putting money in now is leaving returns on the table!
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