Bubble, Bubble, toil and trouble

81 Replies

So the word is getting out.... Stage two bubble  is here, but I'm curious about my neck of the woods. Have any of the Florida realtors notice a slow down in the past month? 

@Dave Carella When are you selling everything, going to cash and waiting for this "bubble" to collapse? You can be a hero and swoop in when everyone's lost their shirts. You might have to wait for a long time but eventually the bubble will burst and FINALLY you can claim that you saw it coming all along.

Originally posted by @Omar Khan :

@Dave Carella When are you selling everything, going to cash and waiting for this "bubble" to collapse? You can be a hero and swoop in when everyone's lost their shirts. You might have to wait for a long time but eventually the bubble will burst and FINALLY you can claim that you saw it coming all along.

 To be fair, all those predicting doom could very well be right...this year.  If not, much like the last 10-15 years, they can predict it again and get another chance to be right...and take credit for being a genius.

Originally posted by @Joe Villeneuve :
Originally posted by @Grant Rothenburger:

Stage two bubble... Dang I wasn't even aware.

 I feel slighted.  I missed stage 1.  Where was I?

 Probably busy out buying quality assets that help you meet your goals instead of playing amateur macro economist. 

I'm guessing none of you who have replied to this inquiry, actually read it.  I was looking for feed back from my area. Since they don't have forums by state I just threw it out there.  Pricing here are starting to flat line, if not drop. construction booming. And another thing. just because your a "pro" on this forum doesn't really make you a pro. you just paid a fee for something a pro doesn't really need.

Hey Dave,

I'm in the Marco Island and Naples, FL area. I have 2 deals under contract now for 1.3 million and 455K so we are still seeing buyers and new construction booming here. (Florida Stats) I will say that there has been an effect to certain micro markets and neighborhoods that have more than average damage from Irma slowing down some transactions because repairs not being completed as fast as people would like and some condo associations/board of directors can't seem to get along well enough to get things fixed. Some areas are still waiting for roofs to be replaced a year after the storm!!

That being said, I have associates that building duplexes (picture below) in certain neighborhoods and land clearing being done by builders like Lennar and Mattamy Homes. (picture below). Contact me if you wanna learn more about buying brand new duplexes in Lehigh Acres Florida or just wanna talk Florida real estate. 

Originally posted by @Dave Carella :

I'm guessing none of you who have replied to this inquiry, actually read it.  I was looking for feed back from my area. Since they don't have forums by state I just threw it out there.  Pricing here are starting to flat line, if not drop. construction booming. And another thing. just because your a "pro" on this forum doesn't really make you a pro. you just paid a fee for something a pro doesn't really need.

Florida Real Estate Q&A Discussion Forum

Cape Coral Real Estate Forum

Forums by state and for your nearest MSA. 

And I managed to not insult or denigrate how people choose to spend money that they earned.

Hey Dave.  We all know that markets cycle.  The discussion we need to have is what to do about it.

We have been reading posts for four years from members predicting a crash but they are not (1) selling (2) buying (3) re-allocating capital or doing anything other than posting their predictions (and apparently hoarding cash for years on end).  Alternatively, discussing the actions we are taking is good dialogue.

Just giving you some background on the nature of the replies from regular contributors to the forums.

The thing with crashes is that they have symptoms. For instance we expect what 1/3 of home sales to be foreclosures, REO, short sales, or predoreclosures. We are no where near that. Prices are beginning to level because of the market is beginning to stabilize. Jobs are good. Economy is good. Just don’t see the normal signs and symptoms of a bubble market. This is just how supply and demand works.
Instead of trying to time the market I try to bubble proof my investments & hold indefinitely like Buffett. Since I’m not in stocks & I don’t do buy & holds anymore I never build up cash like Buffett. I just fully deploy it in recession proof activities like lease to own & some metals for insurance & upside during a crash!

I hear a lot of people talking about slow downs or corrections in RE.  I've even heard rumblings from a couple people that work for large developers that say developers don't have any plans for new construction over the next two years because they are on hold to see what happens.  I have a feeling these people are being a bit dramatic but I've heard this in a few different arenas now and I'm curious to know if they know something I don't.  Things have gotten pretty good and that always tend to be when things head south.  (I guess you don't hear about bubbles popping at the bottom of a market, that's just part of the correction.  But I digress.)  I'm pretty well leveraged so I'm naturally keeping my ear to the ground.  I'd say the market is overcooked but what would possibly lead to bubble bursting?  In my mind, if interest rates go up and Quantitative Easing is slowed down, maybe there won't be as much money floating around for real estate.   For example, why buy an asset with 6% return that is full of risk when you could buy a 5% bond with zero risk?  My theory is that money will be harder to come by in the future and that might hold back pricing a bit which will probably flatline prices for a while.  That might also slow down the amount of free capital in the investment markets which could make it hard to get a new loan.  I'm kind of thinking that loading up on loans (smart loans, of course) might be the wise decision before that free capital starts to dry up.  I could be wrong but that's how I connect the dots on financial markets.  

Additionally, what I am seeing is that there are a ton of homes that cost $650k in my area (upper level housing stock but not elite housing stock by any means) but zero under $300k in nice areas.  That tells me that there is still need for under $300k housing but likely a cooling down of $650K housing.  I like to think that is the market leveling out a bit or maybe getting a little overcooked in the upper level housing.  There are also periods of zero appreciation for housing in past decades so we could be going through that.  People tend to freak out when their house value doesn't go up 5% every year so I tend to take the headlines with a grain of salt.  We might need pricing to flatline for buyers to catch up to the inventory on the higher end.  But I think starter homes are still going to run up as millenials get into houses and boomers downsize.  It might be a good time to buy if you're looking for a higher end home in the coming years!

I would love to hear others theories or to hear others disprove my theory.  I'm trying to be completely open minded here.  In the end, we aren't going to see the next downturn coming and it's probably something that's incapable of being predicted anyhow.  I mean, who's going to see this coming first, a bunch of real estate investors in the US or Wallstreet with their connections to the global financial industry?  Well, last time around, neither saw it coming.  I've got my gold, guns, and hideout, just in case!  Haha. No, not really....

I just use moderate leverage and good cash flow. If rents drop 30 percent I should still break even (which never even happened in my markets during the last crash), so short of that happening, I should be fine My job is also pretty recession proof as far as industries go and in a few years I’m switching to all cash purchases which will likely make it even more unlikely to happen.
Originally posted by @Dave Carella :

I'm guessing none of you who have replied to this inquiry, actually read it.  I was looking for feed back from my area. Since they don't have forums by state I just threw it out there.  Pricing here are starting to flat line, if not drop. construction booming. And another thing. just because your a "pro" on this forum doesn't really make you a pro. you just paid a fee for something a pro doesn't really need.

 That was obnoxious 

Our entire existence is in a PerverbIal bubble and someday it’s going to burst ! market Corrections to me mean great deals for pennies on the dollar and an influx of new renters in the market .
@Josh Collins I agree with your assessment. I think with the QE situation and the global economic situation it's time to be cautious. I also agree with the approach of @Caleb Heimsoth . While I'm big on investors getting returns I think the pendulum has swung a little too far and the entire global economy has to start paying attention to affordability in the form of wage increases. Too much capital is sitting on the sidelines while wages aren't increasing. Just my $0.02 which isn't worth what it used to be 😉
Cant speak to the bubble but we did see prices roll back in the Bay Area for the first time in 15 months. I’d say it’s buyer fatigue and not a bubble burst. Hopefully we are not in an era where strippers own8 homes all with 0 down payments.

I have lost count as to how many credible real estate investors have suggested to me that we are in the beginning stages of a real estate correction/stabilization. I personally welcome an increase in DOM so to help my long-term investment opportunity. Every investment property for sale in my area has a cap rate of 4% or less. I won't buy unless I have cash flow and a cap rate of 8%, just not a speculative investor, not to mention we worked too hard to get to this point and aren't willing to risk everything on an overpriced property. It has been tough to compete with all the 1031 money in the system the last few years.

 I personally welcome higher interest rates and inflation. The last downturn made millionaires of those who weren't leveraged and had access to cash. I, along with everyone else I have spoken with do not believe we are in a bubble, the subprime and 50-year mortgages don't exist. This is just a correction stabilization, a normal cyclical event in real estate.

I'm jacked up that DOM is increasing, finally going to get back in the game for the right reasons. 

Now, who wants to buy some investment real estate at a discount and get instant equity? 

Originally posted by @Robert M. :

I have lost count as to how many credible real estate investors have suggested to me that we are in the beginning stages of a real estate correction/stabilization. I personally welcome an increase in DOM so to help my long-term investment opportunity. Every investment property for sale in my area has a cap rate of 4% or less. I won't buy unless I have cash flow and a cap rate of 8%, just not a speculative investor, not to mention we worked too hard to get to this point and aren't willing to risk everything on an overpriced property. It has been tough to compete with all the 1031 money in the system the last few years.

 I personally welcome higher interest rates and inflation. The last downturn made millionaires of those who weren't leveraged and had access to cash. I, along with everyone else I have spoken with do not believe we are in a bubble, the subprime and 50-year mortgages don't exist. This is just a correction stabilization, a normal cyclical event in real estate.

I'm jacked up that DOM is increasing, finally going to get back in the game for the right reasons. 

Now, who wants to buy some investment real estate at a discount and get instant equity? 

 I was talking to my banker in Hillsboro and asking them how the other builders are doing  and its slow across the board.. and I think what you seeing Is pricing finally starting to level off.. which will mean subs will have to quite jacking their prices and lumber will have to calm down or building is going to slow a lot .

Now one thing that was floated at least in our area here is this was the first summer that many finally felt financially safe enough to go on that extended vacation that they had been putting off so foot traffic is way down.. and I know when I go to PDX I am usually parking on the very top floor :).. and airline tickets to Hawaii have doubled and tripled .. so we know demand is there. 

I really want to know what a stage two bubble is.

I think that in my area (San Diego) the real estate market is getting near the end of the cycle because reports have come out showing slowing sales/price increases.  However, I don't think there a bubble popping like 2008.

My realtor friends are predicting that in my market rents are going to go down (because that is what they are starting to see), but that any decrease in home prices will largely be contained to condos.  The reasoning was that while some bad lending practices may have crept back into the system, by and large most loans are now backed by solid fundamentals and most single family home owners have significant equity.