Real Estate Crash Will Be "Different This Time" . . . Right??

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

A closer look at the 40 housing markets at risk of a 15% to 20% home price decline

Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local home prices. At the latest reading, Moody’s Analytics finds 183 of the nation’s 413 largest regional housing markets are “overvalued” by more than 25%. In some of those overvalued markets, Zandi says, buyers and sellers can expect to watch home prices fall by 5% to 10% amid this housing correction.

However, in America’s most overvalued housing markets, Zandi predicts a 15% to 20% home price decline.

Earlier this month, published a list of the 40 regional housing markets most likely to see a 15% to 20% home price decline amid a recession. At the top of the list, Zandi says, are Boise; Colorado Springs; Las Vegas; Coeur d’Alene, Idaho; Tampa; Atlanta GA; Fort Collins, Colo.; Sherman, Texas; Jacksonville; and Idaho Falls, Idaho.

Renters in high-cost cities like Seattle WA and Boston MA simply couldn’t pass up the affordability of markets like Austin and Tampa. The ensuing pandemic housing boom saw markets like Austin and Tampa become overvalued by 61% and 45%, respectively.

In places like Austin TX, which was overvalued by just 7% in the first quarter of 2006, this feels very new. In other places, it looks eerily similar to 2006. Look no farther than Las Vegas NV and Phoenix AZ, which Moody’s Analytics rates as being overvalued by 53% and 54% in the first quarter of 2006. Now, Phoenix and Las Vegas are overvalued by 51% and 54%. That’s not something that real estate professionals in those cities—two of the hardest-hit in the 2008 housing bust—want to hear.

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Kathleen McDowell

Realtor · Scottsdale, AZ · Member since 2018 · 64 posts · 47 votes

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.

It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.

Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.

Credit quality is good, thanks to tightened lending standards.

Foreclosures are low now, vs high in 2007.

Homes are more affordable than they were in 2007, thanks to record low rates.

I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.

We are in a cooling market, but are NOT headed for a crash.

Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
How about a little different perspective on all this to answer to some of it:
How well does the U.S. Economy work if/when the housing market/industry is floundering? Not too well right.
And, while NOT to get into politics BUT it's a fact that it has MASSIVE impact on housing, are we not at a time of EPIC political conflict/battles AND, most importantly to the point, AND entering time of election cycles in these political battles? Yes, the gearing-up for "battle" is at hand, is a volatile battle to say the least, and there is going to be efforts to make what plays at hand to drive votes, right.
So, with housing being a crisis point, isn't the saying "don't leave a crisis go to waste"? Am I the only one who read the current administrations going to be jumping into actions to impact housing?
Ok, so we can make some pretty safe assumptions of interdicting actions upcoming in housing "world", and it's safe to say it will be to influence at least a perception of "affordability" which naturally INCREASES volume movement right. And how is this done every time? By issuing out $$$$ in some form or fashion.
So now what happens if they issue out mortgage securitizations for buyers who fall into a certain criteria for "first time buyers"? You don't have to change interest rates to, in fact, change mortgage interest rates. Dictate a class of buyer and some program where the fed gov will "securitize" those mortgages against default, and natural result will be lowered interest rate from being securitized, expanding "access" as they love to call it. AND now we have ADDED volume, commerce, and a "fluff" factor for economy.
And funny part is it will increase prices YET what's experienced is "greater affordability". It's nothing ground breaking to predict the answers will be to borrow way out/thru things, it's literally how the entire country operates. And when it comes to contentious election cycles the political powers always work to fluff the economy as it's a well known statistic that sitting officials do not far well when sitting atop failing economies. It's political strategy 101.
What I see coming is mechanisms to pump up things, not anything of deflating, not a chance. Those whole recent run-up was organic, now there just setting up the piping for the gasoline, wait to see that all come on, lol. -OR- they step back and say "it's better health for the economy to move through his step back, to slow, it's a bit of pain now everyone but suck it up, it will be ok, oh, and, by the way, remember to vote for us....", yeah, lol, don't see that happening EVER. Our politics are now "Opera" politics "you get a home, You get a home, Y-O-U GET A HOOOOME!, now go vote!".
So we can rattle on #'s all day long and pretend all will stay static, it won't, impactors are sure to manipulate and adjust.
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Conner Olsen
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
4y
@Account Closed (non-rhetorical, genuine question) Do you know what it means when they say 'this market is overvalued by 53%'? Are they assuming a crash and 53% loss in value? Are they saying that the median worker can't afford the median house unless the price drops by 53%? I haven't found a definition but I'm seeing this trend in a lot of headlines.
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Jay C.
Walnut Creek, CA · Member since 2018 · 40 posts · 29 votes
4y
All depends on how this upcoming recession shakes out. Mild short lived recession no big housing issues. Moderate/severe prolonged recession and even those locked with fixed low interest rates won’t necessarily be saved if they loose their jobs. We are keeping some power dry.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
Quote from @Conner Olsen:

@Account Closed (non-rhetorical, genuine question) Do you know what it means when they say 'this market is overvalued by 53%'? Are they assuming a crash and 53% loss in value? Are they saying that the median worker can't afford the median house unless the price drops by 53%? I haven't found a definition but I'm seeing this trend in a lot of headlines.

It means that saying market is over valued by 47% wasn't driving enough traffic as planned so amp things up over that 50% mark to really drive up views and ad revenues.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
This chart sums up my entire thought's on any fear of any Real Estate collapse now, next year, next 5 years, next decade......

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Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Conner Olsen:

@Account Closed (non-rhetorical, genuine question) Do you know what it means when they say 'this market is overvalued by 53%'? Are they assuming a crash and 53% loss in value? Are they saying that the median worker can't afford the median house unless the price drops by 53%? I haven't found a definition but I'm seeing this trend in a lot of headlines.

@Conner Olsen: That is the best question asked all day. It surprises me how this is such an octopus with people going in so many directions without asking how the authors of the study define "over valued". Definitions make a huge difference.

They are indicating that 53% of the houses listed, are listed above what the local market would dictate under normal circumstances when you consider inventory, income, interest rates, days on market, employment, new builds, zoning, etc.

It does not mean prices will drop 53%, that is a very different metric and not what we will see at this time.

What it means is that of 1,000 properties on the MLS in that market, 530 are priced above what the researchers would expect those prices to be. It could be as little as $5,000 above a "normal" price for that property or it could be double. The amount isn't really the focus, just the fact that it above the baseline.

Generally meaning, that most (but not necessarily all) of those 530 properties will either end up dropping their price some or will get pulled off the market without selling.

In a normal real estate market (balanced) in Phoenix for example, 35% of the houses don't sell when placed on the MLS, for various reasons. However, this is not a normal market so anything can happen.
I watch interest rates, employment and migration to see a "trend" and that is where I invest. Do a search on "Decline of the Rust Belt" to get an idea of how things change over time.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
Quote from @Account Closed:

Quote from @Anthony Williams:

Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

To be fair, you filtered all of Maricopa County homes for sale for "price reduced," but didn't show the number of available homes before that filter was placed.
If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%

Your Comment: "If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%"

I think you need a new calulator:
For ONLY Phoenix - Redfin lists
6,424 homes for sale
2,145 reduced in the last 30 days
That is 33.39% Price Reduced in the last 30 Days

When I check, Maricopa County has 798 homes that have price reductions in the last 30 and Phoenix proper has 203?
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Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Russell Brazil:

Quote from @Account Closed:

Quote from @Anthony Williams:

Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

To be fair, you filtered all of Maricopa County homes for sale for "price reduced," but didn't show the number of available homes before that filter was placed.
If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%

Your Comment: "If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%"

I think you need a new calulator:
For ONLY Phoenix - Redfin lists
6,424 homes for sale
2,145 reduced in the last 30 days
That is 33.39% Price Reduced in the last 30 Days

When I check, Maricopa County has 798 homes that have price reductions in the last 30 and Phoenix proper has 203?

Easy mistake to make. That's the Town of Maricopa (not the County of Maricopa) It's located at the bottom of the map I posted and is actually in Pinal County oddly enough.

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Nick Robinson
Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
4y
@James Hamling
I like to look at charts that are adjusted for inflation so I can get a better idea if things are cheap or expensive. You will notice that when homes are adjusted for inflation you do not see as big of a spike as when you just look at the nominal value of the home.
@Russell Brazil
Your point of homes going up 130% in the 70s is a good point, but you are leaving out the part that the real value of the home went down for most of the 70s.
@Kathleen McDowell
Black Knight, a real estate analytic company, says that home affordability hit a 35-year low. I forget if you mentioned the loans being safer or not as risky which I agree with the mortgages are safer. What I would look at more is consumer debt hitting all-time highs and HELOCs. HELOCs are not a mortgage and is not included in that analysis. The FED does not set interest rates they set the FED Funds rate. This is important because even though they do not and cannot control the long-term bonds what the FED Funds rate does affect dramatically is interest rates on things like CC and HELOCs. Depending on the duration and depth of the next recession will see if this means anything. People that are highly leveraged are going to be at risk going into times with low economic activity.
@Account Closed
I agree with you that we are in a recession right now. The Atlanta FED just updated Q2 GDP to -2.1%, the NY FED just released their models 2-3 weeks ago that predicted negative GDP till 2024. Who knows how long or deep the recession will be but to get the FED's models to have negative GDP is extremely difficult. No one knows but I would guess that when the FED begins to try to sell their MBS to the market the 30-yr mortgage will continue to climb lowering the purchasing power of homebuyers. We have seen the FED decreasing demand but with the extremely low supply demand would have to go down quite a bit for a crash, 20%+ drop in price. Where we might see an increase of supply is from the STR market. Airbnb had just under 2.3m listing last year and according to their site the average property makes $13,800/year. If we are in deep and longer recession people will have less discretionary income which means people will not be renting Airbnb and I would guess a lot of Airbnb hosts cannot afford to hold those homes if they do not have renters coming in. There are so many cross currents when you look at Macro or try to predict the price of something it is almost impossible. What I do know is if you invest for CF (and are CF+), you take care of your properties, you have a good PM, and are in a good location it does not really matter what the market is doing, and you can be a buyer in all cycles. That being said in general now would be a good time to hold on to more cash. There will be deals somewhere stocks, real estate, etc. and cash will give you the opportunity to take advantage of those things. It will also help you protect the investments you already have.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
I'm always baffled by the people that want to hold on to large sums of cash in an inflationary environment. Interest rates are still low by historical standards, the last decade notwithstanding, and using debt in such a time is a fantastic way of exponentially expanding your wealth since inflation destroys the value of debt. I'm not saying not to have any reserves - anyone who owns RE or has any type of business needs that - but I have been hearing "I'm holding on to cash to soak up the buying opportunities coming up in the next [week/month/year]" for 8 years here.
Those who brag too hard about that I suspect fall into one of two camps:
1. They are afraid to take any action and use "I'm waiting for" as justification for inaction, or
2. They have a desperate need to prove to everyone else how smart they are as an investor.
If I had the time I'd love to go back and dig up some of those threads from 2014 or 2015 and see what the "cash holding" crowd actually did, if they did anything.
I don't believe any crash is coming, at least nothing related to anything current. A nuclear war or massive pandemic or some other apocalyptic event might change that, but in that case all bets are off anyway. Assuming we just have more of the status quo for however long, I just don't see it changing. A 20% price correction - which would be considered massive in any housing market - would only drop things back to 2021 levels. There are going to be plenty of potential sellers that don't sell because they don't want to trade 3.5% for 7%, regardless of the actual impact - the psychology of it is too disturbing to a lot of people. The population growth rate in many of these markets is so strong that prices can't help but be propped up because it makes no difference if 80% of the population can't afford it, there's someone in that 20% that is desperate for a house.
I don't think extreme runaway housing prices are good for anyone in the long run. It will put a lot of pressure on politicians to "do something", which will inevitably be the wrong thing. It will drive more of the working classes into rentals, which will drive rental prices up significantly and displace the people at the bottom. More working class will have to live in the hinterlands and won't participate in the labor economy at all, exacerbating the labor issue and driving up wages even harder to compensate. And a lot of things just won't get done because there won't be anyone to do them.
My prediction is prices will start plateauing off and that the housing market may just become a permanently smaller portion of the national GDP. And you don't have to have a strong ownership economy to have a strong economy; some European countries don't even hit 50% home ownership. Unfortunately, we've turned a lot of our economy into a focus around cars, houses and finance by outsourcing our manufacturing.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @James Hamling:

Anyone else find it interesting how the word "crash" is used in Real Estate? It seems to be the "ketchup" of Real Estate talk. If gas prices go down 10% is it a "gas CRASH"? If groceries come down 15% in price do we run to the internet to tell everyone of the food "CRASH"?

Real Estate pricing does not, and never has, moved up at a static line rate. Nor anything else for that matter. Over time, it's a step action. 2 steps up, 1 down, 3 up, 1 down, etc.. Given the rate of rise, a 15% step-down (YES, "step-down" is a FAR more accurate label then "crash") would be a GOOD thing, healthy, it would signal some normalcy, and be the next chapter which will inevitably be followed by next step's up.

@Kathleen McDowell I LOVE your BALANCED DATA approach, fantastic stuff!

@Russell Brazil I think it's time to write a book because I don't think people are grasping inflation until it's what there reading in relation to REI.
Look, there is some simple SIMPLE foundation pieces that need to be addressed before anything of a "crash" in R.E. pricing can even have a shot at happening. First, it's a simple fact of supply/demand, supply is not fully meeting demand, in 2007 we were building entire communities that were 40%+ investor held with NO occupants, I know as I was one of those builders so this is 1st hand knowledge, all of us on the building side say it all coming a mile away we just didn't know when the music would stop but it was inevitable. That is not happening today. We have net unit SHORTAGE. Second is ability to LOWER cost of inputs in a sizable manner. How will labor costs go down 30%? Material costs down 30%? Taxes and various red-tape expenses down 30%? Well, if can't do that, then how do you get to a "glut" of units?
I don't need to read any articles to know we are in a SIGNIFICANT net unit shortage, I experience it daily. Affordability an issue, 100%, that's across the board, and nobody is talking about toothpaste or shampoo about to take a "CRASH" over affordability are they? Which can a person live without, a roof over there head or consumer goods? The affordability is more a basis income item then housing one but yes it affects housing just like all other items.
Home purchases suffer from affordability issues rentals will surge from increased demand. And as income basis adjusts as labor market forces such movement sales will rebound. Again, supply demand, when there is significant demand it can NOT be stopped, only delayed, stifled, redirected, but NOT stopped.
#1 thing all leave out when talking about a market "crash" or various kinds is where will those people go to have a roof over there heads? Shelter is not optional, food, water, shelter, the fundamentals of life, can NOT go without.
Market COMPRESSION, yes, market "CRASH", hog-wash.

I don't know about your market but pre GFC builders in the Oregon market needed ZERO cash and they could have 10 20 30 50 or more spec loans.. And they did just that. Oregon had its fair share of hangover inventory but nothing like AZ FLA GA NV and CA.. Today at least in our little WET sand box banks simply wont let you get that far over your ski tips.. So at least on new builds if things come to a halt there will be projects that stall and don't get built.. But the hangover inventory if it got liquidated at fire sales would be gone in a nano second.. I know for me I have sold every single new build before it was completed in the last 5 years. My bank limits me personally to only 12 spec homes.. pre sales are OK and we get large non refundable and released deposits.. this is why this talk of crash at least in our markets simply wont happen.. builders could stop building sure.. but there simply is not a huge amount of spec homes out there.
I can see things being different in other states where you have entire communities being built as rentals and if investors stop buying those you could have hangover inventory there.

In the last 7 years for me personally again and about 300 new builds in Charleston SC Portland OR metro Orlando Indy I have sold only one property to an investor and it was a property built as a small multi in Charleston SC.. all the rest SFR's have gone owner occ.
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Michael Temple
Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
4y
The title of the post suggests there WILL be a crash. I am not sure that is correct. The 2008 crash was caused because banks were giving loans to anyone that could fog a mirror, giving interest-only loans to get people into houses they couldn't possibly afford, and doing other stupid things like rolling credit card debt into the loan so it was "affordable." It was easy to see why that crash happened. This time loans are solid, in fact, they are quite difficult to get by anyone but the most qualified buyers. The places cited that are climbing the fastest are truly expanding in population and NEED more housing. Tampa is just one market I am somewhat familiar with where people are moving in and housing is needed. Finally, don't forget one of the largest demographic generations in U.S. history (Millennials) has finally hit their peak years for buying houses and starting families. All of that creates even more need for housing.

Now, one thing that is present this time and was not present last time is the huge amount of investors with LOTS of money buying up anything with 4 walls and renting it out. We see hedge funds coming in with massive piles of cash to buy and many other smaller investors buying whatever they can get their hands on. This made sense with super low-interest rates and being able to Air BNB everything that didn't make sense as a long-term rental. With rates rising and the Fed trying to pull money out of the economy this variable could change. Properties that made sense at 3% interest rates might not work at 6-8% as long-term investments, at least for traditional finance methods. If you use some creative finance you might still be able to get there. I know several "old school" investors that were used to routinely (some still are) paying 6-8% interest for investment properties as long as the other terms worked out.

If the investors, and here I am referring to the large institutional groups like hedge funds, start to back off and others that can't afford 6% rates at the given prices *maybe* we will see housing start to level off or even come back down, but I am not sure I would classify this as a "crash." Plus anyone that thinks that housing will fall off a cliff and investors can go around cherry-picking houses for pennies on the dollar like 2008-2010 is probably going to be disappointed.

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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
4y
@Account Closed,
It's important to remember that the occurrence is less important than the cause.
In 2007 / 2008, "The Banksters" caused the crash - and admitted to it on film - thru predatory lending and other misdeeds driven by greed.
This time around, what we're seeing is largely the fallout from that crash. Economists were then reporting that during the crash of 2007 / 2008, some 80% of builders and developers went out of business. Home starts all but stopped in almost every market in the Country. Housing demand, on the other hand, continued to rise apace as students graduated and began starting their families. By the end of 2009, estimates were that by the end 2015 we'd see housing shortages beginning to materialize.
... which is exactly what we saw and are continuing to see. Only now, in some markets, are we starting to see housing starts begin to recover. Estimates - from both then and now - are that housing starts are millions of units behind the demand.
The current economic turmoil is what will drive the events shortly to unfold. This time, the dampening of demand for new home loans will largely be driven by two factors: the ability of potential borrowers to qualify for new loans and the interest rates which lenders can offer under the current and coming conditions. Home prices / values will be driven by these factors which drive demand.
My $0.02 ...
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Dustin P.
Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
4y
My body is ready
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
Quote from @Nick Robinson:

@James Hamling
I like to look at charts that are adjusted for inflation so I can get a better idea if things are cheap or expensive. You will notice that when homes are adjusted for inflation you do not see as big of a spike as when you just look at the nominal value of the home.
@Russell Brazil
Your point of homes going up 130% in the 70s is a good point, but you are leaving out the part that the real value of the home went down for most of the 70s.
@Kathleen McDowell
Black Knight, a real estate analytic company, says that home affordability hit a 35-year low. I forget if you mentioned the loans being safer or not as risky which I agree with the mortgages are safer. What I would look at more is consumer debt hitting all-time highs and HELOCs. HELOCs are not a mortgage and is not included in that analysis. The FED does not set interest rates they set the FED Funds rate. This is important because even though they do not and cannot control the long-term bonds what the FED Funds rate does affect dramatically is interest rates on things like CC and HELOCs. Depending on the duration and depth of the next recession will see if this means anything. People that are highly leveraged are going to be at risk going into times with low economic activity.
@Account Closed
I agree with you that we are in a recession right now. The Atlanta FED just updated Q2 GDP to -2.1%, the NY FED just released their models 2-3 weeks ago that predicted negative GDP till 2024. Who knows how long or deep the recession will be but to get the FED's models to have negative GDP is extremely difficult. No one knows but I would guess that when the FED begins to try to sell their MBS to the market the 30-yr mortgage will continue to climb lowering the purchasing power of homebuyers. We have seen the FED decreasing demand but with the extremely low supply demand would have to go down quite a bit for a crash, 20%+ drop in price. Where we might see an increase of supply is from the STR market. Airbnb had just under 2.3m listing last year and according to their site the average property makes $13,800/year. If we are in deep and longer recession people will have less discretionary income which means people will not be renting Airbnb and I would guess a lot of Airbnb hosts cannot afford to hold those homes if they do not have renters coming in. There are so many cross currents when you look at Macro or try to predict the price of something it is almost impossible. What I do know is if you invest for CF (and are CF+), you take care of your properties, you have a good PM, and are in a good location it does not really matter what the market is doing, and you can be a buyer in all cycles. That being said in general now would be a good time to hold on to more cash. There will be deals somewhere stocks, real estate, etc. and cash will give you the opportunity to take advantage of those things. It will also help you protect the investments you already have.

Inflation adjusted pricing for housing is a meaningless number. The largest component of inflation is housing at about 37% of the index.

So when people say the prices are adjusted for inflation, it's like saying they are adjusting it for the price of itself. Who cares what the value is as measures against tomoatoes, when the largest thing a family spends money on is housing....which by the way is why 37% of the inflation index is housing.
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1 Reply
Chris John
Member since 2020 · 671 posts · 937 votes
4y
@David Dachtera
"In 2007/ 2008, "The Banksters" caused the crash - and admitted to it on
film - thru predatory lending and other misdeeds driven by greed."
I respectfully disagree with this statement. Government really laid the groundwork to force banks to change their lending standards. This article describes pretty well the conversations I remember having with a friend that was a lender in real time back then.
Honestly, those conversations were literally life changing for me as it gave context to the craziness that I was seeing and it allowed me to position myself accordingly for the eventual (and in my opinion), inevitable downfall that was to come.
https://www.forbes.com/2008/07...
0 Reply
Nick Robinson
Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
4y
@Russell Brazil
What the CPI measures is owner equivalent rent which is a survey that they give homeowners that asks them what they think rent is if they were renting out their home. Obviously, most homeowners have no clue what market rent is so the fact that it makes up a big percentage of the CPI shows that inflation is severely understated. We will not even go over hedonic indexing, substitutions, etc. If they are understating inflation and the homes drop in real terms that means it dropped a lot more in real terms. I know everyone, including myself, can get caught up looking at stats and inferring information from them. Example everyone going crazy over foreclosure numbers going up big percentage wise, well you just went through a time when they were at 0 so even a small amount will look like big increases. The current administration talking about how many jobs have been created but we are still under the number of jobs we had before the pandemic, so you just are bringing jobs back online. I think that last I saw we were 400k-500k short of pre-pandemic numbers. Look at unemployment the government uses the U3 number of 3.6% but if you look at the U6 number, which is a more accurate look at unemployment, was at 7.1%.

Let's be honest to you just like to me it does not matter what either of us use as our reasoning. If we find something that is cash flow positive and produces returns that are acceptable to us, we are buying. I am buying if it's going up, down, or sideways. As long as it is cash flow positive, and it hits my other criteria. In terms of buying a personal home to live in the reality is if you plan on living in a home for at least 5-10 years and you have a stable job and can afford the payment even if the market "crashes" you do not lose money on it till you sell.
@JD Martin I do not know if you were specifically talking to me about holding on to large sums of cash, but I assume it was based on the fact you responded after I posted. I said now is a good time to hold on to more cash, I do not think you should be 100% cash or should be selling your property to take advantage of a RE "crash". Holding on to more cash might mean instead of 5% of your portfolio you go to 10%. The market is predicting a recession, along with the FED models, and a lot of bad economic data. During recessions is the greatest transfers of wealth and when things are on sale. Not saying there will be a housing crash just talking about investing in general i.e., equities, commodities, etc. My thought is you should have cash to take advantage of some of those situations. I should qualify for me personally no matter what is going on I would be saving cash waiting to refinance a 14-unit I bought last year and adding money to it to try and buy a bigger building.
0 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
4y
Quote from @Chris John:

@David Dachtera
"In 2007/ 2008, "The Banksters" caused the crash - and admitted to it on
film - thru predatory lending and other misdeeds driven by greed."
I respectfully disagree with this statement. Government really laid the groundwork to force banks to change their lending standards. This article describes pretty well the conversations I remember having with a friend that was a lender in real time back then.
Honestly, those conversations were literally life changing for me as it gave context to the craziness that I was seeing and it allowed me to position myself accordingly for the eventual (and in my opinion), inevitable downfall that was to come.
https://www.forbes.com/2008/07...

The government regulates what bankers / lender -CAN- do. It does NOT regulate what they -WILL- do within those limits. Just because you "can" does not mean you "must". Prudence must dictate one's actions in all matters. They let their greed get the better of not just them, but us, as well.
I'll see if I can find the name of the film where you can find the interviews with "The Banksters". Don't recall just now ... Should be on YouTube. You can see for yourself.
0 Reply
Chris John
Member since 2020 · 671 posts · 937 votes
4y
@David Dachtera
I get your point, but as a lender, when the guidelines come down, you go sell. I don't think the average lender sits around questioning the guidelines and they surely aren't setting them. They're just trying to make a buck. Additionally, they can definitely expose themselves by NOT qualifying potential borrowers that meet guidelines.

I can tell you without question that when I was an lender myself (probably the single worst lender in the history of lending) at a small B paper company in the late 90s, we would definitely give better loans to minorities, just to remain compliant of ratios, etc. So, without question and having witnessed it with my own eyes, I can tell you that back then minority borrowers were given better loans than they deserved so that our company wouldn't look racist when you checked our ratios.

None of that is driven by anything other than the government. Once set, did we all go sell as many mortgages as we could? Of course. Did any of us question qualifying people for loans they didn't deserve? No. We were 22 year old kids trying to make rent money. If anything we were resentful that we were making a couple hundred dollars less on the loan than we should have. Compliance to the government was a cost of doing business then, as it was in the mid aughts.

In the end, I'm so frustrated to have the financial meltdown blamed on lenders and "greed". The issue was being forced by the government's goal of more people owning their own house. Somehow they've managed to get off scot-free, so I point it out at any chance I get.

Regardless, we can definitely agree to disagree. Best wishes and I promise I'll give you the final word, should you choose to take it!
1 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
4y
@Chris John,
"... when the guidelines come down, you go sell" ... Yeah, that's about what the banksters said: "The Gov't said we could, so we did ... and then some."
0 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
Quote from @Nick Robinson:

@Russell Brazil
What the CPI measures is owner equivalent rent which is a survey that they give homeowners that asks them what they think rent is if they were renting out their home. Obviously, most homeowners have no clue what market rent is so the fact that it makes up a big percentage of the CPI shows that inflation is severely understated. We will not even go over hedonic indexing, substitutions, etc. If they are understating inflation and the homes drop in real terms that means it dropped a lot more in real terms. I know everyone, including myself, can get caught up looking at stats and inferring information from them. Example everyone going crazy over foreclosure numbers going up big percentage wise, well you just went through a time when they were at 0 so even a small amount will look like big increases. The current administration talking about how many jobs have been created but we are still under the number of jobs we had before the pandemic, so you just are bringing jobs back online. I think that last I saw we were 400k-500k short of pre-pandemic numbers. Look at unemployment the government uses the U3 number of 3.6% but if you look at the U6 number, which is a more accurate look at unemployment, was at 7.1%.

Let's be honest to you just like to me it does not matter what either of us use as our reasoning. If we find something that is cash flow positive and produces returns that are acceptable to us, we are buying. I am buying if it's going up, down, or sideways. As long as it is cash flow positive, and it hits my other criteria. In terms of buying a personal home to live in the reality is if you plan on living in a home for at least 5-10 years and you have a stable job and can afford the payment even if the market "crashes" you do not lose money on it till you sell.
@JD Martin I do not know if you were specifically talking to me about holding on to large sums of cash, but I assume it was based on the fact you responded after I posted. I said now is a good time to hold on to more cash, I do not think you should be 100% cash or should be selling your property to take advantage of a RE "crash". Holding on to more cash might mean instead of 5% of your portfolio you go to 10%. The market is predicting a recession, along with the FED models, and a lot of bad economic data. During recessions is the greatest transfers of wealth and when things are on sale. Not saying there will be a housing crash just talking about investing in general i.e., equities, commodities, etc. My thought is you should have cash to take advantage of some of those situations. I should qualify for me personally no matter what is going on I would be saving cash waiting to refinance a 14-unit I bought last year and adding money to it to try and buy a bigger building.

Hi Nick, no I wasn't referring to you at all. I was just speaking in generalities. "Hoarding cash" has become a non-uncommon theme here at BP in at least the last half decade or more since everyone's been convinced that a crash is coming and they're going to "keep their powder dry" to "buy on the dip". I'm not at all opposed to having some cash on hand, even if it's making nothing in interest, since everyone needs to have reserves if they own RE. But I find the idea of hoarding cash for future buying frenzies pointless and unrealistic. Like most investments, the longer you hold it, generally the more money you make in aggregate even if your "return" is lower. I don't think I'm anywhere near brilliant enough to know when real estate is going to hit a peak, so my plans are always buy what makes sense when it makes sense and don't worry about the short term dip.
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Skyline Properties
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1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Chris John:

@David Dachtera
"In 2007/ 2008, "The Banksters" caused the crash - and admitted to it on
film - thru predatory lending and other misdeeds driven by greed."
I respectfully disagree with this statement. Government really laid the groundwork to force banks to change their lending standards. This article describes pretty well the conversations I remember having with a friend that was a lender in real time back then.
Honestly, those conversations were literally life changing for me as it gave context to the craziness that I was seeing and it allowed me to position myself accordingly for the eventual (and in my opinion), inevitable downfall that was to come.
https://www.forbes.com/2008/07...

CRA has had a huge impact on bad loans.. its just reality.
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JLH Capital Partners51 Review
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0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
Quote from @David Dachtera:

Quote from @Chris John:

@David Dachtera
"In 2007/ 2008, "The Banksters" caused the crash - and admitted to it on
film - thru predatory lending and other misdeeds driven by greed."
I respectfully disagree with this statement. Government really laid the groundwork to force banks to change their lending standards. This article describes pretty well the conversations I remember having with a friend that was a lender in real time back then.
Honestly, those conversations were literally life changing for me as it gave context to the craziness that I was seeing and it allowed me to position myself accordingly for the eventual (and in my opinion), inevitable downfall that was to come.
https://www.forbes.com/2008/07...

The government regulates what bankers / lender -CAN- do. It does NOT regulate what they -WILL- do within those limits. Just because you "can" does not mean you "must". Prudence must dictate one's actions in all matters. They let their greed get the better of not just them, but us, as well.
I'll see if I can find the name of the film where you can find the interviews with "The Banksters". Don't recall just now ... Should be on YouTube. You can see for yourself.

David, I get why you'd think your correct but your not, a person who was directly and personally involved in it all I can say YES 100% we were FORCED in how our underwriting worked, including how many non-qual's we issued AND how we packaged our securities. I say this as a insider whom as a brokerage we tried to blow some whistles and work within intelligent reason and our brokerage was threatened at loss of our license if we did not meet the quotas as determined by gov., the threat was "financial discrimination".
I was with a GREAT brokerage, fantastic owners and very smart brokers, we saw the entire implosion coming a mile away and it was 100% out of the hand of mortgage originators, it was "above our pay grade".
The FALSE narrative of predatory lending is just that, FAKE NEWS, it's a smoke screen to cover-up the real and true culprit that it was all Wall Street and institution investment firms who were taking traunches on traunces traunches. It got to a point that any 1 mortgage as a security had dozens of securities tied to performance of that 1 MBS. And they were ticking time bombs, labeled AAA when as much as 8% were actually AAA in that MBS and a compilation of 30-60% was just dog-sh#t. And again, out of our control, that was the rules as imposed, it was systemic industry cancer.
Mortgage brokers and bankers were not the culprit, and YES they very much WERE directed exactly HOW to operate, that is the fact.
2 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
Quote from @Nick Robinson:

@Russell Brazil
What the CPI measures is owner equivalent rent which is a survey that they give homeowners that asks them what they think rent is if they were renting out their home. Obviously, most homeowners have no clue what market rent is so the fact that it makes up a big percentage of the CPI shows that inflation is severely understated. We will not even go over hedonic indexing, substitutions, etc. If they are understating inflation and the homes drop in real terms that means it dropped a lot more in real terms. I know everyone, including myself, can get caught up looking at stats and inferring information from them. Example everyone going crazy over foreclosure numbers going up big percentage wise, well you just went through a time when they were at 0 so even a small amount will look like big increases. The current administration talking about how many jobs have been created but we are still under the number of jobs we had before the pandemic, so you just are bringing jobs back online. I think that last I saw we were 400k-500k short of pre-pandemic numbers. Look at unemployment the government uses the U3 number of 3.6% but if you look at the U6 number, which is a more accurate look at unemployment, was at 7.1%.

Let's be honest to you just like to me it does not matter what either of us use as our reasoning. If we find something that is cash flow positive and produces returns that are acceptable to us, we are buying. I am buying if it's going up, down, or sideways. As long as it is cash flow positive, and it hits my other criteria. In terms of buying a personal home to live in the reality is if you plan on living in a home for at least 5-10 years and you have a stable job and can afford the payment even if the market "crashes" you do not lose money on it till you sell.
@JD Martin I do not know if you were specifically talking to me about holding on to large sums of cash, but I assume it was based on the fact you responded after I posted. I said now is a good time to hold on to more cash, I do not think you should be 100% cash or should be selling your property to take advantage of a RE "crash". Holding on to more cash might mean instead of 5% of your portfolio you go to 10%. The market is predicting a recession, along with the FED models, and a lot of bad economic data. During recessions is the greatest transfers of wealth and when things are on sale. Not saying there will be a housing crash just talking about investing in general i.e., equities, commodities, etc. My thought is you should have cash to take advantage of some of those situations. I should qualify for me personally no matter what is going on I would be saving cash waiting to refinance a 14-unit I bought last year and adding money to it to try and buy a bigger building.

Let's, for argument sake, there WILL 100% certainty be a significant recession that really starts hitting next quarter, what does that say for Real Estate pricing/value. How about how a recession WILL with absolute certainty drive some Real Estate prices/values UP, not down?! Yes, that's right I said recession driving R.E. prices UP. Two words "Affordable Housing". Recession drive mass expansion in affordable housing, and with that surge into sec8 and the entire lower strata of housing rentals. What happens with surge of demand? Pricing goes up, and supply tries to meet demand, which means MORE allocation of units for affordable housing/sec8, which will do what? Drive those prices up, will it not?
Again, for the I don't know, feels like millionth time, R.E. pricing/values is not a static set line across asset classes. To use the singularity of "Real Estate" is no different then saying automobile and including everything from a civic too a Lamborghini. There is a vast ocean of different economics across the spectrum.
So in that, if a persons focus is in the sec8/affordable housing segment, and see any drop be it recession or crash coming, THIS is the best time to buy because prices are about to surge with supply going too 0. Follow?
0 Reply
Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @James Hamling:

Quote from @Nick Robinson:

@Russell Brazil
What the CPI measures is owner equivalent rent which is a survey that they give homeowners that asks them what they think rent is if they were renting out their home. Obviously, most homeowners have no clue what market rent is so the fact that it makes up a big percentage of the CPI shows that inflation is severely understated. We will not even go over hedonic indexing, substitutions, etc. If they are understating inflation and the homes drop in real terms that means it dropped a lot more in real terms. I know everyone, including myself, can get caught up looking at stats and inferring information from them. Example everyone going crazy over foreclosure numbers going up big percentage wise, well you just went through a time when they were at 0 so even a small amount will look like big increases. The current administration talking about how many jobs have been created but we are still under the number of jobs we had before the pandemic, so you just are bringing jobs back online. I think that last I saw we were 400k-500k short of pre-pandemic numbers. Look at unemployment the government uses the U3 number of 3.6% but if you look at the U6 number, which is a more accurate look at unemployment, was at 7.1%.

Let's be honest to you just like to me it does not matter what either of us use as our reasoning. If we find something that is cash flow positive and produces returns that are acceptable to us, we are buying. I am buying if it's going up, down, or sideways. As long as it is cash flow positive, and it hits my other criteria. In terms of buying a personal home to live in the reality is if you plan on living in a home for at least 5-10 years and you have a stable job and can afford the payment even if the market "crashes" you do not lose money on it till you sell.
@JD Martin I do not know if you were specifically talking to me about holding on to large sums of cash, but I assume it was based on the fact you responded after I posted. I said now is a good time to hold on to more cash, I do not think you should be 100% cash or should be selling your property to take advantage of a RE "crash". Holding on to more cash might mean instead of 5% of your portfolio you go to 10%. The market is predicting a recession, along with the FED models, and a lot of bad economic data. During recessions is the greatest transfers of wealth and when things are on sale. Not saying there will be a housing crash just talking about investing in general i.e., equities, commodities, etc. My thought is you should have cash to take advantage of some of those situations. I should qualify for me personally no matter what is going on I would be saving cash waiting to refinance a 14-unit I bought last year and adding money to it to try and buy a bigger building.

Let's, for argument sake, there WILL 100% certainty be a significant recession that really starts hitting next quarter, what does that say for Real Estate pricing/value. How about how a recession WILL with absolute certainty drive some Real Estate prices/values UP, not down?! Yes, that's right I said recession driving R.E. prices UP. Two words "Affordable Housing". Recession drive mass expansion in affordable housing, and with that surge into sec8 and the entire lower strata of housing rentals. What happens with surge of demand? Pricing goes up, and supply tries to meet demand, which means MORE allocation of units for affordable housing/sec8, which will do what? Drive those prices up, will it not?
Again, for the I don't know, feels like millionth time, R.E. pricing/values is not a static set line across asset classes. To use the singularity of "Real Estate" is no different then saying automobile and including everything from a civic too a Lamborghini. There is a vast ocean of different economics across the spectrum.
So in that, if a persons focus is in the sec8/affordable housing segment, and see any drop be it recession or crash coming, THIS is the best time to buy because prices are about to surge with supply going too 0. Follow?

We've met the definition of a recession with two consecutive quarters of negative growth. Now what?
Powell just said:
FED Chair Jerome Powell Says US Economy Is “In Strong Shape” as Economy Drops into Recession
https://www.thegatewaypundit.c...

Good to know we're in "strong shape".
I'm not sure if he was able to keep a straight face. ;-)

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