How will you react as Investors to the Potential Housing Bubble in Denver and Portland?
Rental Property Investor · Vancouver, WA · Member since 2015 · 112 posts · 142 votes
How will you react as Investors to the Potential Housing Bubble in Denver and Portland?
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Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
11yAs the other responders have said you have to be very careful about reading magazine articles and then taking a one dimensional view ignoring general demographics while looking at individual market statistics. Two major factors you are missing Paige are the basic ratio of the average 30-year mortgage to the average local buyers income. In recognition of this ratio is Portland in a bubble compared to the greater Los Angeles area? Which area do you think has more upside based on this hugely importantly ratio? Another factor is forced appreciation in Portland, not only as Jay mentions due to the UGB preventing build up, but the fact is Portland is still he most affordable mid/major market on the west coast which has a long-term growth trend. Finally housing is fairly inelastic, slight shortages and excesses in housing can cause huge price swings. As noted I think there is a good chance of home prices slowing but unless we have a systematic event ala 2008 the demographics still favor Portland.
As a investment side note, if you take investment advice from published mainstream magazine articles rather then apply your own knowledge and logic to situations you are always going to be trailing average market returns no matter which type of investment you are interested in.
20 Replies
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
completely disagree with the PDX thought process.. bubbles burst with excess unsold inventory.. the banks till do not loan in any volume or spec building like they did years ago.
urban growth boundry keeps urban sprawl at bay.. NO inventory pent up demand..high paying jobs..
could the market slow for sure.. but a big bubble burst with price crash I don't see it.
and PDX was one of the mildest hit markets in 08.. the high end got clobbere IE 1 mil plus but the starter stuff nd mid range only fell 10 to 20% at the worst of it
- Investor · Cary, NC · Member since 2015 · 79 posts · 34 votes11y
There is a little bubble in my area right now. Therefore, I am not buying anymore locally.
I have properties in other cities, about an hour or two away, that are not experiencing the same bubble and that's were I am looking.
I am also keeping a very close eye on the bubble. In about another year, I will probably start cashing out hear to buy properties in the other markets.
- Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes11y
Denver shows no signs of a bubble, you have to look beyond what people are paying for real estate as your only indicator. There are so many data points to show that the market is Denver is strong and will be around for the foreseeable future.
- Rental Property Investor · Vancouver, WA · Member since 2015 · 112 posts · 142 votes11y
The article I read was entitled " Don't Believe the Housing Bubble Hype, except in these 7 Markets." I am guessing from some of the responses that if you say no housing bubble then you are not agreeing with the article and thus whatever your strategy was you stick to it right? Sorry, just trying to better understand:)
- Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes11y
As the other responders have said you have to be very careful about reading magazine articles and then taking a one dimensional view ignoring general demographics while looking at individual market statistics. Two major factors you are missing Paige are the basic ratio of the average 30-year mortgage to the average local buyers income. In recognition of this ratio is Portland in a bubble compared to the greater Los Angeles area? Which area do you think has more upside based on this hugely importantly ratio? Another factor is forced appreciation in Portland, not only as Jay mentions due to the UGB preventing build up, but the fact is Portland is still he most affordable mid/major market on the west coast which has a long-term growth trend. Finally housing is fairly inelastic, slight shortages and excesses in housing can cause huge price swings. As noted I think there is a good chance of home prices slowing but unless we have a systematic event ala 2008 the demographics still favor Portland.
As a investment side note, if you take investment advice from published mainstream magazine articles rather then apply your own knowledge and logic to situations you are always going to be trailing average market returns no matter which type of investment you are interested in.
- Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes11y
There is no bubble in Denver. People waiting on the sidelines are missing the boat. There is a large influx of people moving here. If the drought in California keeps up, then our population will jump even more.
The retail market has increased in supply, and I am just starting to see signs of it slowing a bit. However we still need more supply. Until that issue is resolved, expect prices to increase. There are deals to be had, but you have to work for them. Don't quit your day job, just be ready to pull the trigger when something comes your way.
- 11yLinda WeygantPro MemberInvestor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
I agree that whatever is happening in Denver really shouldn't be described as a bubble.
That said, here's how I would (and am) bubble proofing my portfolio.
1. Don't over leverage. Pulling out equity constantly so that your mortgage payment continues to rise seems like a recipe for disaster IF the market plummets. Keep your expenses low enough that your properties will still cashflow if you have to offer lower rents (as much as 30% less maybe? Not sure what the right number is).
2. Keep good tenants happy. Having steady rental income is key to bubble proofing. Vacancies can kill your business.
3. Get rid of bad tenants as soon as legally possible. People who are trashing your properties or who you are continually having to chase after for rent are a drain.
4. Keep properties in good repair. A property in good repair attracts good tenants and maintains your ability to charge top dollar for rent.
5. Upgrade properties, but don't "over" upgrade. Again, this is key to being able to command top dollar for your properties.
6. Don't panic. IF you do end up underwater in a property, it's ok. If you weren't planning on selling anyways and you're still cashflowing, who cares? I think this is the one area that people totally freaked out over during the last recession. People who weren't planning on selling and had no plans to sell in the next 10 years were freaking out. Who cares? Real estate, in any given 10 year cycle, always increases in value (in general). A short term dip is no reason to panic.
- Rental Property Investor · Vancouver, WA · Member since 2015 · 112 posts · 142 votes11y
Thanks everyone you gave me quite a bit to think about and I definitely appreciate all of you so very much!
- Colorado Springs, CO · Member since 2015 · 23 posts · 5 votes11y
@Paige Kelsey you spoke of the Colorado Springs market in your first post, are you saying that it is a difficult market to invest in? I am just beginning my research into the area as I am considering moving there in a year or so. I haven't begun investing yet myself and I don't want to throw myself into a market where I am decreasing my chances of success. What would you say about a new investor starting out there?
- Rental Property Investor · Vancouver, WA · Member since 2015 · 112 posts · 142 votes11y
Sooo much to say Jonathan but I will try to be brief: The market is pretty hot right but there are always deals to be found anywhere, it is just going to take some time. The following should give you an idea for what is going on here:
There is a 20 yr low on product on the market right now and there are very few bank owned. If there are bank owned it is because an investor has taken a pass on that at auction.
About the auction..... two weeks ago I was @ an auction with probably 30-40 investors in the room. Here you have to bring cashiers checks for the price in full. A crappy house that I would not have bid on went 35K over bank bid and there are big players here. The guy next to me said this was his 109th property. (ONE DAY I CAN ONLY HOPE TO BE THAT BIG)
Just the other day on BP somebody said they were willing to pay referral fees and were looking for distressed homes. Yeah buddy so is everyone else except you cant actually do the referral thing even if you could by law. There is not a bunch of wholesaling going on here. If people find a deal they are holding or flipping it themselves.
My personal last two deals both this year- 1 closes in a week and the other we did close on (both are/ were cash)........Not that I wanted to do that I just had to in order to get the deal. On the trplexi we offered cash within 24 hrs of it going up and it still went to highest and best. The one we will close on this week I am buying within 11 hrs of it going on the market and it actually wasn't on mls. It is cash, it is at asking and I had to forgo inspection and appraisal to close within a week.
Also, if you are thinking of flipping here are some things going on in the area. People think they want to flip all the time. I do feel as though there soo many people here that have no idea and are just desperate to try so they are making some crazy deals
ie buying a home with foundation issues, no hvac, needing all new electrical 2300 sq feet new kitchen and 2 new bathrooms- you cant finance traditional ( it is not habitable ) that remodel is over 100k but the asking is not 45k off of comps in the area- That house sold. Truly, God help the person that bought it because there is NO way you can get out of that anytime soon.
Contractors are also hard to come by-If they are good they are booked out and if they are good they are going with bigger builders than just you or I.
Also many of the homes are early 1900's and many homes here have foundation issues. We also have had flooding which requires flood insurance but....... if there have been more than 2 claims on a home you have to go with FEMA flood which is super pricey. All can be worked through. Sorry sorry I don't mean to scare you away and I CAN for sure give you my thoughts and advice for whatever that is worth:) For a newbie though I would say be sure to do due diligence. Save up some money and be ready to go at the drop of a hat. Good Luck AND YOUR GONNA LOVE THE SPRINGS!!
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- Colorado Springs, CO · Member since 2015 · 23 posts · 5 votes11y
Thanks for the info Paige, definitely informative.
I'm sure I will enjoy the area if we do go through with the move, we visited there last summer and certainly did enjoy our time there.
- Investor · Denver, CO · Member since 2014 · 135 posts · 37 votes11y
@Paige Kelsey do you have a link to the article so I can give it a read?
I don't know about Portland, but I would agree with the rest of the Denver folks that I don't believe the Denver market will crash but it will likely soften somewhat over the next two years.
I thought @Linda Weygant's response was a great one for buy & hold investors - as long as you aren't leveraged to the max and would struggle to make payments if rents took a dip, as a buy & hold investor you should be fine - history shows that housing prices will increase again eventually.
And while I don't have data to back this up (maybe someone else does?), rents don't usually see the same magnitude of swings as real estate prices so as long as you are buying property that cash flows today and don't have a massive portfolio of properties you should be ok even if there is a contraction as long as you have another source of income and aren't forced to sell.
Personally I hope the Denver market does take a tumble so I can start buying properties at a discount and ride the eventual wave of improvement to a nice financial windfall.
- Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes11y
@Paige Kelsey as @Walker Hinshaw stated rents have not historically taken a dive like home prices can. First Alliance Title publishes the Denver rent history which is the image below.
As you can see the average rents haven't ever dropped that much. The most might have been in 2002 when they maybe moved a few percent below the peak in Q1 of 2001. The biggest shock absorber for economic change in the rental market is vacancy rate. As you can see they fluctuate about 10% (4% low to 14% high). The worst case being you might see a 15% dip in revenue if you are able to match the market with your management. It's my opinion that a well managed property will always beat the market. If you have poor management then all bets are off. It seems if you bought at absolutely the worst time you might be faced with a 15% dip in income. If you can't weather that, then you should probably reconsider your "deal."
- Investor · Portland, OR · Member since 2014 · 21 posts · 10 votes10y
I generally agree with the sentiment that the Portland real estate market and others may not feel like bubbles due to a general trend of livability/demand + constrained supply. However, I would take some caution with regards to the global central banking policies of zero or near zero interest rates + global quantitative easing fueling bubbles in different asset classes including equities, bond markets, and some real estate markets. Not saying it's something to be afraid of rather just something to be mindful of.
- Investor · Pueblo West, CO · Member since 2014 · 310 posts · 213 votes9y
Florida and Las Vegas were bubbles in 08 because there weren't jobs to support the loans. The financing terms were also super loose. Denver is not a bubble because there are jobs to support the loans. If the tech jobs go away, then you will see housing prices decrease a little. However, I wouldn't call that a bubble. Many of my friends in Denver are college educated couples that make 100K-125K each. With that kind of income they can easily afford a 500K home. I briefly looked at Portland real estate over the last month because I had a job interview there last week. I saw some duplexes just outside of Portland that fall just short of the 1% rule. I think Portland has a great public transportation system and will be subject to suburban sprawl. City prices will level off and more people will move to the suburbs for cheaper housing and more land. People won't mind the commute because the bike lanes, public transit and mild weather.
- Investor · Portland, OR · Member since 2015 · 70 posts · 56 votes9y
I by no means have enough experience to teach on this matter. Based on what I have read and learned from people smarter then me I have come to the conclusion that I believe Portland is making the transition from a tier 2 market to a tier 1 market. For that reason I do not think the prices in Portland will see a decrease until they overshoot from the massive growth. But until the city is on par with Seattle I do not see it stopping.
- Westminster, CO · Member since 2016 · 33 posts · 8 votes9y
I was doing my own research about Denver because I had the same worries. After reading this article, I'm no longer worried. While this article only applies to Denver, it explains the metrics it uses and why well enough that you can get similar numbers for wherever you are looking and make an educated decision based on those.
http://yourcastle.org/media-claims-denver-housing-market-is-entering-danger-zone-we-see-it-differently/
- Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes9yYou've brought up more coastal markets (areas with greater fluctuation of appreciation). Buy low, sell high in these markets. If inventory is low and prices high; flip, develop, and turn assets to paper.
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