Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
Bit of a click bait title, but interesting read from Business Insider. The "crisis" as they describe it is lack of supply, particularly in starter homes, and how first time home buyers are getting crowded out of the market. It includes a few tidbits on how investor activity is contributing to the current market dynamics.
Curious to hear everyone's thoughts on this - are you seeing these same trends in your individual markets?
Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
10y
Low inventory and high prices will be followed by high inventory and low prices. Homebuilders will start booming until they over build. When the market is flooded with new home inventory older homes will drop in price. Investors will buy up old home inventory and rent them out. This will dry up inventory and we are back at low inventory and high prices.
Just a market cycle. The only thing that is obvious is the market is changing. Anything else is speculation. It is a sellers market and next it will be a buyers market. Investors that are buying on low margins right now will be in trouble. You can already see people willing to settle for lower cap rates, cash flow, and paying more than 70% of market value. I wouldn't buy at 70% market value right now. Maybe 50-60%. because 70% now could be 100% next year.
There is a KB home that I drive by that cant build inventory fast enough. Its KB....thats a sign....
Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
10y
I'm trying to trade up my primary right now and inventory for 3-4bdrm single family homes in decent San Diego neighborhoods is almost nothing. The underwriter that we're working with is incredibly jittery. My wife and I have excellent borrowing profiles. Our current primary is under my name only. We are trying to buy the second home under my wife's name only. It took a long time to explain to the underwriter why we would want to do this (Fannie/Freddie loan limits), why we want to keep our current house when we're buying a new primary (to rent it out???), and why we weren't trying to commit mortgage fraud.
Trawling Sandicor every day is worse than going to the dentist. I saw a nice house pop up about a week ago, posted same day on mls. I called at 930AM and it already had a dozen offers.
So yeah, the article feels pretty accurate for San Diego.
/rant
Love their charts though, good evidence against doomsayers predicting a crash in the next 6 months.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
@Frank Jiang Totally anecdotal, but a friend of mine posted their SFR (in a great Poway neighborhood) with a too-high "Make Me Move" price on Zillow only -- not even MLS exposure -- and quickly got a couple offers at the price with attractive terms. Pretty scary indication of a market not working correctly...
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
@Account Closed
What we're seeing today is the fallout from the crash. Some 80% or so of developers and home builders went under. Home building all but stopped while births and graduations continued unabated.
Families kept growing, students kept graduating. The demand for housing grew while the supply stagnated. Economists estimate we are still some 5 million housing units behind the demand, even after the beginnings of construction recovery.
It's going to be a tough time for move-ups and first-timers for a good while yet.
The shiny side of that coin is that this means the demand for rehabs and fix-and-flips of short sales, REOs and other distressed properties continues to be strong in many areas.
The education to which I'm connected is in the process of putting together a raw land development class. They saw the housing shortage coming before it became big news and started to be a big buzz in the REI industry.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict
Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
10y
@Frank Jiang thanks for the insight. What I would call trade up inventory in my area and the immediately surrounding areas, in the desirable pockets, seems very tight as well. Lot of pocket listings or stuff under contract in the first weekend with multiple offers over list.
One point I found interesting was one made at the end of the article, regarding the real estate purchasing habits of millennials. I've read elsewhere that, despite popular perception to the contrary, research is showing that millennials, once they reach a certain age and begin household formation, are acting just like the generations before them - buying houses in the burbs, spending money on the same things, etc. As long as many of the public schools in urban centers continue to struggle, I suspect that will continue to be the case as well.
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
@Account Closed,
With the daily news stories about shootings in the cities, you can probably expect that trend to continue, possibly accelerate.
Everyone would like a shorter commute (mine is 55 miles one way, suburb-to-suburb - no public transit option since everything hubs on the city). However, the perceived safety of "the 'burbs" trumps the potential benefits of short and public transit commutes and walking distance to amenities, shopping, etc.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict
Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
10y
@Frank Jiang really good read. I'll be honest, I can't imagine a commute longer than 10-15 mins each way. Set aside the financial considerations, just feels like it would be soul sucking.
Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
10y
Low inventory and high prices will be followed by high inventory and low prices. Homebuilders will start booming until they over build. When the market is flooded with new home inventory older homes will drop in price. Investors will buy up old home inventory and rent them out. This will dry up inventory and we are back at low inventory and high prices.
Just a market cycle. The only thing that is obvious is the market is changing. Anything else is speculation. It is a sellers market and next it will be a buyers market. Investors that are buying on low margins right now will be in trouble. You can already see people willing to settle for lower cap rates, cash flow, and paying more than 70% of market value. I wouldn't buy at 70% market value right now. Maybe 50-60%. because 70% now could be 100% next year.
There is a KB home that I drive by that cant build inventory fast enough. Its KB....thats a sign....
Rental Property Investor · Saint Louis, MO · Member since 2014 · 313 posts · 326 votes
10y
Anecdotal evidence, but last summer my wife and I looked at trading up from a city starter home to a bigger house in the suburbs. We looked at almost every listing on the market in our price range, ran comps with our agent, and felt like most were overpriced by at least 10%, yet the ones we inquired on had multiple offers over ask. The few "deals" we came across, which were really just priced fairly we thought, went to multiple bids and ultimately over asking price within a few days. We decided to put off a trade-up for at least a few years.
I always watch Zillow alerts in our area and so far this year it's been nutty. Decent houses are getting listed at $25-40k over their Zestimate (not a perfect pricing tool, but when it's across the board that they're that overpriced according to a common metric, it seems like an indicator) and the nice ones are going "Pending" within days, many times cancelling an open house before even a week has gone by. St. Louis has been one of the last markets to recover from the crash, so if it's getting nutty here, I imagine LA, Vegas, Florida, Texas, etc. are close to boiling point.
Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes
10y
Yes. My corporate investors can't make cap rate/ROI numbers on the rapidly escalating home prices. Rents have not kept pace, so the thin-margin properties no longer work. Correction's coming, but it will happen elsewhere first, since real estate tends to lag the stock and money markets...
Ontario, CA · Member since 2015 · 69 posts · 10 votes
10y
Originally posted by @Account Closed:
Bit of a click bait title, but interesting read from Business Insider. The "crisis" as they describe it is lack of supply, particularly in starter homes, and how first time home buyers are getting crowded out of the market. It includes a few tidbits on how investor activity is contributing to the current market dynamics.
Curious to hear everyone's thoughts on this - are you seeing these same trends in your individual markets?
I attended an economic talk in about 02-03 for my area (Inland Empire of SoCal) given by a leading economist and expert on this area. That's exactly what he had projected back then. And yes, it's happening.
In my zip code right now builders are putting in approx 200k units of 4-8 bedroom SFRs. Starting price is 450k.
Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
10y
Thanks @Carrie Anderson - your area was hit hard in the crash right?
I lived in LA from '02-05. As part of a real estate class I took in law school we visited a KB Home development in Fontana (this would have been in late '04/early '05). I distinctly remember the folks managing the project were raving about how quickly the prices were rising on their homes at the time - literally large % increases month-over-month. Now that I have the benefit of knowing what happened a few years after, I can now appreciate that for what it was.
Ontario, CA · Member since 2015 · 69 posts · 10 votes
10y
Yup, all of SoCal was, but yup. Starting to make gains now, though. Last year projected appreciation in my zip was sitting at 3%, right now it's 5.5%. Those are annuals. ;-)
Fontana, 04-05? Was it Sierra Lakes? Doesn't surprise me that it was KB. They are known for that. And for producing crap. (That's the builder producing the 200k units right now). And yes, they are zero-lot line properties :-)
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
KB builds the worst quality homes. They use just absolute crap for materials. They were selling a tract near my house and the prices were around $1M at the peak. Today they still are not back to $700K.
As for commuting, it is crazy how people in SoCal will move further and further into the desert to find affordable housing, but keep their job in OC or LA. I actually own an office at one of my apartment buildings. It is within 10 minutes of my house and no freeway driving is involved. I still can't bring myself to commute further than my living room and my office remains vacant, no electric on and not furnished...
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
Originally posted by @Account Closed:
@Frank Jiang really good read. I'll be honest, I can't imagine a commute longer than 10-15 mins each way. Set aside the financial considerations, just feels like it would be soul sucking.
It is. However, the reality is that you work where the jobs in your field are and you live where the affordable housing is.
I live where I live as the end result of a divorce. I work where I work as a result of a series of layoffs. Now that "job security" is an oxymoron, moving to be near a job just isn't worth the risk.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict
Professional · Mission Viejo, CA · Member since 2016 · 5 posts · 0 votes
10y
@Carrie Anderson I work for developers within the inland empire region, on the property management side, and I am seeing a majority of the builders putting up houses around that 300K range, but you are in a 'developing' area where there is nothing but dirt hills all around you. Although, it won't be long before the entire IE is covered in homes. They are building like crazy right now. I currently manage nearly a 1,000 units when each of the developments reach build out. That's just in the IE, that's not including my projects in Orange County, San Diego, and Bay Area.
Real Estate Investor · Kalamazoo, MI · Member since 2015 · 120 posts · 37 votes
10y
@Account Closed this is a great topic to open a thread about. Than you for sharing i will need to grab a book and do some more reading. My local REI meeting group gives out a report on our monthly stats report on what does on in the area and most realtors i talk to say there has always been a shortage in supply in the area comes a certain time and this year is it to be even more scarce for SFH. Do you guys take this as an indicative that buying and holding is a good idea for the time being and maximize on that?
Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
10y
@Carrie Anderson@Aaron Mazzrillo I can't remember the name of the development, just remember Fontana seemed like a haul from south of downtown LA (you can probably guess where I went to school now). I can't imagine the commute if you had to get to work downtown or on the west side.
Homes were definitely tract quality with KB making tons of margin on upgrades in the "design studio."
Ontario, CA · Member since 2015 · 69 posts · 10 votes
10y
@Account Closed it's a haul, for certain :-) I used to commute from Crestline to Huntington Park. Now my commute is 5 minutes to my home office, or 10 minutes to my nearest Starbucks, if I'm feeling brave. ;-)