If everyone is waiting for a recession, will there be deals?

Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes

Hi all, It seems to me that everyone I've talked to is waiting for the bubble to burst. Investors, people who are trying to buy their first home or people who want to trade up but can't right now. If the market drop 10% and everyone jump in, can we still find deals? I'm not even considering the hedge fund money...

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Well I just reviewed the case shiller index going back to World War II.....and the only 10% drop in prices nationally I see is during the the recent financial crisis/housing collapse.

So I wouldnt exactly bet on that type thing happening twice in a decade if it's happened only once in most peoples lives

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
Well I just reviewed the case shiller index going back to World War II.....and the only 10% drop in prices nationally I see is during the the recent financial crisis/housing collapse.
So I wouldnt exactly bet on that type thing happening twice in a decade if it's happened only once in most peoples lives
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group545 Reviews
Website View Page
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Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
9y
@Jen L. If the situation as you described truly exists than it fits Warren Buffet's Maxim about how Berkshire Hathaway invests: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful"
Can you find a deal that fits your goal? If so, its time to get greedy.
However, like @Russell Brazil pointed out, there mostly likely is not another RE bubble around the corner and whatever bubble is out there will not have a dramatic impact on RE prices, at least nationally.
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Jen L.
OP
Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Russell Brazil Bill F. I'm just thinking that if everyone is ready to buy when there is any correction, then it's not worth waiting for the correction. What's your game plan now? Buying/selling/holding?
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
You'll always have deals, just a matter of having the network/understanding/resources to make them work. Not everyone has the same idea of waiting nor does everyone want the same outcome for the future.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
9y
You could be waiting a while if you’re looking for a major nation wide correction. I think there will be a correction in the near future but it’ll likely be more localized than the last one.
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Jen L.
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Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Matt K. Caleb Heimsoth Do you see any indication in your market? I see high-end condos in SF softening but other Bay Area market is still very strong
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
9y
@Jen L. I invest only out of state, so not where I live. I’d say it’s slowing down a bit, but unless the economy tanks and unemployment goes up, then as a buy and hold investor I think my downside is limited.
From a stock market perspective, it’s not that overvalued when compared to earnings.
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
My KC house has appreciated well even more so considering it's the midwest (but it's cheap and nowhere near bay area numbers). I've basically given up locally in the East Bay but things seem to be strong. In my neighborhood the condos are selling like hotcakes and they are doing good job of slowly releasing them to keep prices high.

However, the rents are low compared to their purchase price and you have a good mix of long term owners who can easily cover expenses at low prices and new owners who have bought in at nearly double. I'll be curious how that plays out long term.

I honestly feel like newer bay area home owners are a medical emergency or lay off away from foreclosure. I mean it's gotten to the point where not even a room mate or renting going to help out much.
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Jen L.
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Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Caleb Heimsoth Since you live in Texas, I'm very interested to know where do you invest out of state? I thought Texas is the new Holy Grail?
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Jen L. Everyone *says* they’ll jump in when prices drop 10%. Okay, not everyone but a lot of people make that proclamation. Watch the market drop 10% and then: 1.) people think it will drop *another* 10% and 2.) even institutional investors get skittish about “catching a falling knife”. Personal perspective, some of this has to do if it takes 2 months or 2 years to drop 10%. And that assuming that interest rates are the same, lenders don’t change qualifications, etc. And (secondly) if that 10% is because of a change in the economy then a.) you have income risk, b.) 10% just took a chunk of your current portfolio equity away (impacting DTE ratio), c.) rents will likely be impacted so you have lower revenue on the current portfolio, d.) if interest rates rise your cost of capital increases, etc. You add it all up and you’ll get a lot of people that plan (in today’s environment) to buy at 90% of current values that either will choose not to (or not be financially able to) when that 10% drop occurs. That being said, I’m not a crash-monger. I’m just saying that it’s easy to say “I’ll buy when” when you’re not yet at that point in time.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
9y
@Jen L. I invest in Cleveland and Memphis. I would say Texas is good but definitely not a holy grail. Here’s why. Firstly the market is very hot, which was great if you bought several years ago but not now. The second reason is property taxes. Texas has extremely high property taxes. For those reasons I decided to go elsewhere, and plan on continuing to do this down the road.
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Tyler Mullen
Investor · Kirkland, WA · Member since 2017 · 310 posts · 271 votes
9y
It's fact almost all investment assets do not exchange hands in their respective markets "at the bottom". So waiting for that to happen, in only one asset class at a time, isn't "investing". Anyone waiting in all cash for a REI correction for the past year has missed a massive move in foreign stocks.
@Russell Brazil is correct. When's the last time gold was $600/oz or gas was .99$/gallon? When land in downtown Bellevue is at 1990's prices, I'll figure out a way to buy some, in the mean time, I'm elsewhere but never all cash. Each asset class should be an incubator for capital for the other.
Buffet also makes money not just being greedy when people are fearful and fearful when people are greedy, he makes money by buying many things and then waiting to sell when one goes up. One investment class or another commonly spikes due to hot money; it will go up much more than all the other losses, which is how he then goes and buys low, because he sells some of the winners to fund that rotation.
6 Reply
Jen L.
OP
Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Matt K. In east bay and South Bay, I still see people buying and lots of people on the waiting list. I asked one developer and he said he has 50 wait listers. I agree with you, I have no idea how people can afford to buy now, unless they have substantial equity from previous sale.
0 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Doesn't Memphis has some crazy high taxes on duplex (I think I remember seeing it mentioned).
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jen L.:

Matt K.
In east bay and South Bay, I still see people buying and lots of people on the waiting list. I asked one developer and he said he has 50 wait listers.
I agree with you, I have no idea how people can afford to buy now, unless they have substantial equity from previous sale.
They go all in.... I've seen it happen. I've literally seen people DRAIN the savings and cash in stocks to buy their first house. I could show you a million examples of how you could rent similar if not almost identical property for less. So many parents have instilled that rent is throwing away money people are doing whatever they can to buy a place, even if it doesn't make sense.
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Joe J.
Investor · Los Angeles, CA · Member since 2017 · 95 posts · 52 votes
9y
@Jen L. I'm assuming you're talking about your specific market in the Bay Area which has much more price volatility than most other markets. IF there is a recession of course there will be deals, people just have differing opinions on whether or not that will happen or not. The drivers for the economic downturn in the last decade don't seem to be repeating this time around.
If there was a "correction" in Bay Area real estate, I would not be surprised if there was double digit decline. I wouldn't assume the same in middle America.
0 Reply
Jen L.
OP
Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Andrew Johnson So true! In stock, my old CEO jokingly said that he use the buy-high-and-sell-low strategy. He is just being honest. I think most people do the same and won't admit it or don't even know they are doing it. I guess real estate is the same!
2 Reply
Jen L.
OP
Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Caleb Heimsoth How is tax assessed in TX? One of the advantage in CA is that the tax base can't go up much. Do you get reassess every year?
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Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
9y
@Jen L. I'm buying, but that is due in large part to individual factors in my area and less with macro market conditions. Do have a specific market where you want to invest?
A deal is a deal is a deal. If it moves you closer to your end goals and is in line with your strategy then you should be buying and leave the worrying about what the markets will do to the folks on Wall Street. Just my thoughts though.
1 Reply
Jen L.
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Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Joe J. Very true. I'm only seeing the local market. How's LA doing? Any slow down at all?
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
9y
@Jen L. I’m not sure if you’re reaccessed every year but it’s certainly every couple years. People who have seen a lot of appreciation the last couple years are now being hit with 15-20k tax bills. I’d rather avoid that situation, so I invest in cheaper and better cash flow markets.
0 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jen L.:

Caleb Heimsoth
How is tax assessed in TX? One of the advantage in CA is that the tax base can't go up much. Do you get reassess every year?
states like TX that don't have income tax often make for it with higher property taxes.
https://smartasset.com/taxes/property-taxes
2 Reply
Jen L.
OP
Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
9y
Tyler Mullen Which foreign stock are you investing in now? How's your local RE market doing?
0 Reply
Joe J.
Investor · Los Angeles, CA · Member since 2017 · 95 posts · 52 votes
9y
@Jen L. Prices are still climbing in LA, albeit at a slower pace. Even within Los Angeles, different areas perform incredibly different as gentrification hits specific areas. Even the areas previous designated as the "hood" are starting to get more and more gentrified and attracting hipsters with $$. Not to mention there just isn't much inventory. Inventory (or lack there of) and low rates seems to be driving prices up. I'd be curious to see what prices would be if inventory was closer to the average. That being said, I don't necessarily see much evidence of a large increase of supply hitting the market any time soon.
I will comment on the fear of buying at the "wrong time". I think many people who haven't had much experience in appreciating markets may not be able to identify with the "fear". My wife and I bought our first house with our life savings back in 2005. We put 20% down and got conventional financing. By the time 2008-2009 hit, our home's value declined 60%. So on paper, we lost our down payment and we were significantly underwater. I knew prices would go up again, but I did not think prices would climb the way they did. So naturally am I afraid of buying at the "wrong time?" Hell yes. Is it rationale? Maybe, maybe not. Just my opinion. FYI: I am all cash right now because I'm looking to buy an owner occupied home soon. I'm accepting of the fact that I may or may not be paying at the top of the cycle because I plan to retire in this home.
2 Reply
Rafael Norat
Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
9y
@Jen L.
Hey Jen! I feel that there are ALWAYS deals to be had so long as you have a good lead generation system regardless of the area. There's always a motivated need to sell quickly and/or at discount at some point. In my area, I've built up some great relationships and finds deals when Im not even directly looking. Could be a tenant, lender, another investor.. In NJ, it must be as competitive as any other US market. Regardless, I know plenty of seasoned investors that never struggle to find good deals. The quantities may vary depending on the time of market, but they always do seem to be there if you look hard enough..
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