Have Real Estate prices peaked?
Miami, FL · Member since 2015 · 84 posts · 69 votes
I am definitely holding off buying real estate for now. There are too many signs suggesting that the Seller's market has peaked. I'm noticing homes staying on the market longer and have seen more price reductions here in Miami at least. Stock prices of home builders like Tol, KB Homes, and LGI Homes peaked in January of 2018 and are going much lower, plus US Housing Starts "rise less than expected". We can not prevent economic cycles and a recession is due within a couple of years, maybe even next year. Housing Starts is a very good indicator, since 1965 it has never been wrong predicting a recession. This is just my own humble opinion. https://tradingeconomics.com/united-states/housing-starts
@Frank Boet I've done 2 of the best 5 deals I've ever gotten this year. Real estate is and always will be local.
Ligtning never strikes twice. We are always ready to fight the last war. There are a lot of investors sitting on the sidelines waiting for the big one to hit and they will be ready. Time and circumstance have a way of changing the strategy upon first contact with the enemy. Liquidity in the market is going to be a bigger problem than cost of money in a down turn.
Do you have enough cash for the entire purchase and reno? If you are looking to flip the house, is there someone who can buy it? If you are buy and hold will there be someone willing to rent it at a fair price? Hitting one grand slam every 5-10 years is not my strategy. I am happy with getting on base and occasionally hitting a home run.
RE is a cyclical business and will have booms and busts. If you wait long enough you will be correct on both sides of the equation. In my opinion, the next economic event will not be caused by housing. It will be the stock market, world events, a trade war.
In my own investing, I am a net buyer and I still find deals I like. The market is clearly a sellers market and we have seen a lot of appreciation, all the gateway cities are overheated. This has forced me to move quicker and be more creative in making deals. I buy deals not markets.
Timing the market is always tricky, but my feeling is they are very close to.
I am in a very niche submarket which is experiencing a lot of upward movement, and I ask myself this question every day. I am still buying. I hope to never stop buying. As long as it's really a deal, and you have lots of room for a correction, you are safe. It may just be harder to find a deal. The real mistake is sitting on the sidelines.
If you're holding real estate for the long haul, then price doesn't matter.
I feel they have not peaked. It's Sept and there's generally a slow down from here til Feb, but I have to feel, that at least in the Charleston, SC market, that we have another few years of pricing increases ahead of us. We are in an weird market here though. 56 families per day are moving to the area and construction cannot keep up with demand. As long as there's inventory shortages, there will be price increases.
Texas seems to be doing good overall. With the large influx of people that are out-of-state and the various headquarters that have recently been relocating to the DFW area, housing prices still rise and investors are still making a killing in this local market. So it definitely depends on where we invest (REI is local) and if we're actually getting deals.
@Lesley Resnick said it best. I'm in Nashville, and there is a TON of inventory out here that we are buying and getting to our investors. Yes, it is a seller's market, but if you're comfortable with the FIX part of fix and flip, there is still a lot of money to be made in most markets. At the end of the day, it's about the individual deals.
The key is to make sure the numbers are right for each deal and do as many as you can! You never know when you're going to hit that home run. I work with investors that are so crippled by fear that they never pull the trigger. Ultimately, they are missing out by not ever putting themselves in the game.
Even though I'm approaching age 50, I'm still employing the "it's a marathon not a sprint" strategy. I'm in the middle of forming a partnership and LLC right now with two other investors so that we can purchase more buy and hold properties. My personal price point is getting difficult to find and purchase, so we will pool our resources and look at higher price points, while still looking at the "cash flow" method.
Agree real estate is absolutely local.
Las Vegas market didn’t go up much compare to West coast cities during 1989 boom, so Las Vegas market was pretty much flat during the downturn from 1991 to 1994, then went up again starting 1994.
Las Vegas market went up extremely a lot during 2005 boom, so went down extremely a lot during downturn from 2008 to 2012.
Las Vegas market have not gone up much compare to West coast cities during 2017 boom so far, we are still 25% below pre-recession price. From the history of 1989 to 1994, I would “assume” Las Vegas market may be flat in the next downturn...
@Frank Boet - cashflow is king. Prices are getting high but my thoughts are in the camp of "prices leveling off or slightly dipping". There are too many stats showing that prices, foreclosures, starts, inventory etc are not anywhere near the levels of 08'. The big correction, if the 18 year cycle theory holds true... may be 2024. But who knows. As long as you buy correctly now and you are relying on solid cashflow and not appreciation you are greatly mitigating your risk. But no one is correct at picking the peak of any market. Well, let me rephrase that, no one is always right on picking the peak of a market. You never hear about the gurus that get it wrong over and over.
I see various sentiments of "cash flow is King" all the time but I question why people indicate this? I am not saying cash flow is not nice but is it king?
I would have it fairly low on my list. But who cares about my list? How about we look at lists like Core Logic ROI on buy n hold? What does cash flow do to the historical ROI? The top cities on the list are traditional high appreciation markets/low initial cash flow markets.
So where do I place cash flow? I place it behind 1) A good value add 2) purchasing below market 3) property appreciation 4) rent appreciation.
If I can get a 6 figure value add that equates to a lot of units making a few hundred a month cash flow. Similarly, If I purchase a cash neutral unit but the rents are going up >$100/month per year (many high appreciation markets have been experiencing this level of rent appreciation) it does not take long for the cash flow on this initially poor cash flow unit to leave the good cash flow unit in the dust. Moderate property appreciation such as 5% when I have 20% equity provides a nice return. The high appreciation markets have been appreciating better than 5%/year since the GR.
So what if there is another recession? I suspect most markets will not continue to experience the on-going rent and property appreciation but the cash flow is also not certain. Just look at Detroit at the GR. The cash flow will be market specific likely tightly coupled with the economic growth/decline of the area.
Have values peaked? Maybe in the short-term, but I guarantee you that in the high appreciation markets at some point in the future we will look back on these prices as being cheap. RE was high in 2006 but those prices look fairly low today. RE has high in the early 19902 but those prices look low today. RE prices looked high in the early 1980s but those prices look real low today.
Purchase smart properties, do not over leverage, and don't worry if we are at the top of the market. If a crash comes, be prepared to purchase at bottom prices and make even more money.
@Frank Boet - cashflow is king. Prices are getting high but my thoughts are in the camp of "prices leveling off or slightly dipping". There are too many stats showing that prices, foreclosures, starts, inventory etc are not anywhere near the levels of 08'. The big correction, if the 18 year cycle theory holds true... may be 2024. But who knows. As long as you buy correctly now and you are relying on solid cashflow and not appreciation you are greatly mitigating your risk. But no one is correct at picking the peak of any market. Well, let me rephrase that, no one is always right on picking the peak of a market. You never hear about the gurus that get it wrong over and over.
I see various sentiments of "cash flow is King" all the time but I question why people indicate this? I am not saying cash flow is not nice but is it king?
I would have it fairly low on my list. But who cares about my list? How about we look at lists like Core Logic ROI on buy n hold? What does cash flow do to the historical ROI? The top cities on the list are traditional high appreciation markets/low initial cash flow markets.
So where do I place cash flow? I place it behind 1) A good value add 2) purchasing below market 3) property appreciation 4) rent appreciation.
If I can get a 6 figure value add that equates to a lot of units making a few hundred a month cash flow. Similarly, If I purchase a cash neutral unit but the rents are going up >$100/month per year (many high appreciation markets have been experiencing this level of rent appreciation) it does not take long for the cash flow on this initially poor cash flow unit to leave the good cash flow unit in the dust. Moderate property appreciation such as 5% when I have 20% equity provides a nice return. The high appreciation markets have been appreciating better than 5%/year since the GR.
So what if there is another recession? I suspect most markets will not continue to experience the on-going rent and property appreciation but the cash flow is also not certain. Just look at Detroit at the GR. The cash flow will be market specific likely tightly coupled with the economic growth/decline of the area.
Have values peaked? Maybe in the short-term, but I guarantee you that in the high appreciation markets at some point in the future we will look back on these prices as being cheap. RE was high in 2006 but those prices look fairly low today. RE has high in the early 19902 but those prices look low today. RE prices looked high in the early 1980s but those prices look real low today.
Purchase smart properties, do not over leverage, and don't worry if we are at the top of the market. If a crash comes, be prepared to purchase at bottom prices and make even more money.
I think the reason people say "Cash flow is king" is because if your property value drops by 20% and rents decrease some, at least you'll still be able to pay for the property mortgage. If your cash flow is break even and the market tanks, if you're over leveraged you're in trouble if you don't have a big source of income as now you've got money going out to all those mortgages all of a sudden instead of coming in.
It's kind of like having a job with normal life expenses...do you want to have a job where it just barely covers expenses with the chance for a huge bonus, or one that exceeds it by a bit with a smaller bonus potential? Sure, you can probably get ahead faster with the big bonus, but the second job position is less risky overall in the event of the bonus going away (or even eating your salary like in 08).
Also, there has been some talk about rent bubbles in some cities lately, so in that case your higher cash flow would provide some protection for that.
I am far from an experienced investor, but my plan right now is to pick up one property a year with 15-20% down. I understand a lot of people get into the market with FHA financing but I think that's unwise. A market correction, in that case, will quickly put someone underwater.
My strategy is far from exciting but I think there's a great deal of value that you can invest in real estate in a boring way and make money over time. I certainly think waiting for this market correction that no one truly knows when and how it will happen to invest would be a mistake. There are a lot of tools that will help an investor buy right no matter the market conditions.
@Frank Boet - cashflow is king. Prices are getting high but my thoughts are in the camp of "prices leveling off or slightly dipping". There are too many stats showing that prices, foreclosures, starts, inventory etc are not anywhere near the levels of 08'. The big correction, if the 18 year cycle theory holds true... may be 2024. But who knows. As long as you buy correctly now and you are relying on solid cashflow and not appreciation you are greatly mitigating your risk. But no one is correct at picking the peak of any market. Well, let me rephrase that, no one is always right on picking the peak of a market. You never hear about the gurus that get it wrong over and over.
I see various sentiments of "cash flow is King" all the time but I question why people indicate this? I am not saying cash flow is not nice but is it king?
I would have it fairly low on my list. But who cares about my list? How about we look at lists like Core Logic ROI on buy n hold? What does cash flow do to the historical ROI? The top cities on the list are traditional high appreciation markets/low initial cash flow markets.
So where do I place cash flow? I place it behind 1) A good value add 2) purchasing below market 3) property appreciation 4) rent appreciation.
If I can get a 6 figure value add that equates to a lot of units making a few hundred a month cash flow. Similarly, If I purchase a cash neutral unit but the rents are going up >$100/month per year (many high appreciation markets have been experiencing this level of rent appreciation) it does not take long for the cash flow on this initially poor cash flow unit to leave the good cash flow unit in the dust. Moderate property appreciation such as 5% when I have 20% equity provides a nice return. The high appreciation markets have been appreciating better than 5%/year since the GR.
So what if there is another recession? I suspect most markets will not continue to experience the on-going rent and property appreciation but the cash flow is also not certain. Just look at Detroit at the GR. The cash flow will be market specific likely tightly coupled with the economic growth/decline of the area.
Have values peaked? Maybe in the short-term, but I guarantee you that in the high appreciation markets at some point in the future we will look back on these prices as being cheap. RE was high in 2006 but those prices look fairly low today. RE has high in the early 19902 but those prices look low today. RE prices looked high in the early 1980s but those prices look real low today.
Purchase smart properties, do not over leverage, and don't worry if we are at the top of the market. If a crash comes, be prepared to purchase at bottom prices and make even more money.
I think the reason people say "Cash flow is king" is because if your property value drops by 20% and rents decrease some, at least you'll still be able to pay for the property mortgage. If your cash flow is break even and the market tanks, if you're over leveraged you're in trouble if you don't have a big source of income as now you've got money going out to all those mortgages all of a sudden instead of coming in.
It's kind of like having a job with normal life expenses...do you want to have a job where it just barely covers expenses with the chance for a huge bonus, or one that exceeds it by a bit with a smaller bonus potential? Sure, you can probably get ahead faster with the big bonus, but the second job position is less risky overall in the event of the bonus going away (or even eating your salary like in 08).
Also, there has been some talk about rent bubbles in some cities lately, so in that case your higher cash flow would provide some protection for that.
My initial response to your reply is that if a 20% property decline and some rent decrease means you cannot pay the mortgage then you are over leveraged. In the GFC/GR, I suspect all of my RE had at least close to 20% decline in value. Fortunately there was little or no rent decline in my market (and my properties had positive cash flow) but I was prepared to deal with at least a 20% decline in rents. Today I can deal with a much worse crisis than I was prepared to deal with then.
I realize that my initial response acts like no one is over leveraged and we know that is not true. But my feeling is instead of investing with high leverage for cash flow in the high cash flow markets, these investors would be far better off investing high leverage in high appreciation markets. Why? Because they are already over leveraged and all in. They are risking everything. They might as well risk everything on something that can produce a return that justifies the risk.
I choose to walk a line of using leverage but not being overly leveraged. If I needed to supplement 50% of PITI for a few years or longer, I am in position to do so. Cash flow contributed little to get me to be in this position. Mostly it has been appreciation with a big boost from value adds that have allowed me to be confident of weathering a financial crisis similar to the GFC/GR.
In my market, market appreciation has been a near constant positive impact on ROI and therefore is king. If I was invested in a Midwest locale that has experienced minimal market appreciation, cash flow would be king. Cash flow is not king in my market. RE is local with different investment opportunities/risks in different locales and to think cash flow is king in all markets ignores the variations in various RE markets.
@Frank Boet I feel the same way. Thus, I am waiting for the inevitable collapse, and "bargains galore!"
@Sam Josh, of course we are all part of an ecosystem. I guess I'm not picking up your point here - should people not invest because other people are clueless and may make bad decisions? I don't agree with that. I do the best research I can, buy in owner-occupied areas. I can't control what other investors are doing, but I'm not going to buy, for instance, a duplex on a street of duplexes because that's going to depress appreciation and rent increases. I'll buy in an area that's primarily owner-occupied with decent schools and low vacancy. Short of putting up a sign in a neighborhood that says, "NO OTHER INVESTORS HERE!!!!!" I'm not sure what else you'd suggest I do. LOL.
I've recently started to notice homes staying on the market longer here in the Bay Area, specifically East Bay. I've also noticed multiple homes in my area that have recently had price reductions, which is odd. Have real estate priced peaked? Maybe not, but we're starting to see signs that indicate we're heading in that direction.
Who knows. Don't count on appreciation, be conservative with underwriting, and make sure that it cash flows at a 10% rent reduction. It could crash tomorrow, it could go on for another 20 years.
@Holly Williams I like the thought process you've got. Hopefully it won't be 20 years though...yikes!
Too bad you can't short real estate like you can the stock and futures markets. Then these naysayers would be forced to put their money where their mouth is.