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

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

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David S.
Rental Property Investor · Larkspur, CO · Member since 2018 · 198 posts · 179 votes
8y
A lot of good opinions here. One thing I feel is always forgotten (somehow) is our nation's debt metrics. Would any of you rather bright souls (not being sarcastic) like to explain to me how we're going to afford Social Security, defense, debt service, health care, etc, over the next 20 years? Not to mention all the pension plans that are underfunded even when the market appreciates. We're already running 1 trillion dollar annual deficits and the long term forecast is abysmal.
If you ask me, we're in effect a slow motion version of Venezuela. The only way we keep the debt down is to reduce the value of our currency. Inflation. You're already hearing the Fed talk about "target inflation". You'll hear that phrase more and more and the number will slowly increase from 3% on up. Inflation is the new backdoor taxation... we all lose buying power to keep the house of cards upright, and the way it's going we're going to have to lose this value a good bit faster than we are now.
And THAT is why I'm here. Because my rents will (more than likely) keep up with inflation over time. All that said, I agree that we're due for a recession, but I also agree that @Jay Hinrichs is right about costs of construction and thus housing inventory that's lagging. My guess is that housing sees a meaningful dip of say 20-25% within the next 3 years, but that's not to keep me from buying a property that can realize the same 20-25% of appreciation through some sweat equity. You hedge for that, build value, and keep doing it. It's hard to lose when you find ways to create value over the long term, recession or not.
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Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
8y
@Frank Boet - knowing that Toll and KB are going much lower puts you in an enviable position. You can buy puts and profit off their declines- I'm assuming you've done so?
You may also have fallen prey to a common human foible, which is thinking patterns exist when they don't. A concrete example: I read Stocks for The Long Run by Jeremy Siegel many years ago. He noted that if stock investors bought stocks at local minimums and simply held them, they did extremely well over the years(obviously.) What was less obvious was investors who bought stocks at local peaks also did extremely well(I can't recall how he defined 'local peaks,' but we can hand-wave a bit here.) By extremely well, Jeremy Siegel meant that investors beat the long-term treasury by big margins.
So if people buying at only local peaks did well too- who is left to lose in the stock market? It's the people who trade. Most investors sell at exactly the wrong time...looking at this statistic or that statistic to try to bolster their already-existing opinions of what's going to happen in the future. Those are the investors who get clobbered.
You've chosen housing starts, and suggested that because of something or other with housing starts, you know what's going to happen with Toll Brothers- you don't. Between adopting a buy-and-hold approach in real estate and selling everything when you get nervous, the former strategy will tend to do better for the vast majority of investors.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @David S.:

A lot of good opinions here. One thing I feel is always forgotten (somehow) is our nation's debt metrics. Would any of you rather bright souls (not being sarcastic) like to explain to me how we're going to afford Social Security, defense, debt service, health care, etc, over the next 20 years? Not to mention all the pension plans that are underfunded even when the market appreciates. We're already running 1 trillion dollar annual deficits and the long term forecast is abysmal.
If you ask me, we're in effect a slow motion version of Venezuela. The only way we keep the debt down is to reduce the value of our currency. Inflation. You're already hearing the Fed talk about "target inflation". You'll hear that phrase more and more and the number will slowly increase from 3% on up. Inflation is the new backdoor taxation... we all lose buying power to keep the house of cards upright, and the way it's going we're going to have to lose this value a good bit faster than we are now.
And THAT is why I'm here. Because my rents will (more than likely) keep up with inflation over time. All that said, I agree that we're due for a recession, but I also agree that @Jay Hinrichs is right about costs of construction and thus housing inventory that's lagging. My guess is that housing sees a meaningful dip of say 20-25% within the next 3 years, but that's not to keep me from buying a property that can realize the same 20-25% of appreciation through some sweat equity. You hedge for that, build value, and keep doing it. It's hard to lose when you find ways to create value over the long term, recession or not.
well I hope your wrong about SSI my wife and I combined now would receive just over 6k a month and it goes up if we wait few more years. I could actually live on that since my retirement home is paid for already.. :)
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John Patterson
Contractor · Canton, GA · Member since 2015 · 111 posts · 81 votes
8y
I have been told that the reason the market fails are from to much supply and not enough demand. Yet, the “experts” are saying that the supply is still low. Most of what I see on the supply sides are multi family and still some commercial strips. If we have some drops it may be in multi family. Yes, I know this may taboo in these forums.
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Matt Millard
Lewisville, TX · Member since 2015 · 344 posts · 264 votes
8y
@David Smit. I agree with you’re post about the US fiscal debacle! Do you follow Mises or Austrian Economics? I’m convinced housing won’t be the cause of the next crisis & that we will have a full blown dollar currency crisis!
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David S.
Rental Property Investor · Larkspur, CO · Member since 2018 · 198 posts · 179 votes
8y
@Matt Millard Gosh, there's a question that goes back for me... I like economics and did a minor but I can't remember. I do believe it's Austrian that I would favor.
Frankly I'm not sure how one can't agree with most of what I said... most of it is plain vanilla facts. Seems everyone wants to ignore the debt crisis because the numbers are just too hard to even begin to comprehend and we all think it's the next person's problem. And that's where we're wrong. We all pay for it one way or another. And when everyone is looking the other way, nobody has their eye on the ball. Welcome to politics.
What Jay said is in effect right; costs have surpassed what the lower class can afford and thus housing isn't being built for them. But that's not a temporary situation, that's a product of our fiscal environment and just a taste of what's to come. Next is the middle class and we're already seeing it. I'm middle class and can't afford to build a home. The generation before me, however, could. Before you know it, nobody is building homes because even the luxury class dries up for lack of buying power and demand.
We can all look back foolishly and say "Naaaah, that'll never happen! Look how clever we are!" But then the world has never seen national debt on this level, has it? And to think it's all fiat... People can nay say all they want, but we're in an experiment of epic proportions; that much is certain. I have a hard time seeing how it ends well for you and I if we're not providing basic services, like housing, that demand a market price.
Anyway, I believe the statistic is something like $120k per person in national debt in the US, and that's right now. What are we going to do when it's $250k? Half these people don't even earn an income (elderly and children) let alone have that kind of money to spend.
But still, if we just keep our heads in the sand... all will apparently blow by and we'll be none the wiser. Right?
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Eric Aello
Dallas Texas · Member since 2018 · 26 posts · 20 votes
8y
If you feel the market is going down, wholesale, or adjust your numbers to the decline, and "meet the market, don't beat the market".
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David Wright
Lender · USA · Member since 2013 · 186 posts · 97 votes
8y
Its all about the market, location, and area. In some zip codes they have peaked and in some zip codes they have not peaked. It really depends on the market.
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Lorin K.
Tacoma, WA · Member since 2015 · 141 posts · 29 votes
8y
Here is another indicator...mostly from the past. What do these dates have in common? 1921 to 1929 1980 though 1988. 2000-2008 and 2010 to 2018 ? Do you see a pattern?
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Wren Martin
Flipper/Rehabber · Chandler, AZ · Member since 2017 · 74 posts · 67 votes
8y
It feels like 2005 to me. I'm still ready, willing, and able to buy in my market and expect that will continue for awhile longer but I'm looking at shorter holds, more flips, and piling up my war chest to go on a monster buying spree again in 2008 - 2010 whenever that actually comes around again.
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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
8y
It may feel like 2005, but it's definitley not - just look at the data and compare 2005 and 2018.
- New home price median: went from 229k in 2005 to 329k in 2018 - no wonder we have a supply shortage!
- existing homes: went from 210k to 253k - compare new and used for 2005 and 2018: existing are still too low!
- new home sales: half of what it used to be
- new home starts: almost 800,000 units less the pre-bubble
- existing home sales 20% below peak - simply because of short inventory
I don't see a housing market crash in the next years. Supply and demand suggest we are not even half way through the up cycle. I am seeing the market here in Milwaukee slow down a bit and cool off in the since early July, with DOM going up, but prices holding firm. And that's to be expected after the run we had in the last 3 years. The market is reacting like a stock that had a ralley and is taking a break, but is fundermentally still cheap - so it is plateauing out for a while, maybe comming down single digits, before we will see the next drive up.
Garry Keller is calling it buyer's fatigue: I have several potential clients who are not selling, because they are worried they wont find anything to buy. Others got tired of chasing prices, they literally gave up and are standing on the sidelines in hopes for something to change. Every time they mentially adjust their budget the market has moved up some more and they can't find anything nice for what they are willing to pay. The irony is, that they are willing to pay more now, than what they could have bought a house for a while ago with lower interest rates.
As long as we have an imbalance between supply and demand, I am not worried about the houseing market. Inventory is extremly low, especially under 400k and there are no new homes being built in that price range. We are building in the 600s, thats where the economics work much better for a builder.
I believe it's long clear for the FED that their plan to deal with debt is inflation - we have printed enough money over the last years that it has to devalue the dollar natuarally, they will just try to manage that process and keep it stable - I hope they succeed and we are not comming down hard. But even in this case I feel safe with cash flowing properties and will continue to buy and upgrade - mostly on MLS by the way. Inflation will keep pushing rents up and errode mortgage debt and therefore accelerate equity growth.
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Rich Senyszyn
Member since 2018 · 46 posts · 43 votes
8y
Price to income is a bit high in our area. I'm working on improving current projects rather than finding something marginal. At the right price, compared to construction costs, it doesn't really matter much if I'm buying/building a 2%+ property. My market is expected to triple in size in the next 10 years. Everyone seems to be fixing and flipping which is not my thing.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
Yes it has peaked and a crash is imminent. Ill buy your propertis for 90 cents on the dollar so you can avoid the 20% collapse coming.
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Bob Prisco
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
8y
@Frank Boet hell no. It all depends on your market. Buy and rent, who cares if prices go up or down, 10- 15% , still collect rent. Flipping is a job, ( a good one, I have done 100s but still a job ) Rentals provide freedom.. All the best
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Jack Bobeck
Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
8y
I'm buying properties that are in foreclosure or distress. There are still people using reverse mortgages and the banks own the properties, there are still short sales going on. Life is happening, but I am NOT buying at ridiculous prices relative to the market. I do believe there are good deals on homes in my chosen ZIP code that I can buy at $60 per square and the value is $120 per square.
Money is cheap to borrow, banks are still allowing us to cash-out refi, so go for it, just DO NOT OVERPAY and make sure you can cash flow when you buy. Rent to Own still a great option, still lots of people who cannot qualify for a house.
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Account Closed
Miami, FL · Member since 2018 · 55 posts · 24 votes
8y
@Frank Boet where have prices in Miami come down?? They are still 250-300k for a 3/2 in the westchester area. There was a report that the high home prices are going to trigger a mini recession here due to pricing out all the middle income families. The places under 200k I wouldn’t want to live in....
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
@David Smit To answer your question long term we aren’t going to pay for all that. Taxes will he raised sometime in the mid to late 2020s , and SS and Medicare will either be gutted or benefits reduced probably roughly 25 percent
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Caleb Heimsoth:
@David Smit
To answer your question long term we aren’t going to pay for all that. Taxes will he raised sometime in the mid to late 2020s , and SS and Medicare will either be gutted or benefits reduced probably roughly 25 percent
you need to work harder to make sure my SSI is not gutted.. or reduced we are counting on you guys and gals to pull us through
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Caleb Heimsoth:
@David Smit
To answer your question long term we aren’t going to pay for all that. Taxes will he raised sometime in the mid to late 2020s , and SS and Medicare will either be gutted or benefits reduced probably roughly 25 percent
you need to work harder to make sure my SSI is not gutted.. or reduced we are counting on you guys and gals to pull us through
I’d be happy to get anything lol. I expect to get nothing.
1 Reply
Eric Kottner
Flipper/Rehabber · Loveland, OH · Member since 2014 · 34 posts · 24 votes
8y
I agree I think the Prices peaked. This is actually how I'm teaching my Marketing manager now about pushing for lower prices. I'll still buy and sell but we spent 2018 focusing our marketing into areas that can take a correction hit and still be Retail areas. We just now make sure we have a better spread and taking less riskier properties.
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Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Caleb Heimsoth:
@David Smit
To answer your question long term we aren’t going to pay for all that. Taxes will he raised sometime in the mid to late 2020s , and SS and Medicare will either be gutted or benefits reduced probably roughly 25 percent
you need to work harder to make sure my SSI is not gutted.. or reduced we are counting on you guys and gals to pull us through
Yeah, and if my SSI is gutted, I'll just go on Medicaid. So one way or another, you youngsters better start BRRRing!
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Reggie Maggard
Blue Springs, MO · Member since 2014 · 353 posts · 52 votes
8y
@Frank Boet IDK but let’s keep telling people they have, more deals for the rest of us.
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Christian Decker
Real Estate Agent · Seattle WA · Member since 2018 · 22 posts · 5 votes
8y
It really depends on your market. In Seattle the "experts" (I put that in quotes because no one except God knows the future) say that the market peeked about 60 days ago. We are currently at a plateau and waiting to see what happens next. There are still good deals out there but just have to work hard at finding them. Real estate agents I talk to continue to say things are still going up, they don't sound as convinced as they did last month.
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Steve K.
Honolulu, HI · Member since 2017 · 247 posts · 315 votes
8y
Originally posted by @Caleb Heimsoth:

Originally posted by @Jay Hinrichs:
Originally posted by @Caleb Heimsoth:
@David Smit
To answer your question long term we aren’t going to pay for all that. Taxes will he raised sometime in the mid to late 2020s , and SS and Medicare will either be gutted or benefits reduced probably roughly 25 percent
you need to work harder to make sure my SSI is not gutted.. or reduced we are counting on you guys and gals to pull us through
I’d be happy to get anything lol. I expect to get nothing.
since I was in high school, I've always assumed I was not going to get any SS
1 Reply
Andy Mackey
Developer · Kansas City, MO · Member since 2018 · 21 posts · 3 votes
8y
@John M. Best post yet- you don’t need to worry about timing the market, just watch the Fed. I am always shocked how many people have never heard of the inverted yield curve. When it inverts, and it will next year. We will have a recession within 12 months.
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