The Sellers Market is Over - Be Careful (Now What)

114 Replies

If you have been investing for 5 Years or less you have been wildly successful!! However, you need to pay attention because this changing market could catch you by surprise and Crush You. Let me explain.

Seller’s market like the last 5 years do a couple of things

  • 1)Sellers markets invite the masses to come into real estate. When Guru’s start showing up on TV/Radio and people start selling “Systems” it is time to be concerned .
  • 2)Sellers Markets make people feel smart as the market rises and people cash quick checks with nice profits even if they didn’t run an efficient process.
  • 3)What worked the last 5 years can lead you to go broke if you don’t change your approach as hold times and margins are about to drastically change.

In the end please recognize that the market has changed and thus you need to be more conservative or you could go broke. I wanted to write this as 1,000’s of people went broke the last time the market changed (2008-2010) from a Sellers Market to a Buyers Market.

Note I think this is going to be a great couple of years but you must be careful 

Good Investing

Z

Current national inventory levels are at 4.3 months of supply. The average this year so far is 3.9 for the year. 2017 was 3.9, 2016 4.4 and 2015 was 4.8. 

So what in the data indicates the sellers market is over?

Well, I believe it is in the philosophy of investing. It is almost always either buyers market or sellers market , right. Buyers market means a load of inventory waiting to be purchased so that there is more supply than demand, which causes prices to drop. This is the better time for investors to add new inventory to their portfolio. On the other hand, when it is called sellers market means more demand than supply which ends up with higher home values. As an investor, this is the time you want to sell. To me for an investor, it does not really matter. If you know what you are doing you should not be worried at all. You just need to watch what you are doing and if you are doing the right thing at the right time.

Matt

Hi Russel Brazil

What I see going on is similar to what happened last time the market rolled over or switched from Sellers to Buyers Market.  First Buyers start to revolt as Prices and Affordability got uncomfortable, then listings start to pile up and Months supply explodes.  

Now granted I could be biased and to focused on my market but here is data from two different Zip Codes in my Market

Downtown averaged 3.1 -3.8 Months supply for 12 Months and then Boom September went to 12 Months Supply (Inventory only went up slightly but Buyers Disappeared and Closed Transactions got cut by 75% Month to Month)

Another Nicer Area went from Sub 4 Months to over 8 Months.  In this zip code listings went up by 20% and closings went down by 40%.

This should be fun to see where we go, Good Selling

Z

Moral of the story is not to be over-leveraged.  It will be interesting to see how things play out. A seller's market to a balanced market is a good thing. It's not a bad thing that it goes to a buyer's market as long as it's not extreme.  

Personally, I think what we have is an overinflated stock market that resembles the 99-01 dot-com era. My area housing prices didn't crash during that period. I think the risk here is flipping high-end homes with high-interest hard money loans.  Properties may sit longer and prices that you forecast may not be there.

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@Account Closed Amen!!! I can't tell you how many times I hear an investor say, "Don't worry about it as the property is up 20K a month" --- Well in the Bay Area that can happen in a Hot Sellers market but guess what happens when the Sellers market disappears?

I saw lots of people lose their Net worth and then some

Originally posted by @Michael Zuber :

Hi Russel Brazil

What I see going on is similar to what happened last time the market rolled over or switched from Sellers to Buyers Market.  First Buyers start to revolt as Prices and Affordability got uncomfortable, then listings start to pile up and Months supply explodes.  

Now granted I could be biased and to focused on my market but here is data from two different Zip Codes in my Market

Downtown averaged 3.1 -3.8 Months supply for 12 Months and then Boom September went to 12 Months Supply (Inventory only went up slightly but Buyers Disappeared and Closed Transactions got cut by 75% Month to Month)

Another Nicer Area went from Sub 4 Months to over 8 Months.  In this zip code listings went up by 20% and closings went down by 40%.

This should be fun to see where we go, Good Selling

Z

what zip codes exactly is this happening in ???  I remember investing in FLA in 09 and Miami had an Eleven ( 11) YEAR supply in back logged listings.. and inventory.. 

Also you being bay area based it appears.. maybe you have caught Bruce Norris.. he is one of the better minds in this business.. 

his definition of a bubble burst or bad sellers market is when you have at least 30% of your listings as short sales or OREO ( bank owned)

we are pretty far from that..

sales this time of year slow down every year.. its normal.. but with these hyper vigilant internet and stats people take one week of stats and extrapolate that to the entire market.

Originally posted by @Russell Brazil :

Current national inventory levels are at 4.3 months of supply. The average this year so far is 3.9 for the year. 2017 was 3.9, 2016 4.4 and 2015 was 4.8. 

So what in the data indicates the sellers market is over?

 for the last 40 years of me being in this business it always slows this time of year..   I posted below but for instance Bruce Norris in a talk opined that market needs at least 30% of listing be short sales or bank owned to be entering a bubble or major market correction and of course its all regional.

September always has inventory go up. Kids go back to school and families have no interest in moving during that time period. Now if the inventory is high when people start getting tax returns and stays high into the summer I may agree.

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It isn't a buyer's market in Huntsville AL right now...if anything, the seller's market is stronger now than it was 6 months ago.  I saw a property two weekends ago that was listed 24 hours earlier - and already had 3 offers on it.  Ended up with 10 offers on it, including several that waived inspection.  Perhaps the high end housing above 500k is slowing. . .but that's not my area of interest for investing.  Anything below $250k is moving faster than ever right now here.  

Just checked one county of Tampa area and saw the inventory reached >5 month now. Does this mean the buyer market is arriving?

There are markets within markets, not all markets are doing the same thing at the same time.

So what are the zip codes you are talking about that are tanking??

I am seeing the opposite where I am buying.

At the end of the day regardless as an investor you must always mitigate the risk, one way is to keep leverage at a manageable level, where you can service debt, in particular if interest rates start to rise.

Buy and sell in same markets, if you have made money, take some profits off the table, reduce debt and risk. No one ever went broke taking a profit.

Also pay attention to market sentiment where you are investing, its very important as this can turn markets... No need to panic at the moment if you are managing risk

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Great analysis about the buyers market vs sellers market based on experience and some stats,but what I find it hard to understand  is who are these buyer? Are we talking younger buyers who have student loans and are finding it hard to find a job and thus staying in their parents home ?  These younger buyers are also forced to buy cars with a loan because they need to at least get to their part time gigs. 

Is doing Uber and Lyft enough to get a loan to buy a home? Or Are we talking R.E investors who will do their numbers, which means not all properties will make the cut.I can understand that renters might be willing to move to new rentals certain months vs other,but how can the economy create a constant pool of buyers without big changes in fundamentals..

Originally posted by @Marisa R. :

There are markets within markets, not all markets are doing the same thing at the same time.

So what are the zip codes you are talking about that are tanking??

I am seeing the opposite where I am buying.

At the end of the day regardless as an investor you must always mitigate the risk, one way is to keep leverage at a manageable level, where you can service debt, in particular if interest rates start to rise.

Buy and sell in same markets, if you have made money, take some profits off the table, reduce debt and risk. No one ever went broke taking a profit.

Also pay attention to market sentiment where you are investing, its very important as this can turn markets... No need to panic at the moment if you are managing risk

words of wisdom in this post  !!  two thumbs up..  take profit when it arrives.. when I was buying courthouse steps in Atlanta in 2012 to 2013 ( bought 54 homes in about 14 months)   the hedgefunds starting coming in hard.. kicked us guys to the curb we could not beat them at auction.. so I rolled up my 54 homes and sold them to the hedge fund as a bulk sale and a better thatn 50% cash on cash profit in less than 16 months..   so I agree take profit.. I could have held on to now and made more but then I would have had to deal with being a long term landlord which is not our model.. we take profit at every opportunity we can.

Originally posted by @Marisa R. :

There are markets within markets, not all markets are doing the same thing at the same time.

So what are the zip codes you are talking about that are tanking??

I am seeing the opposite where I am buying.

At the end of the day regardless as an investor you must always mitigate the risk, one way is to keep leverage at a manageable level, where you can service debt, in particular if interest rates start to rise.

Buy and sell in same markets, if you have made money, take some profits off the table, reduce debt and risk. No one ever went broke taking a profit.

Also pay attention to market sentiment where you are investing, its very important as this can turn markets... No need to panic at the moment if you are managing risk

 "No one ever went broke taking a profit"

Words to live by.

Someone needs to tell this to the sellers in my market...

@Michael Zuber what are some of the steps you have changed in your underwriting to be more conservative if your still buying? I have changed hold periods and debt that is placed on deals.

Atlanta tends to lag behind western markets.  If you're looking for a national flip from buyer's to seller's market, then I'd watch Phoenix and Vegas.   When they slow/change, then Atlanta, for example, will turn several months later. 

Anticipating more of a headwind, I'm restructuring my debt, culling my portfolio of less desirable properties, and accumlating cash as a result.  I'm still buying rentals and flips, but only taking on high profit projects or solid longterm holds.

@Scott Morongell As the market rolls over I have changed a few things.  First I have lowered my Expected Sale price by at least 10%. I have added 2 months to hold times, I will only do deals now that Cash Flow and I am okay holding for 2 years as a worst case, I have extended my Private money period from a year balloon to three years and I have lowered my going in prices by 15%.

I don't expect to get anything for a few months as sellers need to come to a realization the market has changed.  Lastly I am always a buyer as I believe you need to stay in the market to be engaged

@Mike Dymski - Sellers are always the last to know / admit but when they flip they will do it in mass and suffer together ... 

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