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

114 Replies

@Jay Hinrichs - If the market (Hedge Funds) want to give you a big profit - I say take it every time as you can always find a niche to profit in

@Frank Wong - No Short Term Debt, Don't over Leverage, Have Multiple exit paths, Must be able to hold for years worst case

Originally posted by @Rick Baggenstoss :

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.

 To that point we're still going up in ny niche neck of the woods.

@Jay Hinrichs - I have been in the business for 15 Years and agree that seasonality could be playing a small part in what I am seeing.  However, what I am seeing everyday clearly points out in my market that things have changed and I need to pay attention.

I am a huge Bruce Norris fan and have attended his events on lots of occasions 

As always I could be wrong or I could just be early.

Never boring and all the best

As much as I wish it were a buyer's market, we're nowhere close.  Sure, the market isn't exploding upwards like it had been, but to say it's over is a little extreme.  

Plus, it's hyper-local and where I am, heavily dependent on the type of property. SFR detached have slowed down, but MFR and condos are still pounding higher and higher.

Please define over leveraging. What LTV is overleveraging 35% 25% 15%? Certainly, it means that one shouldn't take out certain loan products such as ARMS balloon and high-interest rate debt.

"The sellers market is over" Maybe it is in the high end residential space. I certainly won't be buying a 1m condo in California with 3% down. Would You? I wouldn't do this in NYC either!

Interest rates, the elimination of the state and local tax deduction has affected high tax states in NJ. NJ is in some sort of recession in the housing market for 10+ years. There are so many short sales and foreclosures even in good areas this is stemming from the great recession 10 years ago. NJ has been a buyers market for 10+ years. Banks have been holding properties to see if prices increase. They have not and now are unloading these properties now! Prices do not go up here, they seem to be stagnant and in a possible major decline. The Trump tax plan hit the nail on the coffin. There is no reason why anyone would want to buy a house here in NJ with no deduction and the potential tax increase from the government. I believe if there are multifamilies that can offer quality units the residents will rent and not buy. There's simply no incentive to buy now! Since prices are declining and residents are leaving to lower tax states, there are opportunities to buy real cheap and rent these houses out. 3-4 people on my block are getting ready to sell. A lot of these are accidental landlords. There are still people that will buy houses but not as many as before, certainly it could be that investors will and rent them out. Nj will be a renter's state in the future, especially in the entry level homes.

Philadelphia and Eastern PA is in a sellers market still even at these levels. Inventory is creeping up. Philadelphia has been doing well while the Southern NJ is in a severe buyers market!! Banks are just beginning to unload properties at a faster rate! Everywhere I go around in the Southern NJ area I see REO's, short sales and foreclosures. The other amazing thing is that major homebuilders are building brand new homes!

There is simply more cash flow properties available in NJ than in Philadelphia! The problem is when you want to sell these properties. Will there be a buyer in NJ?  Certainly not at the high-end, there is simply too much tax that you cannot deduct! don't know - there may be investor buyers but many people do not want to take the risk of being a landlord in NJ.  

The seller's market might only mean California, NYC, Philadelphia Washington DC. High urban business districts with jobs. Certain areas like NJ, prices are declining and has been for years. The price hasn' t increased so you are losing money to inflation with your investment.  In fact, I bought my home NJ last year for less than someone bought it in 2006. In addition - the Landlord laws are very tough here so many would-be landlords do not invest here, thus reducing prices even further since there are fewer investors. 

The tax deduction never affected me so that never affected my decision. I believe we will see more NJ, NY residents leave to Florida this year and next year. 

A broken clock is right twice a day.  I have yet to encounter anyone that can show me a market that the buyers are in control.  Eventually, it will happen.  What we are facing is an affordability problem.  The average American can not afford to buy a house.  Cheap money is over for a while.  As a result, liquidity will increase as the rates rise, but fewer deals will work at these levels.  I have yet to see much loosening of underwriting for loans.  Finding stated income loans and 100% finance is rare.  The market will have to cool, but there will be no CRASH.

The next crisis will not look like the previous.  We are at a far greater risk from the European debt crisis.  Google it, you should be concerned.  The result is liquidity is going to dry up.  If you have cash, you will be able to pick up some good deals.  It will not be the $.20 on the dollar.  Investors will not be forced to sell, they will be able to hold since they are not in a variable mortgage or only holding to cash out next month at a profit.        

**My opinion** Forecasting the near future, it will most definitely become a buyers market sooner than people would like to believe.  Just because you have not seen inventory numbers rise this month / quarter, doesn't mean that the market isn't about to drastically shift.  The simplest formula to forecast if prices are too high for the average buyer in a designated area is to evaluate and use the .gov economic statistic tools to your advantage.  

For instance, in my hometown, the average household income is $78,000 (Includes incomes of both Husband and Wife and anyone over the age of 16).  Even with a sufficient amount of liquid assets and low debt ratio, what would be the average price a household family could comfortably afford making $78,000 per year?

-- Well I can for sure tell you it is not a home priced at $395,000.  That is the average list price for a single family dwelling based off of 298 listings in my area.  

This is the primary reason why the market will shift and shift drastically in my opinion.  It is simply not a factor of demand, rather than a principle of basic economics and factors of affordability.  Sellers have pushed their peak and buyers will simply revolt and or cannot afford these asking prices.  

By the way, my area is not the only area with these insane listing prices (+20-40% asking price YTD.)

@Lesley Resnick 2 months ago I went to a Tampa Suncoast meetup featuring "the queen of rehab" . In the same meetup within 20 mins apart the speaker mentioned this large pool of bankrupt new graduates with massive debts forced to live with parents and at the same time she was encouraging the folks to invest in 250 k+ home because you get a better crowd! . How does this work out?

I like to invest in the lower end of the market. As interest rates rise, serious buyers won't stop buying, but will have to tighten their criteria and lower their aim in regards to purchase price. 

It also allows me to keep holding as rentals, if the market really turns. 

I like to also buy near developments, as certain projects will pull prices up, regardless. 

Where is the laughing emoji?? what data are you using to make these claims?

The markets that I am in, Las Vegas and Henderson, NV have about twice as much inventory as in the beginning of the year, but the nicer well priced properties seem to be going under contract without sitting too long.  It's the crappy stuff or unrealistically over priced properties that is starting to sit longer. 

I wouldn't call it a buyers market, but it's not as cut throat as it was earlier in the year.

Rentals are a different story, in my neighborhoods inventory has dropped to almost zero and the rents are continuing to climb.  People are moving to Vegas in droves from all over so there's huge demand and tenants are renewing leases and not moving out.  Especially from California, I have good quality paying tenants with high credit scores that handily passed all screening.  It's great to be a landlord in Vegas right now.

It seems the market is cooling.  I know many in the Houston area who are not seeing the returns of years past.  Perhaps the same in growth cities around the nation.  I can't help but think that before the crash, regardless of the causes, there was a certain supply.  Then during the crash, building declined, and all existing homes likely dried up due to natural disaster events (Texas flooding a few years back, and then again with Harvey).  Factor in other natural disasters that have knocked off some inventory and it seems like a shortage.  Furthermore, the shortage of foreclosures and shadow inventory has left investors bidding prices up on auction offerings.

I'm on board with MrAlanKendall's philosophy:

https://www.youtube.com/watch?v=nKq1STLI17g

If banks turn the lending hose on, prices could continue increasing.  It seems unlikely that real estate will x2, x4, or more at this time, but it's happened before and it will happen again...eventually.  That's why I'm holding long term positions.  As long as cash flowing, any increase in value is just bonus. 

I am a realtor in Columbia MO which is about 120,000 people. We are seeing more of a slow down this summer/fall than in previous years. We had an extremly busy spring and I believe the threat of rising Interest rates pushed more buyers to buy in spring.

I don't think so.

Making sweeping generalizations might be tempting, but they're not accurate at this point.

Our Q3 2018 numbers just came out.  Compared to Q3 2017, Plymouth County, MA numbers are:

Average sales price: $385,000, up 4.5%

Days on Market: 47, down 11.0%

Months of supply: 3.2, down 12.7%

Still a shortage of properties, but homes that sell bring in more money and sell faster.

The sky is definitely not falling in Plymouth County, MA.

How does the change from a sellers market to a buyers market look for people who have rental properties? Since there starts to be more inventory on the market, causing housing prices to fall. Do people move out of rentals and buy homes when the prices drop. Basically I'm asking if rental property owners should be worried because of the increased inventory and dropping house prices?

Originally posted by @Lance Barnett :

How does the change from a sellers market to a buyers market look for people who have rental properties? Since there starts to be more inventory on the market, causing housing prices to fall. Do people move out of rentals and buy homes when the prices drop. Basically I'm asking if rental property owners should be worried because of the increased inventory and dropping house prices?

 In my area the lower priced houses still sell. I think tenants that haven't bought in the past year or so, probably aren't just waiting for lower prices or they would have gone for it. They either have bad credit, no savings or just don't have a home-owner mindset. So, that's not really something I'd worry about so much. 

All real estate is local. Within LA there are numerous submarkets, and they all do their own thing. What a market does in some other state makes no difference to me locally, and vice versa.

For now all the market I work are steady to increasing. Shortage of inventory (maybe not so much at the high end), and unemployment is low. High demand and low supply does not generally = declining prices. There is a lot of construction going on, and it is not just going to stop mid stream. More likely stuff under construction gets built and we end up overbuilt with offices or high end apartments or whatever.

@Patrick Britton - I agree Real Estate is hype local and the category or type also matters.  Having invested through the last transition from Sellers to Buyers market I know their is always a first domino to fall and then they speed up.  I could be early, it could just be my market, but something is different 

@Lesley Resnick You are right a broken clock is right twice a day and maybe I am 100% wrong or maybe I am just early.  That said I think the first domino fell and this is what I see (again maybe only my market).

Buyers have disappeared

Listings are creeping up

Price Reduction quantity is up

Affordability is going to get worse if rates go up more

Good Selling

@Brandon L. - I didn't share my honest thoughts to entice laughter.  It was my honest assessment after spending every day in my market for 15 years.  As my profile highlights I have been investing for 15+ years, own enough rentals to retire early and I average 2 purchases a month, so I don't share my thoughts lightly or for laughter.

My market is Fresno California

Like others have said there is no one size fits all to explain the market at large. This is a big country with lots of markets with different drivers. 

In my area it seemed like every month for the last few years each month new sellers would increase their prices by 10 to 20k. Since sellers are slow to react are prices really going down when they lower this month's price to what it was a few months back? Prices push until demand gives. 

Redfin wrote an interesting article about expensive coastal markets feeding inland less expensive markets. I live in a destination market and I've seen inventory rise but at the same time I still see houses between $500k and $700k get offers. Keep in mind wages in this area just flat do not support those prices without imported money.

I would have sold my primary in May but I still have a year and a half before I can skip town so I guess I'll see where the ride stops.

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