Is the RE market due for correction, crash or still raging bull ?

25 Replies

Your personal thoughts on market direction ? I various views from people in Oregon and curious of your opinions and WHY?

I think the market is ready for a correction but not a major crash. Rent rates and property values have increased dramatically over the last 8-10 years and it's not sustainable. A ton of new investors are jumping on rental property and we have new construction which is going to eventually saturate the market.

I predict it will slow in a year or so. I also expect a lot of newer investors to scatter in the next few years as they start to deal with rent reductions, less cash flow, tenant difficulties, etc.

@Nathan G. Have you seen a lot of rent reductions over time from your experience? I know that can happen but in our area they steadily go up over time due to inflation and rising housing costs. I know during in 80's in Oregon there were a lot of vacancies however.

@Todd Powell my rental market is normally very strong. However, something changed two years ago and it's gotten tougher. This summer was really bad! Houses normally rent like crazy in the summer but this year I had hardly anyone looking at houses and some have even sat on the market for months. There's too much inventory, we lost a lot of higher-paying positions in the area, and more people are buying instead of renting.

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@Todd Powell My belief is that real estate is super local. As long as your buying in the right spots you can weather a storm if the market does soften and even raise rents in certain situations. I am talking in terms of the multifamily family space, 100+ unit complexes. For a very insightful overview of what the market is doing and why cap rates are compressing even when interest rates are going up, I would listen to @Gino Barbaro podcast "wheelbarrow profits" with Neil Bawa. The title of it is Multifamily Market Trends. 

@Scott Morongell

Follow the money and the returns will drop. MultiFamily has amazing tax benefits and renting is in demand.

50% of people will be right, 50% will be wrong. The problem is just because you are correct in a flip of the coin choice doesnt mean you know what you are talking about.

Todd,  I think as it relates to the Portland metro area.. we are seeing a ceiling for sure on rents..

and I see move in specials I saw a sign offering 400.00 referral fee for a new tenant.. ( which not sure how they can do that legally speaking).. 

and I know some of the new A class product is stressed in our area.. simply because the projects take years to build and build cost now for a metal glass elevator building is 400 a foot or better.. and expected rents on those units have dropped not risen.. So I can see some cash calls coming for some of the MF guys in this market when their projects don't hit their bank covenants.. 

but that's just PDX other markets are different for sure.. 

And I suspect were your at a huge collage town its pretty much same every year when your renting to students.

@Jay Hinrichs yes, we felt some pushback on our rents in Forest Grove and my son @Jason Powell said 45 days ago he felt the market changing a bit. Over 200 brand new units were recently built in the same area and they not only have a work out facility, but they dropped their rates just trying to fill units. 

You are also right, I love my college rentals in Corvallis and Monmouth as they are 100% full every year based on demand and one year leases! Love strong college markets 

As a whole, I see a correction coming. Of course, there will be areas that will be impacted less or will continue to grow. There will be different variables in play as well, including interest rates. 

Rent has been low, and lowered for 2 years+. Those who bought more than 1 property is paying the price. Rent can be just 60% on a dollar PITI if owners paid only 20% down..... We still have flippers around just bought raised the price 300-400K thinking no one takes notice.

I suspect some social media, and start up companies will run out of cash will fold up. During the Dot.com we had 90,000 engineers with boxes getting shipped out. San Francisco can be an ideal city to unload these companies.


Originally posted by @Sam Shueh :

Rent has been low, and lowered for 2 years+. Those who bought more than 1 property is paying the price. Rent can be just 60% on a dollar PITI if owners paid only 20% down..... We still have flippers around just bought raised the price 300-400K thinking no one takes notice.

I suspect some social media, and start up companies will run out of cash will fold up. During the Dot.com we had 90,000 engineers with boxes getting shipped out. San Francisco can be an ideal city to unload these companies.

Adding 300-400K with zero rehabbing?

Just one block away from our house, we have flippers adding 7 figures to the price. Of course, there was a good amount of rehabbing done, but $1.1M to $2.1M??  OK... it'll be interesting to see what happens. We've been monitoring its progress as we walk by with our dogs on a daily basis.

https://www.redfin.com/CA/Los-Angeles/890-S-Bronson-Ave-90005/home/6917421

Probably a new kitchen, painting....

Originally posted by @Scott Morongell :

@Todd Powell My belief is that real estate is super local. As long as your buying in the right spots you can weather a storm if the market does soften and even raise rents in certain situations. I am talking in terms of the multifamily family space, 100+ unit complexes. For a very insightful overview of what the market is doing and why cap rates are compressing even when interest rates are going up, I would listen to @Gino Barbaro podcast "wheelbarrow profits" with Neil Bawa. The title of it is Multifamily Market Trends. 

 I agree to an extent. I think an even better strategy is to invest in nicer multi-family or smaller single-family. Rentals for under $1,000 a month will always rent well. My market is tough for properties over $1,100 - $1,200 right now but everything under $1,000 is still renting well. I've listened to a lot of gray-haired investors and they say the same thing. 

@Nathan G. you have a lot of really good insight on your posts! I agree with you as I am typically 90% $1000 or under pricing, and the other 20% is $1050-1200. It’s the sweet spot price range for sure and almost every buy and hold we have is 4, 5 or 8 plex units. College campus close on a few and that’s always makes it easy with demand !

@Tony Kim Doesn’t look like they added any square footage when looking at the old listing , Would be interesting to see what they sell it for .

Todd, up here on the West Side I've followed the local Beaverton/Hillsboro/Silicon Forrest market for about 10 years and have come to the conclusion that jobs are the bigger factor than interest rates, 401K value direction, gold prices, etc.

Almost every new construction development has always advertised INTEL & NIKE EMPLOYEES WELCOME offering discounts. Intel/Nike employee 10s of thousands earning $100K and up. And with 5,000 high tech. companies in my backyard they've all seen tremendous hiring and growth since property values were half only one cycle ago.

It was cheap 10 years ago, and every week since, I've seen more and more out of state license plates, assuming that those people got JOBS then moved to the West Side.

So, the future depends on JOBS and I will say that if INTEL or NIKE run into problems, it will have a massive impact on local real estate. The same can be said of a market like Sparks near Reno that has jumped because of tens of thousands of Tesla employees that get the job first, sell their over-priced CA home, jump on Sparks real estate, and the market inflates. If Tesla runs into trouble in the recession, I expect Sparks to see some pain.

If you can predict job growth and job losses, you can do very well in local real estate markets! I drive around everyday but just saw a big McAfee building and Yahoo office for the 1st time today and still have no idea where these so-called 5,000 tech. companies are hiding.

In short, follow the tech. jobs for the most appreciation. Prineville/The Dalles come to mind as some of the places that quietly lured big tech. and local real estate values went way up.

I heard that Target is one of the best population and demographic researchers, and they know where to build stores based on job populations. A wise lady once told us to always invest in real estate within 5 miles of a Target and NOT Wal-mart, etc.

Where do all those high tech families spend the earner's money? Target and now Amazon.

Jumping on real estate near Amazon's HQ2 will be one of the biggest smartest plays in real estate over this next cycle as they hire 50,000+ earners making $100-200K ea. all looking for homes to buy, restaurants to eat out at, gyms to work out at, coffee shops to hang at, and all those supporting businesses will need commercial development!

Either a HQ like Nike here or a new factory like Intel/Tesla is probably the best way to go no matter the market!

11 years into a 10 year cycle

@Todd Powell I'm waiting for the pigs to get slaughtered. They know who they are in my local market, they are the ones wholesaling garbage at ridiculous prices. Newbies are coming in and buying this stuff and thinking they can live on appreciation when its rising 10% yoy. Next year is forecast at only 2-3%, so then what? What do you do when you have 1 month or two months of no tenants? Having bought, fixed and now renting a property that you had to invest 40-50k in and that some wholesaler claims is worth 90k more than what you paid for this 3/1. 

I'm wanting to see the pigs get slaughtered, I want to see wholesalers go back to making 5-10k on a property and not getting greedy thinking they need 20k per deal. I hope they lose their shirts holding onto properties over the next few years, but soon there will be a pendulum swing to the other side and this buyers market will flush out the pigs. Then we will have the gurus talking about how to buy right and all those programs from 2010, 2011 and 2012 will be on display again, but seasoned investors have seen this, we know what to expect. 

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