The market downturn is here, at least in my market. Anyone else?

182 Replies

It's here. The shift is upon us. Whether a crash is to follow, I am not sure, but the rising tide that we have all been riding for the last 9 nears to reaching it's tipping point. I seriously have no more time to write a post because I have to head out the door to tour 5 properties my buyer wants to see today. Here's what I know. We have been scouring the market for buy and hold and fix and flip since his last project closed about 6 months ago. Sure, we have seen the base hit here, and maybe another single over there. But nothing we were seeing was a solid, double, or triple, let alone the thought of a homerun. For a little perspective, he likes to NET about $40-50k on flips, assuming about $200-250k total investment. Buy and holds he looks for 15% COC, and or about $400/door depending on the project, cash needed, etc etc. Right now he has 5, count them FIVE deals on the table to choose from. All ranging from a 'double' to 'home runs'. Flips looking to net around 40k would be a double, 100k a home run. AND, to make matters worse, we have 5 more to look at today, which all look like solid deals on paper and in photos. So we went from not being able to find a single property that would NET more than $15-20k on a flip, and in the matter of WEEKS at least 5 screaming deals have hit the market, still have not sold, and more seem to be hitting the market daily as we can't even get into them all fast enough to run the reno budgets.

Sure, this is  just my anecdotal evidence.  I promise to bring more facts to the discussion to support me claim, I just don't have the time right now with all this opportunity.  I find it extremely hard to believe all the investors in my market, the greater Philadelphia area, have just pick up and quit buying up deals for the month and left them all behind for us.  I think the shift is here.   The question now becomes, do prices level off and allow buyers to catch up that have been struggling to find a place, or does it swing all the way in the other direction and we see prices actually start to drop.

I welcome those that agree, but even moreso those that disagree.  Please change my mind please try to find some signs that are not pointing to a complete meltdown.   I'm going to leave everyone with one fact that will solidify my case.  Jumbo Mortgages are down 12% by volume compared to last year.  That's a huge drop.  And anyone that has seen this before, the top of the market starts to slow first, and it trickles it way all the way down the the $30k single family homes in Detrioit.  I wish everyone the best.  This is going to be an extremely exciting time for those that have been preparing for it. 

Wow I wish I lived in the greater Philadelphia area, deals are way more difficult to come by down here. 

@William C.

I would say it depends on the market and property type. Even the 2008 recession didn't really have a major impact in certain markets. For example, where I live (which I consider to be the tertiariest of all teritary markets), the real estate crash back in 2008 didn't have as much of an impact as other more desirable markets. If anything, it was the fall out from the 2008 market crash that made the folks in our area suffer due (e.g. job loss, stock market crash, etc.). But the housing prices didn't drop the way that you saw in other markets. 

I could see prices falling down in some markets. Even drastically in some areas. But 2008 was a pretty special time. While we could have another dip in the real estate or the stock market, I don't think it would happen for the same reasons. But who knows? ¯\_(ツ)_/¯

Just out of curiosity, what does $300k-$350k get you nowadays near Philly? 2000 SF ish homes?

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@William C. Well, for those who subscribe to the yield curve inversion theory, it's official here:

https://www.nytimes.com/2019/03/22/business/yield-curve-inverted-recession.html

William PA is one of the states were foreclosure take forever and there was / is still a lot of hangover inventory compared to other markets. 

Like the Oregon market we were all done with hangover inventory by 2013 to 2014. .NONE left. 

so its dog tough for flippers in our market

The Bay Area is still strong.  Both deals I am in contracts with had 4-5 offers.   I think we are also in our own little world here. Settling in a new base in the last 2 months.

I don't know about other markets, but Napa and north have started to become relatively slower as they were a few months ago. Rent is decreasing in the vicinity, but the houses do get 4-5 offers(currently, less than the list price). I left the house I was renting, and they already had a tenant signed up, 20-days before I went (This is near the bay area). I agree with @Jay Hinrichs that it is still limited to certain markets, but I must add that it is coming.

Originally posted by @Jaudat S. :

I don't know about other markets, but Napa and north have started to become relatively slower as they were a few months ago. Rent is decreasing in the vicinity, but the houses do get 4-5 offers(currently, less than the list price). I left the house I was renting, and they already had a tenant signed up, 20-days before I went (This is near the bay area). I agree with @Jay Hinrichs that it is still limited to certain markets, but I must add that it is coming.

I used to live at Silverado for a decade.. and my mom lives in Napa so there often .. was there last week.. Hundreds of new apartments being built around town. rents very high.   wine country is classic supply demand.. and other than the traffic these days what a great place to live.. I drove up to Calistoga for a quick lunch meeting and it was one of those blue bird spring days 70 degrees the mustard in full bloom.. Yup now I remember why I loved living there. 

Frankly the net gain from wholesale here in SFBA for 1M SFH is not more 4-5%. People gained 175-200K from flipping days are gone. The flippers will soon disappear.

One sure sign that a market is about to turn is a significant increase in flippers and a noted increase in house flipping shows on TV. This upswing in the past has always been behind the upcurve and sure sign we have passed the tipping point. At this time flipping will be even more time sensitive than normal and new players to the game will suffer.

In my little neck of the woods, buy and hold single family housing inventory is very low, and the prices are high ( hard to make a profit). In the past, fixer upper houses would have the for sale prices listed so that you could bid on it or make counter offers, now, they just list the lower priced houses as " come to the auction and bid". Also, I see investors purchasing large parcels of commercial properties and apartments here now.

Originally posted by @William C. :

It's here. The shift is upon us. Whether a crash is to follow, I am not sure, but the rising tide that we have all been riding for the last 9 nears to reaching it's tipping point. I seriously have no more time to write a post because I have to head out the door to tour 5 properties my buyer wants to see today. Here's what I know. We have been scouring the market for buy and hold and fix and flip since his last project closed about 6 months ago. Sure, we have seen the base hit here, and maybe another single over there. But nothing we were seeing was a solid, double, or triple, let alone the thought of a homerun. For a little perspective, he likes to NET about $40-50k on flips, assuming about $200-250k total investment. Buy and holds he looks for 15% COC, and or about $400/door depending on the project, cash needed, etc etc. Right now he has 5, count them FIVE deals on the table to choose from. All ranging from a 'double' to 'home runs'. Flips looking to net around 40k would be a double, 100k a home run. AND, to make matters worse, we have 5 more to look at today, which all look like solid deals on paper and in photos. So we went from not being able to find a single property that would NET more than $15-20k on a flip, and in the matter of WEEKS at least 5 screaming deals have hit the market, still have not sold, and more seem to be hitting the market daily as we can't even get into them all fast enough to run the reno budgets.

Sure, this is  just my anecdotal evidence.  I promise to bring more facts to the discussion to support me claim, I just don't have the time right now with all this opportunity.  I find it extremely hard to believe all the investors in my market, the greater Philadelphia area, have just pick up and quit buying up deals for the month and left them all behind for us.  I think the shift is here.   The question now becomes, do prices level off and allow buyers to catch up that have been struggling to find a place, or does it swing all the way in the other direction and we see prices actually start to drop.

I welcome those that agree, but even moreso those that disagree.  Please change my mind please try to find some signs that are not pointing to a complete meltdown.   I'm going to leave everyone with one fact that will solidify my case.  Jumbo Mortgages are down 12% by volume compared to last year.  That's a huge drop.  And anyone that has seen this before, the top of the market starts to slow first, and it trickles it way all the way down the the $30k single family homes in Detrioit.  I wish everyone the best.  This is going to be an extremely exciting time for those that have been preparing for it. 

What makes these homeruns as flips if no one is buying? If they're rentals then I'd agree but it sounds like you're talking about looking at potential flips? To my thinking, if he's able to buy a flip project that cheaply, why would he be able to sell his flipped house in a few months at the same higher prices he was getting? If no one is paying the inflated prices on the lower end projects why would they pay the same prices they were paying? Also, I don't think flip projects will dry up first, I think flipped/rehabbed house buyers will dry up first then we'll see flip project prices dropping as flipped houses sit and prices on them drop. Hope that all makes sense?

Originally posted by @Jay Hinrichs :

William PA is one of the states were foreclosure take forever and there was / is still a lot of hangover inventory compared to other markets. 

Like the Oregon market we were all done with hangover inventory by 2013 to 2014. .NONE left. 

so its dog tough for flippers in our market

 You are right about that.  Takes 1.5-2 years on some of these to hit the market.  It's strange though.  In that matter of weeks we are feeling a slow down.  Foreclosures lasting 20 days on the market?  That was unheard of even 2 months ago.  I am not saying there are no flippers out there anymore,  we are still out there, it is just SHIFTING, i can feel it under my feet like never before.

Oh, wanted to add, I don't think you're necessarily wrong, I've felt pretty strongly we'd see signs this year and made moves to protect myself from the downturn. I'm just curious about the logic of seeing the deals available and if they are, why you'd think they're homeruns if the buyers of the end product are likely drying up? 

Originally posted by @Troy S. :
Originally posted by @William C.:

It's here. The shift is upon us. Whether a crash is to follow, I am not sure, but the rising tide that we have all been riding for the last 9 nears to reaching it's tipping point. I seriously have no more time to write a post because I have to head out the door to tour 5 properties my buyer wants to see today. Here's what I know. We have been scouring the market for buy and hold and fix and flip since his last project closed about 6 months ago. Sure, we have seen the base hit here, and maybe another single over there. But nothing we were seeing was a solid, double, or triple, let alone the thought of a homerun. For a little perspective, he likes to NET about $40-50k on flips, assuming about $200-250k total investment. Buy and holds he looks for 15% COC, and or about $400/door depending on the project, cash needed, etc etc. Right now he has 5, count them FIVE deals on the table to choose from. All ranging from a 'double' to 'home runs'. Flips looking to net around 40k would be a double, 100k a home run. AND, to make matters worse, we have 5 more to look at today, which all look like solid deals on paper and in photos. So we went from not being able to find a single property that would NET more than $15-20k on a flip, and in the matter of WEEKS at least 5 screaming deals have hit the market, still have not sold, and more seem to be hitting the market daily as we can't even get into them all fast enough to run the reno budgets.

Sure, this is  just my anecdotal evidence.  I promise to bring more facts to the discussion to support me claim, I just don't have the time right now with all this opportunity.  I find it extremely hard to believe all the investors in my market, the greater Philadelphia area, have just pick up and quit buying up deals for the month and left them all behind for us.  I think the shift is here.   The question now becomes, do prices level off and allow buyers to catch up that have been struggling to find a place, or does it swing all the way in the other direction and we see prices actually start to drop.

I welcome those that agree, but even moreso those that disagree.  Please change my mind please try to find some signs that are not pointing to a complete meltdown.   I'm going to leave everyone with one fact that will solidify my case.  Jumbo Mortgages are down 12% by volume compared to last year.  That's a huge drop.  And anyone that has seen this before, the top of the market starts to slow first, and it trickles it way all the way down the the $30k single family homes in Detrioit.  I wish everyone the best.  This is going to be an extremely exciting time for those that have been preparing for it. 

What makes these homeruns as flips if no one is buying? If they're rentals then I'd agree but it sounds like you're talking about looking at potential flips? To my thinking, if he's able to buy a flip project that cheaply, why would he be able to sell his flipped house in a few months at the same higher prices he was getting? If no one is paying the inflated prices on the lower end projects why would they pay the same prices they were paying? Also, I don't think flip projects will dry up first, I think flipped/rehabbed house buyers will dry up first then we'll see flip project prices dropping as flipped houses sit and prices on them drop. Hope that all makes sense?

 I understand some of what your saying, I'm just not sure I have an answer for you, other than there are less flippers in the market scooping them up 1,2,3 days on market.   How do I know why no one else bought it?  If we were worried about that, we would NEVER move on a property.   Flips sell with multiple offers over asking price because we are usually selling a home that fits 90% of buyers..1900 sq ft, 3-4 bed, 2 bath, under $300k.....We are seeing 30-40 showings on the first weekend on any house listed in this price range.   Why are people not buying the fixers?  Who knows.  But they are not.  Maybe its my lucky day and I get to scoop 4 or 5 great deals?   I doubt it.   

He is able to sell flips, for way more a month later, because buyers want the house the see at the end of the TV show, they dont want to be the TV show.  They wouldnt even know where to start...money, permits, contractors, where to live.....most buyers want nothing to do with that.  They'll pay the premium on the back end for a perfect house they can move into.

Lastly,  it's a 50/50 split flips and rentals.  But even the rentals are priced a point we can renovate, rent, refi, and pull almost all cash back out.

Some of the markets in my area have been overbuilt and are no longer a sellers market.  The "frenzied" feel has seemed to pass.  Anecdotally on the buy side of rehabs, there are way more opportunities this year than last.  Maybe the DoM has gone up 30% for fully rehabbed properties, but there are 2x the fixers available. 

The Westside of Los Angeles (Venice, Santa Monica, etc.) definitely is turning.  It started in late summer 2018 and has slowly turned downward more since then.  Listings are sitting on the market longer and many end up selling below list price.  There also has been a dramatic reduction in the number of bidding wars (https://themortgagereports.com/47875/home-bidding-wars-down).  

It's a very high-priced area that may be indicative of where things are heading more broadly.  It's just hard to tell if we are headed for a dramatic downward trajectory or a much more modest correction.

@William C. interesting analysis. What are the DOM for rehabbed homes in your area? Is there a slowdown in home sales? I know plenty of us are still flipping in the city of Philadelphia. 

Originally posted by @Frank Geiger :

@William C. interesting analysis. What are the DOM for rehabbed homes in your area? Is there a slowdown in home sales? I know plenty of us are still flipping in the city of Philadelphia. 

 Average HOM, hours on market is about 6....when priced correctly.  Of course some sellers are getting greedy and thinking listing higher means a higher sales price.  I'm a believer in slightly under-pricing, and let emotions make buyers pay even more than if they know they are the only one with an offer.

Originally posted by @Jaudat S. :

I don't know about other markets, but Napa and north have started to become relatively slower as they were a few months ago. Rent is decreasing in the vicinity, but the houses do get 4-5 offers(currently, less than the list price). I left the house I was renting, and they already had a tenant signed up, 20-days before I went (This is near the bay area). I agree with @Jay Hinrichs that it is still limited to certain markets, but I must add that it is coming.

 Yup, the higher end markets are the first to feel it.

Originally posted by @Tyler Weaver :

Some of the markets in my area have been overbuilt and are no longer a sellers market.  The "frenzied" feel has seemed to pass.  Anecdotally on the buy side of rehabs, there are way more opportunities this year than last.  Maybe the DoM has gone up 30% for fully rehabbed properties, but there are 2x the fixers available. 

 Exactly.  Hold on people, we are looking over the edge.  Luckily (depending how you look at it), at least in my opinion, it won't be like 2007, this rise is not artificial like it was then, so more of a leveling off would make more sense than an all out crash.  Time will tell.  

@Tyler Weaver   see below these are the market reports we get every week pretty detailed and the graph stats folks love them.. my wife sets her clients up on these and of course we use them for our activies we are building in Lake Oswego for example 


Hi Lori - here’s this week’s market report!
Access your report(s) for
West Linn, OR →





Beaverton, OR →





Portland, OR →





Lake Oswego, OR →








A few questions these reports can help you answer:
    Is now a good time to buy or sell? Check the “Market Action Index” to see if the market is heating up or cooling down.
    How’s the market in my price range? Click into the “Market Segments” charts to see the how the market is behaving.
    What can I get in my price range, and where should I look? Use the “Median List Price” charts to see what buyers are getting for their money. To view market stats on other areas, simply enter the Search button at the top of the page. Feel free to share this report with clients or on social media, and please let me know if you have any questions or need additional resources. I’m happy to help in any way I can!

@William C. Im back in Redding, CA and we only have an inventory of around 700 houses on MLS. Its due to the fires in nor cal. Things sell before we even finish the paperwork for MLS.

Originally posted by @Joseph ODonovan :

@William C. Well, for those who subscribe to the yield curve inversion theory, it's official here:

https://www.nytimes.com/2019/03/22/business/yield-curve-inverted-recession.html

 The yield curve needs to have a 90 day inversion to be predictive of a recession.  So far we have a 1 day inversion.  Short term inversions happen very frequently in history. It makes for good click bait....however a 1 day inversion has meant exactly nothing historically.

Originally posted by @Karen Margrave :

@William C. Im back in Redding, CA and we only have an inventory of around 700 houses on MLS. Its due to the fires in nor cal. Things sell before we even finish the paperwork for MLS.

 That's interesting, and as real estate is obviously hyper local, instances like this are happening in other pockets of the country as well.  I guess it's good for sellers in your market, but bad for the markets those people are running from.   Scary stuff, unfortunately out here on the east coast, the CA fires become a 10 second segment on the nightly news.   

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