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

182 Replies

Originally posted by @Scott T. :

@Jay Hinrichs Hey Jay, I was reading that a year ago approx. 40 of the primary 300 plus (or 200 or more they monitor) US markets were already showing major signs of a 'correction...' but of course nearly ALL of those main metros also have micro demographics therein with neighborhood market maturation stats that are not "the average" brush bristles the faux media tends to paint the "herd" into the corral with, about every decade to get them to 'stampede' for the exit doors, only to get 'slaughtered,' time, and again! (And some areas will mostly remain up, down, or 'correct' up to 50% plus either way, so knowing what to be in or not, where, when and why (so you realize when to EXIT) are all valid concerns! 

I believe I have a better 'approach' than this "buy -n- hold" mentality that remains almost entirely beholden to whims of a highly controlled and regulated "casino play..." just like the rest of their "what goes UP, must come down, roller coaster" games. And like ANY 'commodity,' homes that are bought and resold like clockwork ultimately can 10- 100X say a 15- 30 year play, with 3:1 interest, to principal... so it amazes me that ANYONE is still buying, holding and "renting" SFRs, in the 21st Century?! (Unless they EXIT prior to every correction. And good luck, with that!)

I know noone wants to tie- up $500k. plus into the aforementioned in "investor unfriendly" California, however if they opted to "think outside the box..." they might even 'rethink' their perspective, in lieu of what I'm envisioning??? If you know of anyone that would consider acquiring properties in the North Bay, etc., I just rented a place in Calistoga, last month. (I couldn't stand the heat in the Valley of to much sun... so I came back to Cali, for now, and Sonoma and Marin counties were a total "rat race..." so I am for now, in a town with minus 6000 people?)

The pre- foreclosures here (Napa, Sonoma, Marin counties, the Bay Area, Sac, etc.) are definitely intriguing me, especially after the additional things I've leaned (and since thought of, that relate) recently regarding what to do with these "little to no equity" homes x10 - 15 million, just in the US. I need to find a few (then more) "private lenders" and utilize OPM while paying them well to do some 60- 120 day deals (i.e. Cash resales, vs. lease purchase deals) so if you see anything that looks 'intriguing' near me to check- out and/ or know of any investors (for either California north, south and/ or in NV, AZ, etc.) I suspect the ROI will exceed the alternatives the vast majority of these guys are making, elsewhere (i.e. Like 99% of them...) precisely because I'm not your average "cud chewer, grazing on conformity..." until they close my CQV 'trust' account. ;-) Let me know if you want to know more about what I'm eluding to here? ATB :-) Scott T.

 huh?  I'd like to know more about what you are smoking, stuff must be fire.  no pun intended.

Yea, why would anyone think of buying and holding SFR in the 21st century? No body makes money doing that anymore.

Originally posted by @Jack Zheng :

@William C.

How do you determine how much a home will net on a flip? I just applied to get my real estate license and want to prepare in case I have buyers who are home flippers. Will be a real estate agent starting in April.

Thanks for your time!

I take the ARV and subtract the total cost.

My advice to new agents would be to be VERY selective about the "investors" you spend your most valuable resource on.  Vet them well.  Where is there real agent?  How many have they flipped?  I could go on and on.  If I could have back all the time I wasted chasing around people that didn't know up from down, and couldn't qualify for a bike, I'd have weeks of vacation time coming.  Spend your time wisely.  I'd find a top agent in the area and tell him you'll work for him for free.  I am serious. You might think that sounds silly,  but how much are you getting paid to sit around and not know what your doing?  At least you'll be able to LEARN by being around him, and helping him with his deals. And if he's a half decent guy he'll compensate you if you bring value to him.
Uncle was my broker, I'm relatively intelligent, I'm hard working and I was 120% motivated and passionate about being an agent when I got first got my license....It took 6 months to close my first deal and collect a pay check.  Can you wait 6 months without earning a dollar?  Eventually I learned my typical sales cycle is about 6 months.  Meaning you meet someone today looking to buy, on average they'll close in 6 months.  Some will close in 30 day.  Some will close in 365.  But if I could do it all over again I would have followed my Uncle around everyday doing everything he asked me to do.  I would have learned in 1 year what took me 10 to learn.  I wish you the best of luck, feel free to message me with any questions.

Originally posted by @Bradley Kirschbaum :

@William C. Open houses I go to in San Diego have fewer bids. Two separate property managers have told me they have had to lower rent expectation by $100/m against the owner’s wishes get new renters in units.

 Are they reducing rents from what the received last year?  Or could their expectation have been $100 too high.  We continue to see rents rising here.  Inventory is still very low to non existent as well.  

Originally posted by @Chris K. :

@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.

$300-350k will get you "it depends"  But yes, I'd say 300-350k gets you 2000k in most "desirable" neighborhoods

The Valley Forge area is quit interesting.....for example town homes sell for $30k Norristown, and a mile from there 2000 sq ft goes for $1,000,000. 

Originally posted by @Eric A. :

@Storm S. Sorry, your numbers are way off

VANGUARD REAL ESTATE ETF (VNQ) 

Option Strike Price at $74.00

Expiration Date on 01/15/2021

Purchased on 12/27/2018 at 9:57 AM for $9.60

Current Market Ask Price: $13.10

ROI, if currently sold at market price: 36.46%

I picked 16 REIT's purchased between January 14 and 17th and as a portfolio is hitting 9.69% since inception. I can share more info on the stock portfolio if you would like.

So what do buy and hold people do in the event of a RE crash?

I've been thinking about it for a while...and it could be a good thing. Rents don't seem like they crash along with prices...so if I find a place that is distressed and buy it with private money and refi then it could work out still.

Could someone check my logic?

There's always a niche in any market to invest in.... Just need a lil thinking outside the box. Besides when the feds announce no rate hikes for a year, then dont expect a real recession in the housing market, especially since we are still below 3% inflation rate. Its going to be more of a global issue at this point. When and "IF" a recession occurs, its only going to bring the prices down around 15%-20% (mild recession). Personally I dont think there will be one. Maybe a slow down (sideways market). I would just be picky on what areas I would invest in (small market areas). Lucky for me im in florida.. why do I say lucky? Lets figure this out.. we still are in a very low interest rate level. This year is when the tax rate on high tax areas like N.Y. will hit people hard for the first time. Baby boomers are in the retirement stages by now. Florida has no state tax. And spring time is the begin time of when northern areas start putting their homes on the market to sell after the winter. Like my favorite saying "Do the math!" Get ready to here how florida will be the only booming market and probably only state that doesn't get a recession affect.

The residential market had a slow down during the autumn market.   For investment real estate, multi-family sales volume was down last year, suggesting over-pricing for some assets.   And the profit margins for flips have been compressing the last few years.  This crowd was complaining their finished inventory sat on the market too long late last year.   But I see no indication that there is a sudden increase in "flip worthy" properties.  Those still get snatched up.

A coming recession may be on the way, but there are still some positive indicators in the economy such as high employment levels and increases in wages in certain sectors.  More important, lending is still active, including well defined hard money.  Experienced, hard money lenders in my market are not taking back properties in a significant way - a metric that I find to be predictive.

Originally posted by @William C. :

@Storm S. I’m not sure I follow? The stock market is doing well? I just read the article above that would indicate a recession is on the way. If your implying because REITs are up 10%, that the shift isn’t here, I’d say them being up 10% is actually a sign it’s close. As I said, we are peering over the edge. REITs, and prices may continue to rise short term, my main point is we are not at the start of a 9 year bull run as if this were 2010...

No, I agree with you the market is definitely turning, I got lucky and bought my options at the bottom of the mini stock market bubble in December and the stocks mid-January during the recovery. Data Centers and Cell Towers are the leading sub-sectors hitting over 20% since I bought. Retail is disappointing me though and is the only sector that is down to breaking even. I plan on shifting to a market neutral portfolio and rolling up my options to lock in gains, as I don't believe the market can go much higher. On the property level, we are just doing flips, and brokering deals. I have clients who want properties but we have to try and make a market for them finding off-market deals because there is nothing on the market here. We are a coastal city so for us, the ultra-low supply will keep pushing prices higher here for now, but overall I see housing prices starting to slow down and will eventually drop, nothing like 2008 though.

@William C.

buffet he says something like buy while others are scared be scared when others are buying.

On buying philosophy I have stacks of questions.

Does anyone here make investment decisions based on information they think indicates what everyone else is doing?

So other investors actions would be a basis for making investment decisions?

I have two problems with this. What if this is an anomaly. Like in a smaller market bad weather delayed a lot of rehabs and many flippers are behind schedule. Not that this is what’s going on but it really could be anything.

Data doesn’t always reveal what’s really happening.

Second are you sure the data you are using can be used to predict the direction of the market?

How many times have you been right on this type of call?

Is this proprietary data bc I’ve learned that if you have a secret indicator and it’s going to make money well then petty soon it’s not so secret.

Buffet also says about market timing.......

"I never have an opinion about the market because it wouldn't be any good and it might interfere with the opinions we have that are good," Buffett said. "If we're right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. … If you're right about the businesses, you'll end up doing fine."

@Roger Edington

never a bad time to get into RE investing. Just be picky with the area/niche you want to get into.

If flips seem to be running out to be running out of road what about rentals, trailer parks mixed use.

I went into contract on my first property in 2006. By the time I was closing in July of 2007 every day on the news I would hear the market is crashing. Then it did. A year and half later my house was worth 150k less. People were giving back houses. Going bankrupt, I got a roommate to keep myself afloat. I learned a boat load about being a landlord and one day the house was worth more then I paid.

My neighbor was telling me last night that he’s sick to his stomach that the house he bought next to mine is worth 15% less now. Which is most likely 200-250k.

There are things that make me sick but paper losses on something you’ll hold for 15-20 years. Not making me sick.

If you ask me worrying about a primary house value is insane. Pay it no mind or start renting.

As far as market for my primary......It was news to me that my own house is worth 15% less. And I’ll put that right into the useless info file where it belongs.

Investing is a long game sensitivity to market pricing is not a good strategy IMHO. Better to know what your doing have a long term plan and stick to it. File all useless info.

@William C. We are not going to see a 2008 crash. The fundamentals behind 2008 was manipulation in credit which caused a huge increase in demand (anyone could get a mortgage). We are going to see the US go into recession, a big drop in the stock market (that is where the manipulation was this time) and a leveling off of housing. Of course, all real estate is local so some areas could see a drop. But overall, expect a good 30% haircut of stocks and housing to normalize. In my area of Illinois, almost every offer I have made in the last 3 months has been multiple offer with highest and best rounds. Would love to see that end👍

Originally posted by @Scott T. :

@Jay Hinrichs Hey Jay, I was reading that a year ago approx. 40 of the primary 300 plus (or 200 or more they monitor) US markets were already showing major signs of a 'correction...' but of course nearly ALL of those main metros also have micro demographics therein with neighborhood market maturation stats that are not "the average" brush bristles the faux media tends to paint the "herd" into the corral with, about every decade to get them to 'stampede' for the exit doors, only to get 'slaughtered,' time, and again! (And some areas will mostly remain up, down, or 'correct' up to 50% plus either way, so knowing what to be in or not, where, when and why (so you realize when to EXIT) are all valid concerns! 

I believe I have a better 'approach' than this "buy -n- hold" mentality that remains almost entirely beholden to whims of a highly controlled and regulated "casino play..." just like the rest of their "what goes UP, must come down, roller coaster" games. And like ANY 'commodity,' homes that are bought and resold like clockwork ultimately can 10- 100X say a 15- 30 year play, with 3:1 interest, to principal... so it amazes me that ANYONE is still buying, holding and "renting" SFRs, in the 21st Century?! (Unless they EXIT prior to every correction. And good luck, with that!) 

I know noone wants to tie- up $500k. plus into the aforementioned in "investor unfriendly" California, however if they opted to "think outside the box..." they might even 'rethink' their perspective, in lieu of what I'm envisioning??? If you know of anyone that would consider acquiring properties in the North Bay, etc., I just rented a place in Calistoga, last month. (I couldn't stand the heat in the Valley of to much sun... so I came back to Cali, for now, and Sonoma and Marin counties were a total "rat race..." so I am for now, in a town with minus 6000 people?)

The pre- foreclosures here (Napa, Sonoma, Marin counties, the Bay Area, Sac, etc.) are definitely intriguing me, especially after the additional things I've leaned (and since thought of, that relate) recently regarding what to do with these "little to no equity" homes x10 - 15 million, just in the US. I need to find a few (then more) "private lenders" and utilize OPM while paying them well to do some 60- 120 day deals (i.e. Cash resales, vs. lease purchase deals) so if you see anything that looks 'intriguing' near me to check- out and/ or know of any investors (for either California north, south and/ or in NV, AZ, etc.) I suspect the ROI will exceed the alternatives the vast majority of these guys are making, elsewhere (i.e. Like 99% of them...) precisely because I'm not your average "cud chewer, grazing on conformity..." until they close my CQV 'trust' account. ;-) Let me know if you want to know more about what I'm eluding to here? ATB :-) Scott T.

there are laws relating to pre foreclosures in OR WA and CA..  these passed in 07 08 ish so unless its listed and its a straight cash sale those are too risky for us to fool with too much risk of the person who is losing the house coming back and hitting you up side the head with a two by four.  

If your hanging in Calistoga check out southern lake county.. 

Denver has finally got an increase in supply that was desperately needed. Our numbers still show a seller's market, but it's area specific really. Buyers can be pickier now and actually ask for repairs to be made on homes, etc. We are still seeing multiple offers on hot homes. 

Originally posted by @William C. :
Originally posted by @Jay Hinrichs:
Originally posted by @William C.:
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.   

well town of paradise 95% burnt down displacing 25k thousand people. lots of them trailer parks

in Santa Rosa CA two years ago 6,000 houses burnt down.. I am thinking the folks that used to live there might have scattered with the wind.. Where I lived in Napa at Silverado 2 years ago about 100 houses burnt down.. many I knew personally those were higher end 1 to 7 million dollar homes.  and many of my friends there are not moving back they are selling their lots.  but they will buy something somewhere.. 

@Jay Hinrichs have you literally seen it all?

I started selling land and ranch land in 1975 in Northern CA.. and worked and area probably half the size of your entire state.. so we covered a lot of ground.. West is a big place.. with lots of wide open spaces.. Not like your area with all these little old towns scattered every few miles.. But yes I get around..  I have been investing in your area now for 5 years well lehigh valley and PA proper.. so I am there a few times a year and my back ground as a land guy I have a pretty good recall of places I have been  etc..  its a lifestyle.  

@John Hickey

Let me preface this with I love Buffet and agree with his philosophy.

I think you answered your own question. Look at the buffet quoted...he says he does not worry about timing markets...look for business you like.

Meanwhile, what do his actions say? He has not bought much in awhile and is sitting on a boatload of cash. Theoretically, he might not be timing the market, but in reality he can’t find businesses that make sense at the current prices so he does not buy. Maybe not timing...but definitely connected

His last big buy was Kraft heinz where he partnered with Brazil PE firm, business case was built a lot on cost takeout...has cost Berkshire almost 4b loss

My point actions speak louder than words. People can post all day on BP about markets, But actions matter more....

Also, when you speak about data, you need to separate macro trend from herd investing. I am not a fan of following the herd as by time there is herd it probably is dumb money

But don’t ignore macro trends. They are real and will allow you to grow profitable. Millennials and baby boomer demographics are huge....in my area there is definitely trend of them moving to more urban areas and first ring suburbs. Macro trends and Lt investing go well together. Find the right deals with wind at your back.

My town is still steadily getting better. I live in Fayetteville, NC so the large military base helps stabilize our market. Also the dream recession hit us a few years late. We tend to stay on average 3 years behind the rest of the country. It’s wild but great if you use it right

Because the Feds didn't increase the borrowing rate this week in order stimulate the housing market, one would expect an uptick in home buying this Spring. However, if we experience a sluggish market, I think it would be a precursor to a possible recession. JMHO

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. 

 Phoenix is Phine.

@Randy Bloch I don’t pay too much attention to buffet.  The reason I quoted him up is that someone mentioned him and it seemed like there are a lot of market timers chiming in. I agree with him that it’s foolish. But to each his own. 

Did he stop buying stocks? I didnt know that   For a year or two or more?

On macro trends I have many problems with using them for investing. While I I didn’t bring them I don’t think it’s a great idea for most investors to spend too much time on them. First..... Everyone has that information.  So it’s built into the psyche of buyers and sellers.  Second This is the age of information. If your reading a research report on trends I would  keep in mind that they are named trends for a reason.  I pay more attention to the deal at hand bc that’s where the real money is made for me.  

All the forecasters in the world are wrong eventually.  When they are wrong and how much the folks that listen to them  lose depends on how confident and how foolish they are.  

I thinks it’s a safe bet on urbanization but that doesn’t mean I would spend a second on it.  Just buy in a City.  

On residential - shortage of inventory, prices climbing, if you have a listing it will sell fast-multiples common

Multi Family - Insane traffic in urban markets, slows as moving further out.  

I have not seen values drop, rather grow even with large divestment from aging owners    

3 pages of great reading, thanks for all the contributions!  And I have to say in Texas/ Houston area, the market for a 3 BR, 2 Bath  under 200k  has held very strong.  DOM can be less than 5 regularly. Price/ sq feet $100 - 120 can get you in a decent, safe neighborhood. 

But  over $250 -300k,  DOM can shoot up well over 60 and 90 days. 

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