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

182 Replies

@William C.

Someone posted the YOY of every major city in the US for February. A lot of places are taking a hit except UPSTATE NY! We’re breaking even... Is the crash upon us? Maybe, just not where I am.

@William C. I feel there is a crack of upper middle class $1.4-$1.8m inventory in most B income areas - SF would be an A - Sacramento/Roseville - B etc) people want nice stuff now. Millennial homebuyers warheads and cool and one that tire cost house as her income. 1015 years ago you know yeah average worker was a union worker with a 45,000 so what if you never afford a 500,000 House. So now you have this new generation workers, And they are facing 200,000 a year salary wanna five or $600,000 house they want something nice. The mini mansion inventory is not there.

I am a part time residential appraiser in Los Angeles and Ventura counties (17 years experience) and I started to see signs nine months ago, but it couldn't be proven with the data trends until now. We need 2-3 consecutive quarters to able to start defining any market trend and we are now at that point where my data in many areas throughout LA and Ventura show the past three quarters of downward price trends in list and sale pricing and increasing trend numbers in supply and marketing times. More expired and canceled listings and I've seen a few foreclosures in the past few months, which have been mostly non-existent in this area the past few years. I see the same trends when I pull data on a micro (neighborhood) level and when I pull it on a macro (city) level. It's here, maybe not in every area, but I'd say 70-80% of the areas I see now are on the decline.

@Jay Hinrichs Listed on the MLS??? Southern Lake county, for prefores? Owner and Seller financing contracts?? And/ or lease option deals??? (I do recall you suggested targeting Lake county for lease options two years ago... however I then relocated to Phoenix metroland for a year... and got "side- tracked...") I plan to target (mainly) $1million average homes... as those people tend to have better "comprehension" of the concept, clauses and contractuals... and I'd rather gross $100k. on a Sandwich LO or Prefore (and pocket listed?) 'flip...' than half or a third of that for the supposed 'risk,' or taking the less 'ethical' approach of "raising the asking price" by 5- 10% just before a 'correction,' so it won't ever 'appraise...' even if they go from "pre- qualified," to "pre- approved?!" (Again, aside from "making a buck..." my GOAL is truly "helping people for a 3x WIN..." vs. cow- towing. And I am not a broker, agent, etc. It will be interesting to see what the BAR franchised attorneys think of my agreements, in lieu of the "legal precedents," in various localities. (Particularly after I get past the "first stage" of the LARGER nationalized, plan. ;-)

Has any one considered the possibility that the popularity of Bigger Pockets has anything to do with real estate prices being high? I'm sure it would be impossible to prove that variable, but I do have constant newbs messaging me wanting to buy one house so they can quit their job. Food for thought! BP Rules

Originally posted by @Scott T. :

@Jay Hinrichs Listed on the MLS??? Southern Lake county, for prefores? Owner and Seller financing contracts?? And/ or lease option deals??? (I do recall you suggested targeting Lake county for lease options two years ago... however I then relocated to Phoenix metroland for a year... and got "side- tracked...") I plan to target (mainly) $1million average homes... as those people tend to have better "comprehension" of the concept, clauses and contractuals... and I'd rather gross $100k. on a Sandwich LO or Prefore (and pocket listed?) 'flip...' than half or a third of that for the supposed 'risk,' or taking the less 'ethical' approach of "raising the asking price" by 5- 10% just before a 'correction,' so it won't ever 'appraise...' even if they go from "pre- qualified," to "pre- approved?!" (Again, aside from "making a buck..." my GOAL is truly "helping people for a 3x WIN..." vs. cow- towing. And I am not a broker, agent, etc. It will be interesting to see what the BAR franchised attorneys think of my agreements, in lieu of the "legal precedents," in various localities. (Particularly after I get past the "first stage" of the LARGER nationalized, plan. ;-)

that will be an interesting  idea to follow. I have seen multi million dollar lease options.. my son in law bought one in Vegas for 1.9  he closed on it within the year.. but it was direct with the seller.. no sandwich.. and the house across the street was just vacated by the lead singer for Imagine Dragons and his buddy lease optioned that one for 3 mil.. actually on our way there to a party right now.. see if that one closes.. I think its more common in the luxury end of the market.. but these guys put 100k non refundable or more down

@Michelle Christensen Check- out Ken Wade's "Housing Alerts" data, if you aren't yet familiar? There is already data going back longer than 2- 3 quarters for parts of Seattle, Portland, LA, SD, etc. metros, but again there are always 'emerging' and 'high- end' sectors within a given area... that will "defy the (local) trend," to a POINT... Wade's main argument seems to be: "GONE are the days of national, regional and state, county and even METRO centric, trends." (I suspect this was HISTORY even before "computer modeling" became recently "available to the masses..." and the "industry disruption, shake- outs" won't bypass the elite's main "cash cow," either... now that anyone with a computer can access MLS to this level of "Big Data." (i.e. At least for the foreseeable future, anyway!?)

Also check- out PropStream, PropertyRadar, REIpro, etc., as well as ListSource, ReboGateway, et al. (Hence WHY I plan to be AHEAD of what follows, NEXT... rather that just: "following trends and cycles, with the think a year or two ahead," mentality... because the MLS and NAR, etc. near 'monopolies...' clearly aren't HOLDING! ;-)

@Jay Hinrichs Seriously though, Jay... at this point I just need someone(s) to help me FUND what I've planned- out on and off for the past 2.5 years (using mostly lease options, as the primary 'exit strategy...') and WE'LL BE BILLIONAIRES. (Because the NAR / MLS cannot COMPETE with my USPs to "mission..." The numbers, don't LIE... and offering to save someone 10- 15% or more while say moving a property that's UPSIDE DOWN and/ or has 2nd- 5th, lien holders, speaks volumes. (Hint: My 'plan' goes way BEYOND Prefores, SubTos, AITDs, Owner (100% equity) and Seller (underlying loan/s) financing, doing $50k.- 100k. SLO deals and Cooperative LO reassignments, back to the seller.) And as mentioned two years ago... it definitely INCLUDES those $500k. - $5mil plus abode dealings, etc. AFTERALL, LOs have proven to be a SOLUTION in Commercial dealings as well as residential (particularly during 'corrections' and in BUYER markets) since I don't know when??? But what do I know, I'm just a "disruptive idea" guy. :-) Scott

@Michael Kay Mike, the RE game is much like every other market (casino) you want to "get IN and back OUT (before sitting along the sidelines and watching the fireworks drama, from a leather easy chair... until AFTER the CHTF again, before going back to work BUYING... at a hefty 'discount!') in order to ultimately 10- 100X your long term GAINS (presuming you don't wait to long to RESELL... short to long term, in a given market 'cycle?') because otherwise you will then ne holding the IOU beyond when the price DROPS... then it will take several years for the so- called "recovery" to reach say 2014 vs. 2008 again... and all the while you are paying 3X the value of that property, over perhaps 30- years. AND... if you resell in say 15/30... you just paid the INTEREST and the payments continued right along that charitable continuum... where it took 15- 30 to "break even" on your so- called"investment," depending upon where (precisely) you 'invested' your time, money and energy?!?

So while it's important to buy the right thing, in the right place, at the right time... getting OUT is the most important FACTOR... as it matters NOT if you did everything else right, and then ended- up STUCK in paper DEBT after the correction! (Not my "realization," but I most certainly SEE and understand the 'logic,' of it!!!) Of course this isn't a 8- 10 cap BnH multifamily apartments analogy, it's more of a SFR scenario, but that is what 98% OWN?! My Best :-) Scott

@William C. Perhaps NOT? That is unless they wisely (and consistently) EXIT before the next correction? Or better yet, buy -n- hold with multifamily and/ or commercial, and leverage utilizing "creative terms" using lease option as the primary "exit strategy" for SFRs... and of course, don't own their own residence in their own name, for decades??? (And I don't "smoke..." although after what I've learned in the past decade in particular about how the world really WORKS... maybe I should start, and/ or take- up 'drinking?!' Cheers! :-)

I am heavily invested in Napa and Solano counties. In these markets we have seen some downward movement in median pricing. The chart below is for Napa county and shows a mixed picture. Average price is up while median is down slightly. Here I used 3 month data which smooths out single unit sales on the price margins. It's my feelings the end of the Mueller investigation which has led to the exoneration of Trump will have a significant positive impact on the economy and housing. I expect a massive stock market rally over the next month which should contribute to a feeling of euphoria for luxury home buyers. I do not see anything at this point which will result in a market decline Corelogic is expecting the same with price gains not declines this year http://www.mortgagenewsdaily.com/03052019_corelogic_hpi.asp 

Thanks Scott for the rec. - I will check out his stats!   As for the trends- I hear you on it going on longer than the last 2-3 quarters here in So Cal.  I had two quarters of declining numbers headed into last Spring and Summer (2018) where we saw a significant uptick in the stats that lasted through summer that wiped out my 3 quarter consecutive trend markers.   So taking into account the seasonal variations in selling- I was still having debates with agents and flippers that the market was headed the other way because of the increase in the data that they were happy to point out.  But here we are headed into Spring and I officially have 3 consecutive quarters of data showing more than a 10% decline in many areas and with the increase in inventory, I don't foresee the same uptick happening this time around.   Thanks again for the data referrals.   Always learning!   

@Mike Bolen   Hey neighbor :-) And how 'skewed' do you think the inventory and demand is, due to the fires, 1.5 plus years ago? (I see no inverse relationship, per se,' with the stock market...) Demand should have been higher due to the "lack of inventory," and concerns such as Santa Rosa increasingly turning into a congested mess filled with to many 'undesirables' that recently moved northward, etc. And I saw 5155 inhabitants on the roster when last census was taken in Calistoga, so I presume the main 'growth' has more to do with the 50% plus 'immigrant' population (aka: higher birth rates) than SRers, to SDers, moving- in? Not sure about Napa, St. Helena, American Canyon, etc.?? I would presume south Napa county is the 'hottest' place to buy for rentals, or doing flips and/ or creative terms, etc.??? Although I'm 35 minutes from north SR metro, and close to Healdsburg, Napa, etc. And thank you, for sharing the chart.

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

 Not exactly. It's the 2-year and 10-year that have to be inverted. So maybe give it a couple weeks?

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. 

 Recessions are an inevitable result of fractional reserve banking and human psychology. People will always live the best life they can afford, even if it is on credit.

The good thing about recessions is...

Nothing.

Except that people that have a lot of capital can get rich once the market swings back up because they can buy things at low prices during the recession.

@Scott T. I don't see any impact from the fires of October 2017. I've done deals from Calistoga to American Canyon. Folks sell below market for a myriad of reasons regardless of socioeconomic status. I consistently find 2-3 deals per month and have for years across Napa county. I buy & hold, fix & flip and wholesale. With all that said I see virtually zero chance of a large price decline as we are still significantly below 2005 prices. 

We have a SFR that we run as an AirBNB. Two 1,400 s.f. homes in the neighborhood recently went on sale and sold within 20 days. One was $350k and the other was $390k (with pool). I was a bit surprised that they sold so quickly. Apparently, the price was right and Sacramento is the state capital so it is dominated by government workers that are probably the last to feel any economic downturn.

Has anyone seen a crash other than that 1? My understanding is there's been 1 in like 100 years... I sometimes wonder if people spread the crash theory to keep others out of the market. Lol

What area is your Airbnb? Do you enjoy the business? I hear competition is pretty thick in Sacramento do you find that to be the case?

Originally posted by @Stephan Cheek :

We have a SFR that we run as an AirBNB. Two 1,400 s.f. homes in the neighborhood recently went on sale and sold within 20 days. One was $350k and the other was $390k (with pool). I was a bit surprised that they sold so quickly. Apparently, the price was right and Sacramento is the state capital so it is dominated by government workers that are probably the last to feel any economic downturn.

Originally posted by @Shane H. :

Has anyone seen a crash other than that 1? My understanding is there's been 1 in like 100 years... I sometimes wonder if people spread the crash theory to keep others out of the market. Lol

 You're right. There have definitely been slows in growth, but not a crash like that.

The Yield curve has inverted signifying a downturn is looming.... just have to see how long that inversion lasts.  If its 2-3 months inverted then itll be  a recession..but the market has been so hot we are due for a cooling off period anyway.  Having said that, there is always deals to be found!   Those that work harder to find them will make it happen.

Id be looking for small to medium multi-family units to hang onto for awhile.  Everyone needs a place to live and rents arent going down anytime soon.

@Storm S.

Can you share that info you talked about on which reit stocks make up that recent ~10% portfolio?

If you had 100k today ready to invest would you throw it at similar portfolio?

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