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

182 Replies

Originally posted by @Marko Zlatic :
Originally posted by @Lucas Carl:

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

I think about this all the time. Think about how many (young) people are thinking about their first home purchase DIFFERENTLY now that House Hacking, BRRRR, etc. strategies are becoming more and more popular. Also, real estate is sexy right now, wait until it cools off again, rinse and repeat.

Add in all the gurus out there pounding the real estate game in some manner.. when people go to those and figure out wholesaling is tough and flipping is tough they just revert to buying a rental..  Turnkey is still quite robust.

No signs of a crash here, just the opposite. The market is always changing, we had a slow down last summer for about 6 weeks. Now it's super hot again. 11 deals so far this year and 7 were with multiple offers.

I track days on market and inventory in months, both are still declining. And even if they would increase, that just means going back to normal, not into a recession.

Right now we have 2.4 months of inventory. 6 would be normal. During the crash we had 18 months and more.

So just because a few homes take 3 weeks to sell, does not mean we will crash tomorrow. The fundamentals are we are very short in supply, especially median price points. Low unemployment and great interest rates.

We are technically overdue for a correction, but I cant find it in the data. Only anecdotally.

"In God we trust. All others bring data."

Originally posted by @Joe Splitrock :
Originally posted by @Lucas Carl:

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

I have thought about this. The popularity of rental properties is increasing at an exponential rate and BP along with the FIRE community have glamorized it, much like flipping was glamorized by HGTV prior to the 2008 crash. 

The problem is many newbies are under capitalized, under experienced and in over their heads. I see stories of people getting OUT of real estate investing after the actual returns prove lower and headaches prove higher than expected. The smart ones are selling and getting out while prices are higher. The problem will be if too many try to get out at the same time, which will cause prices to drop.

You are right, it is hard to validate the effect of BP as a variable, but no doubt it is a variable.

burned out landlord syndrome has been around since I entered the space as a HML in 2001.. But to the original point I agree there is this idea or fascination that rental real estate will set U free and even a bigger desire to not work for anyone.. and be self employed.. I get that I have always been self employed for 44 years now.. however there is that sentiment that rentals will set you free no doubt

It’s great reading all of the above posts and the different perspectives in this.

I think I am noticing a similar downturn in my area (Natick, MA). I have been watching the market for a few months try to find a deal but did not find any (matching my criteria at least). Nevertheless, I did notice that over the last 2-3 months, there is an increase in supply and a lot of foreclosures in my and surrounding areas. Prices are still high but there is some correction going on from what I can tell using realtor websites.

@Mike Bolen , we are located in South Sacramento. Yes, we really do enjoy hosting.... my wife in particular. I am pretty much the "handy man"... we know our "lanes". Yes, the competition is pretty thick, but we respond to the feedback from our guests, pay attention to the pricing model, and maintain our five-star rating.

@Stephan Cheek I own a few Airbnb properties here in Napa Valley and the adjacent county. The competition is pretty thick here too and growing. I will say the market is very robust with no signs of decline and nothing in the data that would forecast a future decline.  

Though I agree with the premise of the market changing in general I think that it is too market specific still to really call it a downturn. Not saying it wont end up that way here this summer, just not at this time. My market for example is still very high. I would say it has stopped rising as fast as it was last year but still a small rise and maybe even plateaued at the worst. We just have such a HUGE shortage of housing that our market is almost on it own. Its weird since we are such a small town, comparatively. 

For example, I put an offer on a1920s, 2500sf 4B/3B house on .48 acres last week at just below the asking price of 429k and it still had 4 offers competing and I still didnt get it. That was after the house sat on the market for 5 months with one price drop and 2 other offers falling through. Oh and thats with this house having a 1960s kitchen, two 1940s baths and half the house still has active knob and tube wiring. The Wenatchee area is a weird little corner for sure. Honestly, I dont see our market dipping much for than a couple points this year and thats if it dips at all.

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. 

 If he's able to buy something, sprinkle in some value add, and flip for a huge profit, wouldn't that suggest that the market is strong?  As in there are still lots of buyers ready to buy a turnkey property?

Originally posted by @Mike Bolen :

@Stephan Cheek I own a few Airbnb properties here in Napa Valley and the adjacent county. The competition is pretty thick here too and growing. I will say the market is very robust with no signs of decline and nothing in the data that would forecast a future decline.  

 it looks like the city of Napa has allowed a ton of new multi family which is sorely needed.. I saw a big project off on the East side of the river .. and there is one over off of Solano ave north of Trancas and probably some others..  I used to live in Silverado Springs development and those prices shot up with the fire as those burnt out turned to those units so they did not have to leave the club proper.

I would think the AIRBNB properly permited in wine country would be gold mines.. ???

I love it if and when the real estate market goes down. That was when I made MOST of my wealth. Having said that real estate is highly local. You can have a HOT market 30 minutes away from a declining market. Based on what happed in 2008, you have to watch 3 things:

1. Inventory - is this declining or rising? You can track this through DOM (Days on the Market)
if DOM is increasing, specially in the past 12 months, then you know the market is softening

2. Foreclosed inventory - this is the number of houses foreclosed or REOs as a percentage of total inventory. If this is increasing, then there is a good chance of the prices decreasing.

3. Rate of foreclosure filings - this is the new foreclosures being filed every week. In the beginning of 2007, the rate of foreclosure filings have increased substantially vs. a year ago (2006) and 2006 was higher vs. 2005. Even though prices and DOMs have increased from 2005-2007, if you look at the RATE of new foreclosures (or new lis pendens being filed), you can see a marked increase. In states like OH where the foreclosure process could take 2 years plus, you need to look into the new foreclosure filings as a leading indicator.

In my opinion and based on acquiring over 1,000 apartment units, buying/selling houses both as an investor and as a real estate agent, I look into the following:

- if DOM is decreasing, REOs are decreasing and rate of new FC filings is unchanged or decreasing, then it's a good market to rehab and flip houses; and depending on the supply of land, it's a good market to build and sell

- if DOM is decreasing, REOs are decreasing and rate of new FC filings is increasing, then it's still a good market to rehab and flip houses but NOT a good market to build and sell

- if DOM is decreasing and REOs are increasing and rate of new FC filings is increasing, then time to exit from rehab and flip or you can still rehab and flip but look for more equity or do quicker rehabs

- if DOM is increasing, REOs are increasing and rate of new FC filings is increasing, then definitely exit from rehab and flip but focus more on buy-and-hold

Admittedly, I've bought buy-and-hold properties in all situations above because there's always a good deal in any market. But those are good things to track and change exit strategies accordingly.

@Jay Hinrichs 4 multifamily construction projects I can think of around town. Napa only has 50 or so permits for overnight rentals mine are licensed but the city and county has done little until very recently with policing non-permitted units. They have been shutting down those units so I expect occupancy will climb for those of us who follow the rules. 

Not here in Charleston, SC.  Lowest interest rate in the past year, 57 people per day moving to the area, Months Supply at historic pre-2007 levels.  This is the best seller's market we've had since 2007, and yet buyers are still flocking here in droves.  We are in a rare market here though, as most areas around the country do seem to be cooling.

Hi there,

I am new to real estate. my background is in high yield fund. Here is my take taken from Barrons, BBG Terminal, BBG, WSJ and FactSet as my sources...

On 3/22/2019, Friday, the yield curve inverted between the 10-year and three-month Treasuries. It implies a 25%-30% probability of a recession on a 12-month view and recession historically occurs 6-18 months after inversion. Economists at the Federal Reserve Bank of San Francisco have found every single downturn since the 1950s was preceded by a period when short-term interest rates exceeded longer-term interest rates. However, the market and businesses can and have prospered greatly during those 6-18 months...

Heading into the end of the first quarter, 105 S&P 500 companies have issued EPS guidance for the quarter. Of these 105 companies, 77 have issued negative EPS guidance and 28 companies have issued positive EPS guidance. The number of companies issuing negative EPS for Q1 is above the five-year average (74), while the number of companies issuing positive EPS guidance for Q1 is below the five-year average (32).

Almost every single category of retailer experienced a seasonally-adjusted decline - 1.6% - in spending between November and December. Spending on furniture and furnishings is down almost 6% from its recent peak in Q1 2018.

I am a top down approach guy - no matter the strategy or market or asset class you're in, you will ride the wave - US economy - with all of us, on average. But the word average here reminds me of this statement, "never cross the river if on average it is 4 ft deep."

Originally posted by @Mike Bolen :

@Jay Hinrichs 4 multifamily construction projects I can think of around town. Napa only has 50 or so permits for overnight rentals mine are licensed but the city and county has done little until very recently with policing non-permitted units. They have been shutting down those units so I expect occupancy will climb for those of us who follow the rules. 

I remember reading in the Register last year  about some guy who was defiant and I think they took him to court  not sure the out come.. we are looking at a 6 lot project that will be new construction 2 to 2500 sq ft in that 900k range.. as usual with Napa original approvals were in 2004  … I was also looking at Silverado lots.. but with construction prices and those lot prices we have to exit at $1000 a foot so not sure even there if I want to try to build and sell 3 mil spec houses.. the under a million in Napa though seems pretty solid.

I sure miss it .. but every time I go there the traffic has gotten so bad getting through AM CAN or over on 37  I get a little frustrated.  

@Jay Hinrichs Yes Sean the guy who refused to shut down his Airbnb was arrested and throw in jail. Napa remains the only city in the U.S. who has arrested someone for a non-permitted Airbnb. The lot prices in Silverado are sky high with a few selling between $750K and $1.1M not sure how you make that work on a spec basis. 

Originally posted by @Mike Bolen :

@Jay Hinrichs Yes Sean the guy who refused to shut down his Airbnb was arrested and throw in jail. Napa remains the only city in the U.S. who has arrested someone for a non-permitted Airbnb. The lot prices in Silverado are sky high with a few selling between $750K and $1.1M not sure how you make that work on a spec basis. 

I came to that conclusion..   with build costs at 300 a foot..  some of my friends are rebuilding and should be in their homes by summer others are just selling their lots.. 

@Chris K.

Currently 300-350 will get you either a nice two story or alright three story in Point Breeze on the ARV! for a distressed property you are looking into just aroundCenter City for that square footage 

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.

@William C. your commentary is contradictory. 

You mention a surplus of profitable fix and flips. You state the price has dropped on the rehab properties, but imply sales price after rehab has stayed stable. This implies the lower end of the market has softened, but the higher end is constant with buyers. 

That really doesn't make sense. If the bottom is falling out of the market, that usually happens after the higher end erodes.

This sounds more like spring surplus. This time of year people rush to get properties listed as we enter prime buying season. Lots of properties go on the market at the same time, so flippers naturally cannot buy everything.

You yourself said the market drops at the high end first, but that is not what you are describing as happening.

Originally posted by @Jay Hinrichs :
Originally posted by @Patrick Philip:
Originally posted by @Scott T.:

@Shane H.   A major 'crisis' and/ or a 'recession,' or worse??? Only five, recently. (1973, 1986, 1991, 2000 & 2008, in the US.)

 Home prices did not go down in all of these recessions. A decline in GDP does not necessarily coincide with a decline in home prices. 2008 (actually 2007) was a unique event in the housing market.

https://fred.stlouisfed.org/series/CSUSHPISA

I started in RE in 75  so don't recall 73 but in CA houses did go down in all those recessions or stagnated.. 91 in the bay area there was 50% price decline in the higher end.. I was loaning money then.. so had a front row seat to that one..  2000 was very short lived with minor adjustments.. 07 08 we all know about..   I think this was regional as well  just like it always is 

 Yes, I have heard that prices for luxury homes are more volatile than average homes.

After looking at some graphs, it looks like GDP shrunk during 2 quarters in 2001. The "2000 recession" was a decline in stock prices (dot-com bubble), but the stock market does not measure the economy. GDP does.

@William C.

What city are you investing in? David Lindahl, author/investor believes that markets rise & fall in phases. The idea is to move in on the bottom based on your numbers & research. If values are going down but job numbers & city infrastructure are going up then that’s the time to buy & hold because when those numbers peak, so will the demand for real estate. This demand will increase as investors jump on the bandwagon.

The question is where is the next emerging market going to be?

Best of luck!

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