Recession affect on real estate prices

Buying & Selling Real Estate
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Recession affect on real estate prices

Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

When you look at this chart, you see that overall there is often a mild impact on real estate prices but not always. Sometimes the prices remain unaffected and sometimes like with the 2008 crash, they can be significant but that was a purple unicorn. As a person interested in Las Vegas prices to expand out of my current area, I decided to look a little deeper at the housing price trend of Las Vegas and to my surprise, other than the 2008 crash there weren't any real dips in Las Vegas. Tale a look at the second chart I posted. This makes me feel more comfortable buying in Las Vegas right now...I'd be making 10% CoC return roughly with the right deal, with low probability of a significant price reduction in the future. I want to buy again now while rates are low and I have significant W2 income to leverage. I'm starting to think we are not facing another big crash like that, at least not for a while...and I'm starting to look at what just 4 rentals here in the Seattle area did for me..48K a year passive income, not counting appreciation...after all expenses...even budgeting for vacancy and capex.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
6y

@Jack B.

You're reasoning is why I bought a "Seattle market priced" property on Lake Minnetonka in MN. (My only out of state rental.) I get to write off visits and who knows, after its depreciated and paid off I could retire there.

The "easy money" has been made in Vegas....They've been saying for 5 years, at least.

I think its real estate future could be sunshine and rainbows. IF the people who move here don't turn it in to the high tax, high regulation, high cost of living copy of the places they are fleeing.

We have no income tax, low property tax, very low maintenance housing, very rare weather events, an insane array of entertainment and food options for our size, crazy cheap flights, and relatively light traffic.

BUT, we have had some massive tax hikes lately and yet they want more. They want to raise sales tax to among the highest if the not the highest in the county. Raise the casino tax, raise the "tourist" taxes. Car insurance is expensive, car license tabs are insane, the public school are not too good, but they still fight every move to support great charter schools. If you don't want to pay a $400 speeding ticket, be careful. You're probably going to be in an HOA where you hope you pay them to leave you alone, because they're bored and they love to write complaint letters.

It scares me when I see so many new people flooding in to real estate, its not 2007, and maybe most of them just talk and never do it, but they'd be more likely to chase me out of real estate than anything to do with Las Vegas. "Luckily" people have been talking about how bad it is and how much it swings (Even if doesnt.) that I think it has kept many of that new wave of investors out of Las Vegas, and that's actually kept me in.

To sum it all up without saying long story short, "If San Diego wasn't in California, I'd live there tomorrow..." But everything great about San Diego was great before California, and if they can screw up San Diego, they can certainly screw up Las Vegas. 

That should teach you to ask for my opinion. Good luck whatever you choose.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    Every recession is different, don't have the same causes or impacts, @Jack B. Using only data from the last recession is a flawed approach. Look at the last 3, 5, 10 cycles and see what happened. LV is particularly vulnerable because so much of it's economy is built on travel/gaming. This kind of discretionary spending is the first thing that goes in any recession. So, something to keep in mind. As you shown in your own charts, LV prices dropped by ~45%, whereas nationally it was ~33%. That's a much more significant drop.

    3Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    6y

    Exactly. In the last 40 years vegas prices have only dropped more than 4% once. It won’t be the recession you see coming that gets you. 

    I would assume you could exchange 1 Seattle rental for at least 2 vegas rentals. 

    1Reply
  • Michael HaasBusiness Member
    Real Estate Agent · Redmond, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 724 posts · 3k+ votes
    6y

    Interesting discussion. You eyeing STRs, LTRS or both @Jack B.? I would assume STRs would be hit significantly harder by a recession. 

    [email protected]408-439-7873
    HouseHack Seattle | Michael Haas & Team572 Reviews
    WebsiteView Page
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  • Barri Griffiths
    Las Vegas, NV · Member since 2016 · 62 posts · 28 votes
    6y

    @Jack B.

    Hey Jack,

    I think it’s good to look at charts to get an idea of where things have been and where things are going. But nobody knows what going to happen next, and trying to predict will get you in more trouble id say. Buying thinking that the next recession won’t affect real estate is just gambling in my opinion.

    As you’ve heard before I’m sure, I’d suggest buying for cashflow, underwrite the deal conservatively, have long term debt, adequate reserves and don’t over leverage.

    And I’m not sure where you got the 10% coc number for Vegas. As I don’t think that’s very easily attainable, if at all. In Vegas now I think 6-8% is a lot more realistic.

    1Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Bill B.:

    Exactly. In the last 40 years vegas prices have only dropped more than 4% once. It won’t be the recession you see coming that gets you. 

    I would assume you could exchange 1 Seattle rental for at least 2 vegas rentals. 

    Try four. lol. Geographic arbitrage is a good play, but it only works one way, not the other. Which is why I want to fatten up my boys in Seattle and possibly just keep them and use NEW money for Vegas and other markets (Tampa). It was actually your comment in another thread I had that I verified to be accurate about Vegas corrections. Makes me MUCH more comfortable to invest there right now. Interest rates are sooooo low. My play is long term, plus I take 2-3 trips a year to Vegas, Tampa, etc. and might as well get the tax write off. Plus the reason I have been traveling to Vegas and Tampa a lot is because I'm doing recon in preparation to relocation to one of them.

    1Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Bill B.:

    Exactly. In the last 40 years vegas prices have only dropped more than 4% once. It won’t be the recession you see coming that gets you. 

    I would assume you could exchange 1 Seattle rental for at least 2 vegas rentals. 

     Do you have any other insights on Vegas? So far your earlier assertion has checked out in my research.

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    6y

    @Jack B.

    You're reasoning is why I bought a "Seattle market priced" property on Lake Minnetonka in MN. (My only out of state rental.) I get to write off visits and who knows, after its depreciated and paid off I could retire there.

    The "easy money" has been made in Vegas....They've been saying for 5 years, at least.

    I think its real estate future could be sunshine and rainbows. IF the people who move here don't turn it in to the high tax, high regulation, high cost of living copy of the places they are fleeing.

    We have no income tax, low property tax, very low maintenance housing, very rare weather events, an insane array of entertainment and food options for our size, crazy cheap flights, and relatively light traffic.

    BUT, we have had some massive tax hikes lately and yet they want more. They want to raise sales tax to among the highest if the not the highest in the county. Raise the casino tax, raise the "tourist" taxes. Car insurance is expensive, car license tabs are insane, the public school are not too good, but they still fight every move to support great charter schools. If you don't want to pay a $400 speeding ticket, be careful. You're probably going to be in an HOA where you hope you pay them to leave you alone, because they're bored and they love to write complaint letters.

    It scares me when I see so many new people flooding in to real estate, its not 2007, and maybe most of them just talk and never do it, but they'd be more likely to chase me out of real estate than anything to do with Las Vegas. "Luckily" people have been talking about how bad it is and how much it swings (Even if doesnt.) that I think it has kept many of that new wave of investors out of Las Vegas, and that's actually kept me in.

    To sum it all up without saying long story short, "If San Diego wasn't in California, I'd live there tomorrow..." But everything great about San Diego was great before California, and if they can screw up San Diego, they can certainly screw up Las Vegas. 

    That should teach you to ask for my opinion. Good luck whatever you choose.

    3Reply
  • Erik Schneider
    Flipper/Rehabber · Henderson, NV · Member since 2018 · 76 posts · 27 votes
    6y

    @Bill Brandt

    Great input and well said. I came here from California to get out of the state and my biggest fear now is that the majority of CA residents leaving will turn Nevada into a “new California” meaning I will have to move again. Currently, this state is night and day for me. I love it here!

    1Reply
  • Kristyl L. Isaacson
    Member since 2019 · 6 posts · 4 votes
    6y

    @Jack B.

    If u can listen to BP podcast #311 with J.Scott

    The podcast date was Jan 2019 so if his Indictation tools are correct, the recession would follow 18 months to 24 more the following. I'm very I terested in what he says about the 50,75,100 year cycles. It's important to look at all the cycles and their expiration dates. My Inner self is leaning toward being more apprehensive and patient especially with impeachment and Iraq stuff going on. But please listen to 311 if u can. I think it's the most valuable information I've come across so far

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Bill B.:

    @Jack B.

    You're reasoning is why I bought a "Seattle market priced" property on Lake Minnetonka in MN. (My only out of state rental.) I get to write off visits and who knows, after its depreciated and paid off I could retire there.

    The "easy money" has been made in Vegas....They've been saying for 5 years, at least.

    I think its real estate future could be sunshine and rainbows. IF the people who move here don't turn it in to the high tax, high regulation, high cost of living copy of the places they are fleeing.

    We have no income tax, low property tax, very low maintenance housing, very rare weather events, an insane array of entertainment and food options for our size, crazy cheap flights, and relatively light traffic.

    BUT, we have had some massive tax hikes lately and yet they want more. They want to raise sales tax to among the highest if the not the highest in the county. Raise the casino tax, raise the "tourist" taxes. Car insurance is expensive, car license tabs are insane, the public school are not too good, but they still fight every move to support great charter schools. If you don't want to pay a $400 speeding ticket, be careful. You're probably going to be in an HOA where you hope you pay them to leave you alone, because they're bored and they love to write complaint letters.

    It scares me when I see so many new people flooding in to real estate, its not 2007, and maybe most of them just talk and never do it, but they'd be more likely to chase me out of real estate than anything to do with Las Vegas. "Luckily" people have been talking about how bad it is and how much it swings (Even if doesnt.) that I think it has kept many of that new wave of investors out of Las Vegas, and that's actually kept me in.

    To sum it all up without saying long story short, "If San Diego wasn't in California, I'd live there tomorrow..." But everything great about San Diego was great before California, and if they can screw up San Diego, they can certainly screw up Las Vegas. 

    That should teach you to ask for my opinion. Good luck whatever you choose.

     Preach it brother. I think you and I are the same political side of the fence. I too worry that the place I'm planning to escape to (Vegas) isn't turned into what California and Washington have become. The low property taxes, housing costs, light traffic, no income tax, limited natural disaster risk, etc. is what attracted me to Vegas to begin with, besides the more friendly laws. But I see the tide has turned in that regard there and worry all the people from California who have fled there are turning it into the same nanny state California was turned into. I remember in the 90's a lot of people were cashing out of california and fleeing to Oregon and Washington. Guess that the turned into....

    But alas, Florida was my next option and taxes are super high there for property, even higher than here. Hurricanes worry me as do sink holes, it's the sink hole capital of the WORLD. So Vegas is looking better and better....Visited 3 times last couple years. I'll buy you a beer next time I'm down, yeah?

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Kristyl L. Isaacson:

    @Jack B.

    If u can listen to BP podcast #311 with J.Scott

    The podcast date was Jan 2019 so if his Indictation tools are correct, the recession would follow 18 months to 24 more the following. I'm very I terested in what he says about the 50,75,100 year cycles. It's important to look at all the cycles and their expiration dates. My Inner self is leaning toward being more apprehensive and patient especially with impeachment and Iraq stuff going on. But please listen to 311 if u can. I think it's the most valuable information I've come across so far

     Thank you I'll check it out.

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Erik Schneider:

    @Bill Brandt

    Great input and well said. I came here from California to get out of the state and my biggest fear now is that the majority of CA residents leaving will turn Nevada into a “new California” meaning I will have to move again. Currently, this state is night and day for me. I love it here!

     Same here. Gotta love than theft below $950 is not an arrestable/prosecutable crime in California and you can squat in someones house and claim housing is a human right. It's only going to get worse, but sadly nothing will correct them. Look at NY...

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Jaysen Medhurst:

    Every recession is different, don't have the same causes or impacts, @Jack B. Using only data from the last recession is a flawed approach. Look at the last 3, 5, 10 cycles and see what happened. LV is particularly vulnerable because so much of it's economy is built on travel/gaming. This kind of discretionary spending is the first thing that goes in any recession. So, something to keep in mind. As you shown in your own charts, LV prices dropped by ~45%, whereas nationally it was ~33%. That's a much more significant drop.

    Thanks for the tip, but you'll note that I mentioned there were multiple recessions in the first chart I posted, you can see in the chart clearly that there are 5 recessions listed, you just missed it.....I have an above average understanding of statistics as I was a business major in undergrad and grad school, so I understand sample sizes and much more. Ultimately the observed and expected result are going to be different. The expected result is a 50% chance of a drop in a recession. The observed result will be different as the data increases. The P value can provide insight into the reliability of the probability and ultimately we can calculate the LN to assign a value to each probability/scenario to make a decision. We can also calculate the certainty equivalent to determine how much money I'd take right now to not take a certain risk. Ultimately real estate prices dropping and a recession are independent events. A recession does not always mean real estate price drop. 

    The reason the impact was so high in Vegas drifts into microeconomics, another one of my favorite subjects in school (economics, statistics and finance were my favorite subjects, I still read my text books to this day). It has to do with supply and demand. The supply of newly built homes was SUPER high compared to other places around the country as were the foreclosures and the demand was very low, especially as LV is a service based economy. Seattle didn't get nearly as hard as we have a very high income white collar/tech economy. About 63% of people here have a 4 year degree and 25% have a Masters or Doctorate degree and there wasn't nearly as much supply because we have limited room to expand and it's a higher income economy where people can carry their mortgage if they lose their job.

    As the recovery started to kick off, a few years in, as housing prices increased here, I predicted condo's would suddenly start to go up much faster in price because they are a substitute good. Sure enough I tracked it on Trulia and the numbers were RIDICULOUS compared to SFH appreciation. Next thing you know Redfin or one of them companies came out with an article that said what I predicted had come true.

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Kristyl L. Isaacson:

    @Jack B.

    If u can listen to BP podcast #311 with J.Scott

    The podcast date was Jan 2019 so if his Indictation tools are correct, the recession would follow 18 months to 24 more the following. I'm very I terested in what he says about the 50,75,100 year cycles. It's important to look at all the cycles and their expiration dates. My Inner self is leaning toward being more apprehensive and patient especially with impeachment and Iraq stuff going on. But please listen to 311 if u can. I think it's the most valuable information I've come across so far

     So I'm 20 minutes into the 1 hour and 17 minute video and I already am kind of "meh". He has no credentials on the topic, no economics degree and he doesn't cite any sources. Thinking critically this is like taking advice from a baker on how to build a house, with nothing to back up his claims. I've read a lot of articles about real estate written by actual economists and have a Bachelors and Masters degree in business which includes years of statistics and economics studies, and the cycles basically come down to the fundamentals of economics, supply and demand. Real estate is very local. We have less than a months supply in Seattle. Interest rates are low. Supply is low and demand is high. Prices are rising again, when you see supply start to shift and demand drop, that's the indicator. Yes we are due for a recession, more than half of economists agree. The 2008 crash actually started 2 years earlier, if you look at the charts prices peaked 2 years prior and started to drop until the big mortgage crisis in 2008 when they tanked very rapidly. 

    He is largely just parroting the inverted yield curve stuff most people read online. It reminds me of the "just put your properties in LLC's" asset protection nonsense that people read and parrot on here. It doesn't work...charging orders pierce corporate veils and good luck putting mortgaged properties into LLC's...And he just quoted Peter Schiff 25 minutes in, lol. Peter and Robert Weidmer (he didn't mention Robert but they are both usually wrong) have both been wrong more often than not. Aftershock 2012 was completely wrong (his book). Here it is 2020 and none of it happened. Peter had similar predictions, and has made predictions going back decades, most of which have been wrong....

    And as my OP points out, as does my previous post above, real estate prices and recessions are statistically independent events. A recession doesn't guarantee real estate price drops...see the chart I posted, it contains actual facts...This guy is going to get creamed flipping houses if we are near the peak, it's risky AF. Seattle is not near the peak IMO. People would be better off understanding basic economics than watching this podcast...the concepts of supply and demand curves, substitute goods, dead weight loss, producer surplus, etc. are far better indicators than "it might happen in 7 years it might happen in 18 years".  You could have actually predicted the last crash by just watching the supply and demand charts for real estate at the time...the prices started dropping 2 years prior to the last crash and people kept building despite the demand dropping and bam, foreclosures produced even more supply while demand dropped as prices dropped....its not rocket science.

    There is this thing called survivorship bias. It comes down to math. Check it out. It explains some interesting concepts. 

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    Here is some data to backup my claims that real estate is about supply and demand and you can tell a lot of supply is in place when there are many foreclosures. Look at how foreclosures started rising well before the 2008 crash and dropped drastically when the market bottomed out 2011/2012. Foreclosure rates....as the foreclosures started to get sold off, the market stabilized and once stable it started rising again...supply and demand...

    0Reply
  • Dan Mumm
    Real Estate Agent · Las Vegas, NV · Member since 2016 · 107 posts · 57 votes
    6y

    Shame to see so much time and energy being spent on speculating.

    Ever notice that the people talking about the future, guessing what will happen etc, are the ones who are on the sidelines and not active? It's rare to see highly active investors talking about these types of things.

    Stop speculating and start finding deals.

    :) 

    2Reply
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