The massive Real Estate bubble that's happening again (with charts)
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
The massive Real Estate bubble that's happening again (with charts)
Most Popular Reply
Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
11yIf you make this post every year for the next 10 years, eventually you will be lauded as a genius.
102 Replies
@Brent Seehusen I know you are not anti Cali Brent. Your anti BS perhaps but I respect your experience when I ask you anything RE. Gracias.
- 10yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by : @Matt R.
What I don't get is some BPers in Cali who have been anti Cali for the past few years did not recognize the best opportunity in generations to invest here. That was very weak advice and any future market analysis from those folks should be suspect to say the least.
Hey Matt,
I do business with A LOT of California investors and to be fair, they are no different than investors in every other state. The decision making process, even for those on BP, has virtually nothing to do with where they live and everything to do with what they do not know. It is basic psychology to purchase from someone you like and trust. Why not do it themselves? They do not trust themselves to make the right decision. If it turns out they make a bad decision after trusting themselves, who do they have to blame? No one.
When I first got into real estate, I brought in a partner. I was in Denver during a time period, when values were going through the roof. I knew what I was doing in business - I knew how to run a company and build something from the ground up! Yet, I was scared out of my wits about real estate and brought in a partner. In the end, we made some money and lost some money. We lost big on our last project and thanks to that partnership, we both had someone else to blame! :)
I have said it many times on here, there are many areas in california that need a full service, passive investment company to provide opportunities to local investors. A vast majority either do not have time to learn, do not want to learn, or simply do not trust themselves to make each decision and they want to find a company they like and that they trust. It just so happens that the sales pitch was low prices and that became a better, more trustworthy alternative than playing a possible appreciation game. In the end, as always, some investors killed it by investing in California. Some investors have done very well and achieved exactly what they wanted in other cities (turnkey or not). And some investors lost with both strategies!!
@Chris Clothier For sure Chris I am talking in general and many exceptions take place all over. Still I doubt many in Cali know that turnkey like opportunities exist just a few miles from their front door. These local operators don't advertise much. I guess they don't have to maybe. I do recommend your companies if that is a better fit still.
Merry Christmas!
- 10yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Matt R.:
@Chris Clothier For sure Chris I am talking in general and many exceptions take place all over. Still I doubt many in Cali know that turnkey like opportunities exist just a few miles from their front door. These local operators don't advertise much. I guess they don't have to maybe. I do recommend your companies if that is a better fit still.
Merry Christmas!
I knew that you were talking in general and to be fair, I tell investors whom I speak with that they should look locally first before buying halfway across the country. You also make a good point that there are opportunities every where, in every market and companies that can help you. They may not advertise and they may not use the term turnkey - not to turn this into a turnkey conversation - but, they do exist. Hell, even I invest in California, but I have a very high comfort level today that I know what I am doing and I am dealing with the best people. So, I really just think that some are never going to invest close to home because it is just easier (or easy to convince ourselves it is easier and safer) to invest further away -
Appreciate all you bring to the conversations here on BP! All the best to you in 2016 and Merry Christmas!
It seems to me that someone with multiple investment properties in an area with very high prices (peak of the cycle), could trade up to a larger complex in a different area of the country which is at a lower part of the cycle, or is fairly appreciation averse.
If I found myself in that kind of situation, that's what I'd do - try and use the increased prices of one market to make a larger acquisition in another.- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
Here is my prediction: it will go up, it will go down. So will some investors:)
If you have no equity and owe 100% on your investments good luck! As another investor pointed out, over leveraged investors are at risk. It doesn't matter when the markets cycle if you plan, have reserves, and have a good equity cushion. Markets are local and they will change, but being wise and cautious to a certain extent will be the difference between those that make it and those that don't when things change. In 3 years I can be 100% debt free. My rents may rise, level, or decrease. I may take on a bit more debt, but playing the no money down no equity game is foolish. Those that lost it all in the crash were the ones that put the least into their investments.
- Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes10y
This has turned into a pretty interesting discussion
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes10yI am in the Bay Area, mid peninsula. It is very difficult to find good deals now. very very difficult. Just looked at a burned down house in San Jose today, on snow dr. Asking 350 k, ARV is only around 550 k. Needs complete rebuilt. Repair cost would at least 150 k. Seller is not willing to go under 300 k. Anywhere else from south San Francisco down south, no SFR below 600k without bidding war. Only 4 SFR in foster city for sale. Super low inventory. Bid on a Hayward REO last week: list $525k , offer $575 all cash and lost the bid. No sign of slow down from what I can see here. Do not know what next year will be, but think still going up, maybe at a slower pace. Almost no REO or short sales on the peninsula, San Mateo county and Santa Clara county. Rare TLC property got bid up quickly. I am starting to look at east bay and even a little further. I want to see a slow down so that there will be some opportunities at least. Getting bored.
- Manhattan, NYC · Member since 2013 · 11 posts · 3 votes10y
Each area has different dynamics. You have young guys in bay area that get stock options worth in excess of more than 3-4 million dollars, of course theyre going to be spending a lot of money. History has proven that places like manhattan, bay area have been more lucrative to invest in the last 30 years. Sure these properties do not cash flow, but you make money on appreciaton. A relative of mine purchased a 1br condo in NYC in 2003 for 350k, he just sold it for 1.2 million.. Thats a year on year increase of more than 10%
According to the metrics the biggest bubble was in NYC and Bay area in 2008, when the property crash happened these places were the least affected ones. They were quick to bounce back.
People invest in Bay Area and Manhattan for prestige, those oil sheiks dont care if the property cash flows or not. They want to show off to their friends by owning property in Manhattan, it wouldn't have the same impact if they said they own property in Wyoming : )))
- Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes10y
@Halukcan Baser don't be busting on Wyoming. If you shop in Jackson Hole you can drop some serious coin on a luxury "ranch" property. It's sometimes knows as the "poor" man's Aspen. Sheridan is also a location known for it's expensive homes for wealthy.
- Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes10y
Anyone see a downtown happening, anywhere in the next 2-3 years?
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes10y
I beg to differ with this statement "playing the no money down no equity game is foolish." slightly because a small group of people can successfully pull this off such as subject to, lease to own, etc.... However, it requires knowledge. Sometimes, people have to do what they have to do before they can do what they want to do. I want to give those people some credit. All in all, your statement is correct that people should be careful with over-leveraging. A lot of properties x 0 = The Poor House.
It seems like chasing yield is getting you to look at the South Bay and East Bay. Just be cautious that those markets tend to get hit harder during market downturns. The Peninsula is expensive for a reason.
Real estate is a relationship biz. Most good deals tend to come from your contacts/network. Good deals don't make it to the market unfortunately. I've been fortunate enough to be on the receiving end. 2015 has been my best year since I started investing in 1999.
Ok, 1999 was for bragging right. I was clueless when I bought my first rental. I got it off-market from someone I know who relocated. The property has tripled in value, and I still own it. Location is good so it will be passed down to the next generation. It's the Asian thing I guess.
My 2nd, 3rd, 4th, 5th and 6th rentals were bought in 2009. The rest is history. I suggest you spend a little time to think of your niche market. Once you got it figured out, reap the rewards.
The term "bubble" has been misused so much after the GFC including in this thread. Is the market frothy? I bet ya. Bubble? I don't think so.
Although VC funding picked up a lot in 2014 and 2015 for a lot of unicorn companies, it has slowed down dramatically since this summer. Although 2016 looks good for real estate at this point, I wouldn't want to make a bet on it for 2017. As it's getting in the cycle, only do good deals to keep yourself out of trouble. Sam Zell said there's a high probability that we will have a recession within 12 months.
Happy New Year!
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes10yMinh Le inh How do you feel about the peninsular market? Interestingly, the house I checked out last week in San Jose on snow dr just got pending. People are still betting the market going up next year. I bought first rental duplex in San Mateo in 2009, then bought about 12 others, flipped 3 of them, and kept the rest. I am considering to move some of equity to higher yield properties, but have not really took the time to travel far beyond 1 hr driving distance. I am considering selling one or two of the SFR on peninsula next year. The reason being the property has appreciated so much, the rent seems to be low compared to property value. I do not particularly like those turn key providers, but would need to actually go and live there for awhile before deciding on the area to invest. Currently thinking Central Valley, southern CA, Indiana, or Florida. bTW: I am in foster city and we might have a chance to meet. Love to hear your thoughts. Happy new year!
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes10y
If history is any indication, I expect San Francisco, San Mateo and Santa Clara Counties to peak in summer 2016 after this spring/summer run up. Selling some properties this spring/summer might turn out to be a great move in my personal opinion. The outlier markets should get a decent boost this summer due to yield chasers and newbie investors driving up their prices. There's a high probability that these people will get hurt during the next downturn as they're the last ones entering the market.
Summer 2017 might be the plateau year before the decline. As much as I'd like to think we have until spring 2017 to get off the last train, I wouldn't want to cut it that close. I'm in the process of raising liquidity through refinancing and selling off some C class assets. I would only buy if I get an exceptional deal at this point.
The great thing about buying at the bottom of the market is your lower property tax bill, thanks to Prop 13. It pains me to sell some of these assets, but I have to do what I have to do. Just paid Uncle Sam $70k in long-term capital gains so I'm not too happy with that. I think I might still owe him $10k for 2015.....Sigh.
Sell or not depends on your strategy. I added 14 doors to my portfolio this year because they were great deals. I've shared the details with a few local BPers. Although I was able to cash-out on two of them, I still had to sell another duplex to raise liquidity. After all, liquidity is what will get us through tough times and will give us the ability to acquire assets at fire sale prices when the opportunity presents itself. We don't have to buy and sell constantly. Sometimes, the best thing to do is doing nothing.
I have no comments about those out of state investments as they have been debated many times on here already. Every man will have to choose his own path. To me, REI is about jobs. No jobs = depressed home prices. It's the law of supply and demand. Nothing magical.
- Real Estate Agent · Phoenix, AZ · Member since 2015 · 34 posts · 13 votes10yI definitely expect appreciation to slow dramatically overall in the US market. But there is no reason for a crash due in the short run. At least nothing major yet. The environment is not the same as the last time around. House prices won't reverse trend unless the Fed raises rates to quickly or we go into a recession. Also note that the stock market doesn't trend with home prices for those who are bearish on the market since it might be entering a bearish phase soon. Any decline in housing would have to do with underlying economic indicators. The one thing that worries me that is evidence for a bubble inflating is the disparity between household income and home prices. Also it seems we have entered into these boom bust cycles in the last few decades. But again, don't know when it will pop. No alarms yet. Thing to watch for early indicators are commodities, s&p earnings per share, jobs added, and supply and demand for your local city. I don't look at unemployment rate numbers as I don't trust them.
Originally posted by @Anthony Gayden:
Originally posted by @Vincent Crane:
The bubble is definitely different in each market this time around which is really strange to watch. Prices in Atlanta are right back to where they were before the crash, while Denver and Oklahoma City are now even higher than they've ever been. But then some cities like KC, Indy, Charlotte, still pretty affordable
I am relocating to Omaha soon, and I found out that the housing there is even cheaper than here in Tucson. The median home sells for $113,000 in Omaha.
I just don't think there is another approaching bubble. The last bubble had real estate prices in almost every market across the country skyrocketing. This time, the only places where prices are going up very high are places where appreciation and home prices were always much higher than the rest of the country.
The last bubble also had a huge construction boom, and this time there doesn't appear to be near the amount of construction activity, especially in single family homes.
Anthony, I also think the reason(s) for rising prices can be an issue. According to an Economic Development Corporation prez I spoke to here in Texas recently, the state has 1,000 people moving here each day. Texas is attracting a lot of companies from out of state. Unfortunately, we're also attracting a lot of out-of-state investment capital as well. The returns on rentals are diminishing in a lot of areas. I just looked at a duplex in the city I live in. It collects $1700/month in rent and they want $235,000! And guess what, they'll probably get close to that. Now that is not the norm, but just in the past few years the number of rentals that are getting less than 1% of their value per month are increasing. Anyway, it will be different types of interesting rides in different locales with different circumstances. All that said, I'm certainly glad to be in a state that is attracting people to live and still has relatively affordable housing.
- Real Estate Investor · Cincinnati, OH · Member since 2014 · 7 posts · 1 vote10yWarren Buffett who is the greatest investor says he can't even predict what the markets will do in the next month. All you are doing is speculating and hoping to be right. If you are then you'll be telling everyone I told you so and if not you'll make an excuse why your guess is wrong, make a new guess or never mention you were wrong. SMH
- Investor · Denver, CO · Member since 2015 · 61 posts · 23 votes10y
@Krystian Sosinski a black swan event is so named because you never saw it coming. Just because we dont have the characteristics of the previous downturn doesn't mean we are crashproof. Before 2009, people may have wondered why are home prices so high, but they likely weren't able to point the finger at lending practices and say that it would cause a downturn of that magnitude with certainty.
@Stan Hill Be thankful you are in that kind of market. In Denver, less than 1% is common to see.
- Investor · Milford, CT · Member since 2015 · 200 posts · 69 votes10y
Real estate goes up, and it goes down. Quite frankly I'd love a bit of down right now, but I don't see it happening.
Most properties other than some questionable deals on the commercial side are funded very conservatively. Cash is cash, if the market tanks it sucks but cash buyers can't be foreclosed on. If you overpay with cash you lose money when the market tanks, but real estate is a real asset that you can live in or it generates an income. That doesn't change if you lose even 50% of its value.
What I do see is some prices higher than they probably should be because money is cheap. But that's a far cry from the ARM if you can fog a mirror here is $500k days of 2007. A 3.5% fixed loan solidly underwritten is not a risky loan, its not going anywhere even during a correction. The big foreclosure bubble of 2007 simply doesn't exist in 2015, their are no shaky mortgages even at high valuations to fuel it.
What I do see as a possible hiccup is on the commercial side. Commercial mortgages all adjust their rates and right now those loans are cheap! I see a number of valuations based of those super cheap interest rates that barely cash flow. When those 5% loans adjust to 7% or 8% in 5 years those properties will be cash flow negative.
Their could be some hiccups in the commercial world as the feds ease up rates. But again who cares that could create some good deals.
The entire interest rate thing is also overblown. They are going to raise the rates slowly, so markets will adjust. In some markets that might cool them off a bit. But we are talking about maybe .5% next year...if a .5% rate change kills a market it has other big problems.
The cheap money party is ending, new investors have never seen "normal" interest rates but they are about to! 6.5% for residential 8%ish for commercial! Here we come!
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes10y
Originally posted by @Account Closed:
If history is any indication, I expect San Francisco, San Mateo and Santa Clara Counties to peak in summer 2016 after this spring/summer run up. Selling some properties this spring/summer might turn out to be a great move in my personal opinion. The outlier markets should get a decent boost this summer due to yield chasers and newbie investors driving up their prices. There's a high probability that these people will get hurt during the next downturn as they're the last ones entering the market.
Summer 2017 might be the plateau year before the decline. As much as I'd like to think we have until spring 2017 to get off the last train, I wouldn't want to cut it that close. I'm in the process of raising liquidity through refinancing and selling off some C class assets. I would only buy if I get an exceptional deal at this point.
The great thing about buying at the bottom of the market is your lower property tax bill, thanks to Prop 13. It pains me to sell some of these assets, but I have to do what I have to do. Just paid Uncle Sam $70k in long-term capital gains so I'm not too happy with that. I think I might still owe him $10k for 2015.....Sigh.
Sell or not depends on your strategy. I added 14 doors to my portfolio this year because they were great deals. I've shared the details with a few local BPers. Although I was able to cash-out on two of them, I still had to sell another duplex to raise liquidity. After all, liquidity is what will get us through tough times and will give us the ability to acquire assets at fire sale prices when the opportunity presents itself. We don't have to buy and sell constantly. Sometimes, the best thing to do is doing nothing.
I have no comments about those out of state investments as they have been debated many times on here already. Every man will have to choose his own path. To me, REI is about jobs. No jobs = depressed home prices. It's the law of supply and demand. Nothing magical.
@minh
Thanks for your help and great analysis. I tends to share the similar gut feeling that it might peak in the next 1-2 years. That is the reason I felt that I might unload a few in the coming year.
@Account Closed 2016....2017.... Ha ha looks like we're singing the same tune on that!
Are you selling some props strictly to raise cash for your new business opportunity? Or are you getting rid of "class c" because you think it may tank?
I'm assuming you're not planning on selling other (like class b) bldgs in anticipation of a great crash and the hopes of buying them/similar properties back at a discount?
In my case it almost never makes sense to sell off, as the properties are being repositioned anyways (to condos), so the future value is there, even when we hit the next recession. My main concern is sustaining future rental income and making sure I can weather a cash crunch in a recession.
Like you said, sometimes the best move is to stay put and do nothing.
- 10yJ. MartinPro MemberRental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
Originally posted by @Account Closed:
Vicent,
When everyone wants to be a real estate investor, you know we're approaching the top. The law of "Be greedy when others are fearful; be fearful when others are greedy" still applies. Human behaviors don't change be it during the Great Depression or the recent Great Recession. It may look and feel different this time, but it's never different this time.
If you read the whole article, you may have recognized @J. Martin's name in the article. J posted his findings on Biggerpockets several months ago. This is old news to us unfortunately.
Actually, I also gave a presentation to my meetup group back in July that said the risk/reward is not favorable in the Bay, more or less because we are in the late stages of an expansionary economic and real estate cycle it appears, based on many points of historical data. Not that money won't be made. And I don't know what kind of reversion we might see. But the further the party goes from here, the more likely it will end, and the more the hang over..
It's hard to find as many deals in this part of the cycle when everyone is in love with RE. I'd rather be hungry when everyone doesn't want to buy, or . Lots of data and charts in here too.. Check out the "don't buy" presentation:
http://www.meetup.com/REmeetup/files/
Thanks for the shout out Minh! And sage words. Seems like people are getting greedy now.. ;)
- 10yJ. MartinPro MemberRental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
Originally posted by @Account Closed:
If history is any indication, I expect San Francisco, San Mateo and Santa Clara Counties to peak in summer 2016 after this spring/summer run up. Selling some properties this spring/summer might turn out to be a great move in my personal opinion. ***... No jobs = depressed home prices. It's the law of supply and demand. Nothing magical.
Speaking of jobs, jobs, jobs, it doesn't get much better than this in the Bay Area!!! (historically speaking - except for slightly lower unemployment briefly during dot-com). There's usually a grey shaded area not too long after... Also, look how fast the unemployment rate tends to increase in a recession, compared to how long it takes to come back down..
Although.. unless things get way out of whack on prices in my area, I don't plan to sell because of Prop 13 tax base, cap gains, transaction costs in & out, AND great cash flow that I really love :)
- Investor · San Francisco, CA · Member since 2015 · 60 posts · 46 votes10y
Hey local Bay Area guys (I know a few of you), happy new year. As my JOB as a SF Realtor I will be closely tracking the feel of the market in the first few months. We have had explosive appreciation in Q1 the last several years followed by slower markets in the back half of the year. Interest rates are holding stable, inventory is low and will see how that may or may not change in Q1, job market seems stable. Though perhaps not growing like it has. Also no huge IPO's dumping many cash flush buyers into the market.
Many Realtors I speak with think 2016 will be one of those vanilla "normal" years we rarely see in SF Bay Area. Not substantial price movement, fairly balanced buyer/seller market, more "midwestern" and calm. A good market to reposition through 1031 exchange where you are selling and buying.
Crossing fingers...I just closed on a sfr in Bayview. Decent deal but long term section 8 tenants and needs heavy TLC. Pretty much a wash with my 25% down but long term looks bright and could use the depreciation tax shelter to cover profits on rest of portfolio.
Looking forward to chatting and learning more in 2016.
John
- San Francisco, CA · Member since 2015 · 786 posts · 717 votes10y
When a bubble pop is coming, it doesn't mean you have to stop flipping. When I analyze deals, I always have my 2008 lenses on. I was flipping through 2008 and so I remember exactly what investments did well and which ones did poorly.
1) Generally, cash flow properties will do okay. Fix to rent (BRRRR). The bottom end of the rental did fine during 2008 to 2010. If you bought a property under $100 k in the Seattle area, it was barely affected 2008 to 2010.
2) The hot areas do well. In my market seattle, areas like Ballard, Fremont, Greenlake, Madison Park, Magnolia, Queen Anne, Wallingford, Laurelhurst, Sandpoint, Bellevue, Mercer Island, Medina, Kirkland and Redmond all did okay during 2008 through 2010.
3) Watch out for the middle markets. Those between hot and bottom prices. In my market, middle markets include Puyallup, Renton, Auburn, Federal Way, West Seattle, Burien, Lake Stevens, and Bonney Lake got crushed in 2008.
4) Be careful with Apartment and condo projects during the bubble peak. I have 5 projects and am limiting myself to two. Be able to have cash to ride out the bubble crash.
5) Be careful with bank loans and cross-collateralization. Don't let one bad project affect all of your otherwise well-positioned other assets. Better to rely on hard money and private money.
6) Buy gold and bury it. I wish I were kidding!
7) Partner up with a hedge fund or start a hard money fund. Will keep you liquid during a bubble crash.
8) Keep lots of liquid assets. I utilize cash value life insurance but won't go into that since some of year cringe at the idea because they are not educated. Also, I buy tax liens.
9) Stay away from long plat developments.
10) Pay-down your debts so you have more LTV (I like to be 60% LTV). Just lowers your risk and increases your options. Manage your finances very well.
11) Keep some properties free and clear. Will help.
Happy 2016!!!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.