The massive Real Estate bubble that's happening again (with charts)

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The massive Real Estate bubble that's happening again (with charts)

Vincent Crane
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes

http://www.paragon-re.com/3_Recessions_2_Bubbles_a...

Right now and for the next 2-4 years, doesn't look like a very good time to buy. Flipping in most major markets, definitely... But don't get left holding the bag when the music stops. Sometime between 2016-2020 a big crash is coming, for both real estate, and stocks. Stocks will likely be first, in 2016, and then real estate, 2018-2020.

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Frank Jiang
Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
11y

If you make this post every year for the next 10 years, eventually you will be lauded as a genius.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    10y
    Originally posted by @John Barnette:

    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.....

     Very interested to see (and hear from you) on how things go in SF. With the Housing Affordability Index hovering at 10% in SF for the last couple quarters, it looks awfully hot to me... Was that low last in 2005-07, '99-00.. Coupled with the amazing appreciation of the last few years, I'm not very bullish for the next 2-5 years on the SF of market. At least no way like buying at a bottom..

    HOUSING AFFORDABILITY (it's actually a little lower at 10% for SF; not updated to now)

    INTEREST RATES

    Not out of this world, but rates actually have gone up a bit in the last half of 2015.. 30bp isn't going to kill the market, but just since you mentioned them.. Fed finally did it's first 25bp in almost a decade. We'll see what the future holds..

    1Reply
  • Nick Versetto
    Investor · Frankfort, IL · Member since 2015 · 206 posts · 55 votes
    10y

    what does it matter if there's another bubble as long as you've done things right and have positive cash flow?  I say bring on the bubble because it'll create more opportunities for those looking to make this full time!

    0Reply
  • Patrick Britton
    Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
    10y

    Having been neck deep in the 2 largest recessions in the past 20 years I can say that all the statistics and charting aside, the easiest and simplest way to determine if we are in a bubble is to get in a cab and ask the taxi driver if he is buying real estate, gold, tech stocks, crude oil, whatever. Then ask your dentist, hairdresser, mother-in-law, random friend on Facebook and neighbor. If the answer is generally yes, you have yourself a bubble.

    These types of people are most often the biggest losers in a bubble because they are the last in and last out.

    I recall very distinctly speaking with a cab driver out in Toronto in 2007 who told me he was going to make his fortune buying crude oil futures. Well, roughly 10 months after that conversation crude was $80 cheaper.

    And how many of you had conversations with "regular" people in 2006 - 2008 who told you they were buying real estate in Florida, Nevada or California? I can recall a handful.  

    And another thing, for every report or analysis done indicating that we are in a bubble there is another report refuting that. I would use those publications as entertainment more than education

    1Reply
  • Austin Davis
    Management Analyst / Urban Planner · Lutz, FL · Member since 2015 · 58 posts · 10 votes
    10y
    Originally posted by @Ryland Taniguchi:

    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!!!

     Ryland great advice, and thanks for the local insight on Seattle. My friend/investing partner (who is local in Seattle) are in the midsts of starting our wholesaling operation up and getting our first direct marketing campaign launched. 

    0Reply
  • Vincent Crane
    OP
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    10y

    I think there's a lot of normal people talking about real estate right now. A lot of you are thinking 2016 or 2017 will be the peak. It's hard to see a dip/buyers market at the end of the tunnel but I'm certainly hoping so. High prices, and raising interest rates = time to sell.

    0Reply
  • Julia Tse
    Professional · Cupertino, CA · Member since 2015 · 62 posts · 5 votes
    10y

    For SF South Bay Area, Apple, Google and Facebook all have expansion, expect to add over 30,000 job within next 3 years.  I saw many talent people relocate here from China, India and other states in the US.  Demand are huge.  Many buyers are sitting at the sideline waiting for the housing market to calm down.  I have 10 buyers ready to buy within next 3-6 months in South Bay Area.  

    0Reply
  • John Barnette
    Investor · San Francisco, CA · Member since 2015 · 60 posts · 46 votes
    10y

    no cab driver, postal worker, hair dresser, so on and so forth "investors" I have encountered so far.  And the comment is so 100% accurate of 2006/2007.  However I am seeing and hearing more and more interest in real estate investing from well paid professionals in tech, medical, etc.  With the credit and ample funds for down.  Which means we are at that stage in the cycle where there is some real money perhaps making some dumb investment decisions and further drive prices higher with returns lower. 

    Food for thought.

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y
    Originally posted by @Vincent Crane:

    I think it's pretty obvious that several markets are already overpriced. Denver and Oklahoma city are already higher than their peaks before the crash

    Two things to keep in mind about Denver - one was that the real estate market never crashed during the recession, two the continuous influx of never ending population growth of the state.

    1Reply
  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    10y

    30 years ago the internet may have been invented, but I'm not sure anyone made any money with it. I don't see that little niche factored into those reports. 30 years ago, if you wanted to call across country, you called after 10pm because it was a lot less expensive and you called from a phone with a cord on it that was attached to a wall. 30 years ago, the idea of a private person flying rockets into space and owning a battery operated car company would probably have gotten you put into a white jacket in a comfortable room somewhere in a place with a nice name like Bellevue. 30 years ago the idea of a self driving car was popular... on The Jetsons.

    The only thing that you can really learn from all these mind numbing charts and graphs is that if you bought in 1988 and held, your portfolio would have quadrupled in value. There is not one single other thing one can ascertain from the information in that report. Nothing. Nada. Any projection past today is 100% lucky guesstimating especially when it comes to real estate. There are way too many factors involved that influence the real estate market. WAY TOO MANY. 

    Lots of people will "predict" the future and the few who guess correctly will spout their mouth off for the next 5-10 years using their "correct prediction" as a way to sell you more crap. All the wrong predictions they make, well they won't mention those. Just the one or two they got right in their career. You could have just as much luck with a fortune cookie. BTW, sometimes those are right too.

    7Reply
  • Mark Ferguson
    Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Mike F.:
    Originally posted by @Vincent Crane:

    I think it's pretty obvious that several markets are already overpriced. Denver and Oklahoma city are already higher than their peaks before the crash

    Two things to keep in mind about Denver - one was that the real estate market never crashed during the recession, two the continuous influx of never ending population growth of the state.

     I agree. You can't assume a market is over priced just because prices are higher than the peak. The natural rules of economics mean prices will always go up in most areas. Denver and Colorado markets are really strong. People have been moving into Colorado for years and years and years. 

    3Reply
  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    10y
    Originally posted by @Mark Ferguson:
    Originally posted by @Mike F.:
    Originally posted by @Vincent Crane:

    I think it's pretty obvious that several markets are already overpriced. Denver and Oklahoma city are already higher than their peaks before the crash

    Two things to keep in mind about Denver - one was that the real estate market never crashed during the recession, two the continuous influx of never ending population growth of the state.

     I agree. You can't assume a market is over priced just because prices are higher than the peak. The natural rules of economics mean prices will always go up in most areas. Denver and Colorado markets are really strong. People have been moving into Colorado for years and years and years. 

    Totally agree. Isn't real estate supposed to go up in value over the long run? Prices are supposed to be higher than their last peak. Basically the theory of inflation. 

    Once these crazy prices start to come down (who knows when), at some point in the next 10-15 years they will be higher than they are now. 

    1Reply
  • Vincent Crane
    OP
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    10y

    Will we ever see a buyers market again?

    0Reply
  • Stuart Birdsong
    Investor · Fort Collins, CO · Member since 2015 · 304 posts · 112 votes
    10y

    @Ryland Taniguchi I think you have given some terrific advice. Thanks!

    It is easy to speculate either positively or negatively about the market conditions to come, but simple fundamentals will yield the best long term upside as well as protection against a downturn. Lower your exposure, reduce your debt positions and be careful when leveraging to increase your asset base. 

    In the housing market, Supply and demand and low interest rates will still have a major impact on the 2016(short term) market, but flat inflation and lack of income growth will have affect on the markets going forward. 

    Unfortunately, many of us have become accustomed to the market conditions of the previous years in which yields have been relatively easy to come by. It just means that, as investors' we have to be more cautious of our abilities, acquisition and debt, to perform. Cheers!

    Stuart

    0Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    10y
    Originally posted by @Vincent Crane:

    Will we ever see a buyers market again?

    I don't know about your market or others, but I believe it's 2020-2022 for my market. If history is any indication, our market will likely peak in either this summer or next. Two indicators that have worked great in the past are Housing Affordability Index (HAI) and the Fed. 

    @J. Martin was fascinated when I mentioned to him that my number one indicator is the HAI. He well ballistic and came up with that graph for all 9 counties in the Bay Area. He just had too much time on his hand. I guess it pays to work for the government.  :>)

    The Fed started raising interest rate in 1987, our market topped out in 1989. The Fed started raising interest rate in 2004, our market topped out in 2006. The Fed started raising interest rate in 2015, our market tops out in _________? Of course, it all could be a coincidence. History doesn't repeat itself. It only rhymes.  :>)

    Most people will buy or sell when it's the right time for them. Other life events take precedence in their lives IMO. I don't believe they pay much attention about the market like us investors. Even if they had a clue that there's a high probability that the market would peak in 2016-2017, would they wait until 2020-2022 to buy? Who would guarantee that the prediction would come to fruition? 

    I got lucky buying my first house in 1996 and first negative cash-flow investment in 1999 when interest rate was 8%. I was clueless at the time other than working two jobs and making good money. I got interested in real estate since then and learned a great deal from it. That was why I went all-in and quit my W-2 job in 2009. How many people had that conviction in the midst of the Global Financial Crisis? Everyone in my family and hers thought I was crazy then. Now, everyone said that was the best decision I've ever made for the two families as most of them are better off because my one crazy decision.  :>)

    It's easy to look back now and smile, but it wasn't an easy decision at the time. Wife was the only supportive person in my corner. Now, I can kiss my W-2 job good bye forever.  Of course, this is only one man's observation so please take it with a grain of salt.  :>)

    5Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    10y

    I think the bubble has began to break up in Wyoming, but ours is due to low oil prices and government regulations on coal fired power plants.  I have turned down at least 5 deals I would have done 2 years ago.  I went from buying 7 houses in 2014 to 1 house in 2015.  I had hoped to get to 50 houses before things went south but that is the way it goes.  I am concentrating on fixing big dollar items and trying to pay off at least one mortgage this year.  I am considering selling a house or 2 to pay down debt.

    1Reply
  • Vincent Crane
    OP
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    10y

    I think a lot of people are calling a top on prices in either 2016 or 2017. I can't wait for things to take a downturn because I like buying at a discount

    0Reply
  • John Barnette
    Investor · San Francisco, CA · Member since 2015 · 60 posts · 46 votes
    10y

    interesting tidbit of information. Realtor and investor here. Was representing a buyer on a very affordable by Bay Area standards sfr in Richmond, Ca.  Good area of Richmond. But nevertheless Richmond is one of the lowest price, most working class, non sexy areas of the Bay. A class C house in a class B neighborhood in a class C suburb in a class A region.  LOL.  About a 2.5 hour commute to Silicon Valley...so no real direct tech influence.

    Anyhow the house was intentionally underpriced because time of year and never a bad strategy. $285,000. Recent good comps at $340-350k.  Client inherited money. Thus $250,000 down on $357,000 purchase with no contingencies as agent already had thorough home inspections. Owner occupied.

    Ended up with 22 offers. My client came in 6th place. No counter or opportunity to go up.

    Crazy. Worst and most telling part going forward. 21 buyers still looking presumably.  We all know this new computer number for a decent but not noteworthy house.  We will likely not have 21 similar houses for sale in the neighborhood in 2016.

    638 29th street, Richmond, CA for those who want to Google the listing.

    Market growth still in high gear

    1Reply
  • Vincent Crane
    OP
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    10y

    Lots of people saying 2017 is when it all slows down and we might see declines start

    0Reply
  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    9y

    Minh Le, you have twice mentioned "J.M." in different threads about Bruce Norris.  I can't locate the thread(s).  Who is "J.M." and where are the threads you have referenced?  Can you post the links here?

    1Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Catherine Coy:

    Minh Le, you have twice mentioned "J.M." in different threads about Bruce Norris.  I can't locate the thread(s).  Who is "J.M." and where are the threads you have referenced?  Can you post the links here?

    Hi Catherine,

    @J. Martin is J.M. Below is the link to J's thread with some graphs. Have fun reading and exploring.

    https://www.biggerpockets.com/forums/311/topics/26...

    1Reply
  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    9y

    Ahh, thanks, Minh.  I'm really looking for discussion about Bruce Norris and his latest analysis titled "2% Interest, $40 Trillion in Debt, and Other Surprise Endings" for which he charges nearly $400.   Did anyone here actually buy this report?

    http://www.thenorrisgroup.com/training/tng-events-...  
    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    i dunno about a report, but here's a free 60 minute video of the event. Saved you $400 ;)

    http://www.thenorrisgroup.com/training/tng-events-calendar/2percent/

    0Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Catherine Coy:

    Ahh, thanks, Minh.  I'm really looking for discussion about Bruce Norris and his latest analysis titled "2% Interest, $40 Trillion in Debt, and Other Surprise Endings" for which he charges nearly $400.   Did anyone here actually buy this report?

    http://www.thenorrisgroup.com/training/tng-events-...  

    Hi Catherine, 

    I know someone who did. Would you share 1/2 of the attendance cost with him if I shared the report with you? ;)

    0Reply
  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    9y

    Thanks, Minh, but, no, I don't want to spend anything on his report.  Thank you, Amit M.!

    0Reply
  • Brandon W.
    Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
    8y

    I wouldn't either

    0Reply
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