Will housing prices crash again in the next 4-7 years?

118 Replies

Or are we going to see slow and steady 2-4% appreciation for the next 30 years like a "perfect economy"

@Vincent Crane Interesting topic... Although, no one has a crystal ball I personally believe it's on a market by market question..

If you find an answer please let me know. My crystal ball is broken.

George Hermann, Real Estate Agent in NY (#10401256571)

Where do you get these crystal balls? Tarot cards and runes may work just as well.

But seriously is there anything in the air to hint that the market in your part of Georgia is overheated and due for a readjustment?

It's actually a rather foolish question.

No one, of course, can predict with certainty what will happen. 

Serious players know that markets take hits every so often. That is a given. 

Where I live in CA, we have earthquakes. Cannot predict when they occur but that they WILL occur. So, you plan according to your tolerance for risk.

After 35+ years of real estate I've survived 4 or 5 crashes. If the deal is right and the cash flow is there, you'll gain and lose equity as markets appreciate and retrace. So, you just build that into your plan.

People who are looking for reasons not to take a certain action ask questions based on fear and doubt to reinforce reasons for not taking a certain action. Nuff said.

That's the same question as saying, "Will businesses crash or grow for 4-7 years?" Residential real estate is market specific, and then neighborhood specific. Even localizing to Denver, Detroit, Dallas, etc. is not narrow enough.

You guys, I'm not looking for a crystal ball here. We can use fundamentals and trends to at least have an estimate. Real estate cycles in both Atlant and LA tend to be in 7 year cycles. We all know it goes, crash, recovery, expansion, hypersupply, crash again. And at each stage what percentage change we see in housing prices. In many major markets the recovery is over and expansion is well underway. In Miami, we're almost at hypersupply with all the condos and little demand for them. We can use a reasonable educated guess to assume that the music stops and prices should be dropping or the market should shift back from a sellers to a buyers market in 4-5 years or so in many markets.

A few years ago someone said real estate prices keep going up.  Bang, different tune today.  Also rental rates may go down now to in areas like mine.

Based on the length of the cycles, historically, the answer is that we are coming due for a correction.  When exactly it comes and how bad it will be, I don't think anyone can know.

In hot markets right now, I would be wary of a long-duration project.  I wouldn't worry about a quick one.

@Vincent Crane :

 Vincent, I think the notion of a cycle having a specific time frame is trivial. 7 years is most likely an average, or just something people say because it seems to work around timelines as such. Each housing market is different and is affected by different local economic factors. However, I think all housing markets are driven by basic economic principles; Supply & Demand, Inflation, Scarcity, Interest Rates, etc..... to name a few. To answer your question requires one to be able to answer questions that pertain to where you live. 

What are the factors of your local economy that are causing the strong market conditions? 

Do you have Job Growth, New businesses, income growth to support a strong housing market? If  a small change were to occur, such as increase in interest rates or slowdown in a particular local industry, would that negatively impact your market. Do you see those types of changes coming ( interest rates, is most likely a yes)? 

These are the types of questions you have to answer to be able attempt to predict the unpredictable.

In our market, we have seen marked appreciation, and population, over the last 3 years and a substantial decline in inventory. In addition, the city is making it very difficult to obtain building permits which makes it difficult to have new construction match current demand and growth. Until this changes, we will continue to see strong market conditions, barring some unforeseen change. 

I hope you find a way to round up you answer. I hope this was somewhat helpful. Thanks!

Stuart

I'm not seeing oversupply in the Denver market so it seems we are still on the up side of the cycle. 7 years is not set in stone, sometimes it takes ten years. Some areas saw 50% price drop and some areas 5%. In general timing the market is a fools game. The same can be said for those that ignore market fundamentals. Things like if the property won't cover the expenses. When supply is exceeding demand. Those are times to pull in the reigns. You can't just set your watch and say yep we've been at it 7 years it's time to sell. 

Some of the top real estate agents in my company seem to think the real estate market will crash between 2022 and 2023 based on historical trends. 

Matt Lefebvre, Real Estate Agent in NH (#070207)
Originally posted by @Vincent Crane :

You guys, I'm not looking for a crystal ball here. We can use fundamentals and trends to at least have an estimate. Real estate cycles in both Atlant and LA tend to be in 7 year cycles. We all know it goes, crash, recovery, expansion, hypersupply, crash again. And at each stage what percentage change we see in housing prices. In many major markets the recovery is over and expansion is well underway. In Miami, we're almost at hypersupply with all the condos and little demand for them. We can use a reasonable educated guess to assume that the music stops and prices should be dropping or the market should shift back from a sellers to a buyers market in 4-5 years or so in many markets.

We disagree with you that there are any metrics that would be able to give us this information with any reasonable level of confidence.  But, it sounds like you have a better handle on this than any of us do, so based on the above, YOU should tell US what's coming...  :-)

Originally posted by @Vincent Crane :

You guys, I'm not looking for a crystal ball here. We can use fundamentals and trends to at least have an estimate. Real estate cycles in both Atlant and LA tend to be in 7 year cycles. We all know it goes, crash, recovery, expansion, hypersupply, crash again. And at each stage what percentage change we see in housing prices. In many major markets the recovery is over and expansion is well underway. In Miami, we're almost at hypersupply with all the condos and little demand for them. We can use a reasonable educated guess to assume that the music stops and prices should be dropping or the market should shift back from a sellers to a buyers market in 4-5 years or so in many markets.

 The question in my mind is that since we've not seen an economic event like this for almost 100 years, are "fundamentals and trends" enough "to at least have an estimate."

After The Great Depression, there was so much turmoil in the economy that no one knew what was coming until it happened ("hindsight is always 20/20").

This time around was almost a perfect storm of economic "trends" running headlong toward the cliff. Demand for housing was being fueled by runaway predatory lending. Everyone was so caught up in the economic euphoria that poor decisions were made at almost every level - from the wage-earner all the way up to White House.

Since the crash, however, it's become a whole new dynamic. 

Home builders went under to the tune of circa. 80% of home builders going out of business. Some economists estimate that we are 5+ million housing units behind the demand.

This housing shortage continues to drive rents ever higher, yet home values remain suppressed. In the immortal words of Andy Rooney, "Why is that?"

The not-so-simple answer is the lending industry. To over-simplify, if lending were as available as potential home-buyers would like it to be home prices would launch into inter-stellar space - well beyond the previously elevated values we saw before the crash - purely due to to supply and demand: supply is restricted as is growth in supply while demand is increasing exponentially. 

Home-building all but stopped while demand for new homes went on unabated. Home builders are only now beginning to ramp back up. So, the deficit will continue to rise a while longer.

Add to that the housing still latent in the "shadow inventory". Lenders are only now beginning to get back apace with their workload processing defaults and other pre-foreclosures as well as foreclosed homes which remain off-market.

If that's not enough, add in the jobs situation. Some jobs are coming back, but well below parity with the pay of comparable positions pre-crash. Lending and employment combined are a serious albatross around the housing market's neck.

In a housing market not under such extraordinary stress, "fundamentals and trends" might be enough "to at least have an estimate."

In this market, however, "fundamentals and trends" are almost a relic of the pre-crash economy.

My $0.02...

Sigh, one can only hope. I've experienced 2 major real estate crashes in the last 15 years, and each time, I walk away wishing I had bought more. 

But back to your question, from my point of view here in Orange county, is there going to be a crash? No, but it depends on how you define a crash. Could there be a dip in home prices i.e. 5% down from current prices? Possibly, if the interests rates go up and the economy keeps the way it is, which I believe it will. 

On the sale of my last few houses, I've noticed the buyers have really had to stretch themselves to buy the houses, with all sorts of contingencies that wasn't previously a factor. The buying demographic for the given home is older and wealthier than one would normally assume for the given neighborhood.  

That being said, my business is so small that this sampling really has no statistical significance, however, it means on my buys I am offering less (based on my personal observation). I know a few flippers have been feeling the same way around my area. I guess repeated enough times, this could affect the overall local market.  

So in short, my take for my are, crash? No. Dip? Probably. Flatline 1-2% growth? Yes

I don't know that they're asking for anything more than an opinion. And anybody can have an opinion. It would be interesting to see what people here think and why. I think some of the obvious things to glean from the responses:

1) The people on BP are very cynical.  :-)

2) I don't think anybody here would suggest that anybody can realistically project what the real estate market will look like.

3) I'm surprised that nobody wanted to indulge the poster and at least offer up an opinion and what they think. Its not like you're going to be sued if you're wrong. Although there are definitely some constant doom and gloomers on this site that might find some reasoning to reject that claim.....

But I'll bite.  Here's what I think for my area. Again, I do think its an area specific thing and I don't know enough about other areas to know where things are at.

In the areas down by me, we have had almost no new construction since the bust started. Thats an awfully long period of time not to have any growth in the supply of homes. All the low end stuff has pretty much dried up as there is almost never anything in the sub 100k price point any more. 

At some point, the rules of supply and demand are going to kick in here. There is always going to be a group of people that want to have a brand new home. And prices have climbed slowly but steadily here so that more people have some equity again to move up to that new construction home.  That pent up demand is going to come out. It has to.

And when it does, thats going to drive prices up more here. But here in the midwest, we have a pretty long term memory. So I don't think any of these construction worker are going to flood back to the jobs any time soon. I think that fear will exist for at least another decade. Without the workers, the construction of homes won't be able to overbuild like they had in the past.

So in my estimation, I think we're going to see steady price increases over the next 5 to 7 years with maybe one big blip of a jump in there as the tipping point hits and new construction gets back into business.

Again, for the midwest and more specifically, the smaller towns by me, we won't see 10% annual jumps any time soon, but more the traditional 3 to 4% a year and then maybe one big jump in there at some point when the pent up demand for new construction really shoots out.

I certainly agree with you all that there is no set in stone timeline, but I do believe there are those 4 cycles, and sooner or later things have to change. For example, in Atlanta here, over the last two years we've seen 33% appreciation.... IN 2 YEARS. There's such a lack of inventory, new homes aren't being built, but massive new complexes are, townhouses and huge apartment buildings are going up everywhere. I think nationwide there is a lack of inventory in many markets causing home prices to go up. I just wanted to get some thoughts on when potential next downturns might be. Will it vary by market next time instead of all crashing at once? That would be interesting... 

Originally posted by @Vincent Crane :

I certainly agree with you all that there is no set in stone timeline, but I do believe there are those 4 cycles, and sooner or later things have to change. For example, in Atlanta here, over the last two years we've seen 33% appreciation.... IN 2 YEARS. There's such a lack of inventory, new homes aren't being built, but massive new complexes are, townhouses and huge apartment buildings are going up everywhere. I think nationwide there is a lack of inventory in many markets causing home prices to go up. I just wanted to get some thoughts on when potential next downturns might be. Will it vary by market next time instead of all crashing at once? That would be interesting... 

Based on what I'm seeing in the economy at-large, I'm thinking the next major housing impact will come from other economic sectors. 

We've already seen some noteworthy volatility in The Wall Street Casino. What lies behind that portent and the impact it will have on housing remains to be seen.

My prediction: The next 12 months will indeed be quite a ride!

Originally posted by @Mike H. :
3) I'm surprised that nobody wanted to indulge the poster and at least offer up an opinion and what they think. Its not like you're going to be sued if you're wrong. Although there are definitely some constant doom and gloomers on this site that might find some reasoning to reject that claim.....

But I'll bite.  Here's what I think for my area. Again, I do think its an area specific thing and I don't know enough about other areas to know where things are at.


I think this goes to the fact that there are a lot of experienced investors on this site.  Many (most?) people think their opinions are generally better than flat-out guesses, especially when it comes to macro things like the economy.  They assume that their experiences and perceptions are somehow in-tune with what's actually going on, and they assume that their instincts are likely better than just throwing darts at a board.

Those who have a better understanding of things like macroeconomics realize how little they know, and also realize that -- while they might have gut feelings, instincts and perceptions -- those things actually hold little validity in the face of something so complex.

I certainly have a gut feeling for where things are going.  If my gut feelings are as reliable as they have been in the past, they really aren't any better than random guesses.  If the OP wanted my random guess, I'm happy to give it to him, but I'm guessing he wants more than that.

Originally posted by @Mike H. :

I don't know that they're asking for anything more than an opinion. And anybody can have an opinion. It would be interesting to see what people here think and why. I think some of the obvious things to glean from the responses:

1) The people on BP are very cynical.  :-)

2) I don't think anybody here would suggest that anybody can realistically project what the real estate market will look like.

3) I'm surprised that nobody wanted to indulge the poster and at least offer up an opinion and what they think. Its not like you're going to be sued if you're wrong. Although there are definitely some constant doom and gloomers on this site that might find some reasoning to reject that claim.....

But I'll bite.  Here's what I think for my area. Again, I do think its an area specific thing and I don't know enough about other areas to know where things are at.

In the areas down by me, we have had almost no new construction since the bust started. Thats an awfully long period of time not to have any growth in the supply of homes. All the low end stuff has pretty much dried up as there is almost never anything in the sub 100k price point any more. 

At some point, the rules of supply and demand are going to kick in here. There is always going to be a group of people that want to have a brand new home. And prices have climbed slowly but steadily here so that more people have some equity again to move up to that new construction home.  That pent up demand is going to come out. It has to.

And when it does, thats going to drive prices up more here. But here in the midwest, we have a pretty long term memory. So I don't think any of these construction worker are going to flood back to the jobs any time soon. I think that fear will exist for at least another decade. Without the workers, the construction of homes won't be able to overbuild like they had in the past.

So in my estimation, I think we're going to see steady price increases over the next 5 to 7 years with maybe one big blip of a jump in there as the tipping point hits and new construction gets back into business.

Again, for the midwest and more specifically, the smaller towns by me, we won't see 10% annual jumps any time soon, but more the traditional 3 to 4% a year and then maybe one big jump in there at some point when the pent up demand for new construction really shoots out.

I guess I'll take a stub at it as well. As was already mentioned above, this is MY opinion, MY guess, MY feeling, nothing scientific about it.

My first thought when reading the OP was, "4-7 YEARS?! Did he mean months?"

I guess I'm much less optimistic than others around here. What I see is the market starting to slow down. Houses DOM increasing (still faster than avg. but slowing down). Wholesalers start sending the same properties with "reduced" in the title (vs. a few months ago when a property would be emailed with a "sold" in the title just hours after the original email)

I see the the masses show up, late as usual to the party. Even this great community started to be affected. If you go to the marketplace forum you can see "sellers" that can't even present their deal....

So my .02? Market will tip over in 2016 and then the fun part will begin late 2016 through 2017-2018. I can't wait, all my best investments were in 2007-2009

Is it wrong that I kinda hope things take a small nose dive again? I've worked the last 4 years on the loan mod and short sale side of a big national bank. I've managed to survive numerous cuts in staffing during the process.  Honestly, another recession that lasts about a year or so could easily give me another 5+ years of job security as far as I'm concerned.   And such would give many of you folks on here a chance to scoop up some major deals on homes.  :-)

I sort of hope the home prices in my area rise or stay solid so one of my investments will regain some of the value lost in past slowdowns. Right now I'm not actively buying so I am on the other side of the investing fence at the moment. Been investing in a business venture that I hope takes off. Then i can start thinking of the housing market more.

Originally posted by @J Scott:
Originally posted by @Mike H.:
3) I'm surprised that nobody wanted to indulge the poster and at least offer up an opinion and what they think. Its not like you're going to be sued if you're wrong. Although there are definitely some constant doom and gloomers on this site that might find some reasoning to reject that claim.....

But I'll bite.  Here's what I think for my area. Again, I do think its an area specific thing and I don't know enough about other areas to know where things are at.

I think this goes to the fact that there are a lot of experienced investors on this site.  Many (most?) people think their opinions are generally better than flat-out guesses, especially when it comes to macro things like the economy.  They assume that their experiences and perceptions are somehow in-tune with what's actually going on, and they assume that their instincts are likely better than just throwing darts at a board.

Those who have a better understanding of things like macroeconomics realize how little they know, and also realize that -- while they might have gut feelings, instincts and perceptions -- those things actually hold little validity in the face of something so complex.

I certainly have a gut feeling for where things are going.  If my gut feelings are as reliable as they have been in the past, they really aren't any better than random guesses.  If the OP wanted my random guess, I'm happy to give it to him, but I'm guessing he wants more than that.

Awesome!

I am degreed in Mathematics and Computer Science, not Macro Economics. I share your view. I am consciously incompetent (meaning I know I do not know) regarding this topic.
I've made my position (opinion) clear in BP posts over the last year or more regarding REI in my area. Which is my point. The impact for a person is all local.

The global algorithm is way too complicated. We all can apply our "gut feeling for where things are going"... based on your own assumptions, your own heuristics, statistics and trends. In the Raleigh/RTP area, the local real estate crash of 2001-2002 was shared by virtually no one nationally. I'd contend that it wasn't that hard to see locally. Our telecom tech sector debacle cost the local economy many many tens of thousands of jobs. But the impact? Hardly a blip nationally REI wise.

Today, REI in many oil patch states may start to see REI market correction... as soon as, well, today. REI with Chinese connections may see market correction shortly. But the above is my "gut feeling". Globally and nationally I am conciously incompetent. I don't know. But I do know that I don't know. And my local opinion of preferring the sidelines is based on being conciously incompetent yet keenly aware that the market moves in cycles. The global downturn wasn't that long ago. For real estate (and the stock market) I respect the market cycles. I have experienced the top of cycles before....

@Vincent Crane   my take on this is there will always be communities or regions that lose a major employer or some other demographic change.. so those markets can see a retreat and or crash I guess.

I personally think if your waiting on the side lines for another GFC to happen were some markets compressed 70 to 80% I don't see that happening on a large scale like the GFC.

and here are my reasons:

1. too many properties have been bought with cash.. those folks just ride it out

2. millions of homes now have 2 to 4% interest rates payments far less than rent those folks ride it out...

3. Banks are not letting regional or smaller builders get way over their ski tips with standing spec inventory... Like they did pre GFC.

4. Many investors are backing into what to pay for rentals based on metrics like the good ole 2% rule or 1% rule... there by bracketing values .. the only risk here is rents crash..

5. No liar loans more skin in the game means less walk away from the investment.. this current group of borrowers is much more financially stable.

Values will hit a wall were appreciation in the uber markets will slow,  some markets will see demographic realignment through inner city gentrification... etc etc.

there are always good deals and ways to make money in RE...

How could it not? What is the average income?

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