Will housing prices crash again in the next 4-7 years?
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
Or are we going to see slow and steady 2-4% appreciation for the next 30 years like a "perfect economy"
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.
Will housing prices crash again in the next 4-7 years?
I am someone who believes that the housing market will not return, until real estate taxes and insurance decreases, unless wages rise significantly without either of the two increasing in cost.
I am a flipper, or was a flipper, until I realized from the tax and insurance bills that with the cost of the home, and those, it was not worth doing. Matter of fact, I can understand why home ownership is the lowest in the last 50 years, because of taxes and insurance cost.
A home in most places in the US that is valued at more than $100,000 has real estate/school taxes around 200 dollars a month. Add in the insurance cost, and that is another 100 dollars a mouth, and now in many places, more than that if you include earthquake, flood and other required insurances and taxes. So from the get go, even with a low cost mortgage you owe at least 300 dollars a month on money that will get you a zero return on.
I had a new home specked that was 1300 square feet to be built on a $9000 piece of property. The cost was $130 per Square foot. The cost of the home to be built was $169,000. Taxes on the land and the house would be about $300 a month alone. Even building the house for half the price, the taxes would be about $250 a month. The value of the house and land appraisal would fall in about $125,000 - a loss from the start and that is if I would be able to sell it?
I don't know where you live or what kind of money you make, but in most areas of the country someone is much better off renting than buying a home. Now good news for people that own and rent. You are better off, because you get the tax deductions on your investment properties. If things keep doing like they are today, only multifamily properties will be worth investing in to rent. In small upscale towns today, it is not unusual for a home owner to own more than 30 rental properties. - What is wrong with this picture?
Until things change with the taxes and insurance, or salaries increase dramatically, housing will remain somewhat flat. Housing has not really bottomed out yet, and until it does, house prices will increase a little and decrease a little, It is that simple.
Generally cycles do occur from trough to peak every 5-10 years. I'm not indicating we'll see another 40% dip, but certainly one of 5% or 10% is very reasonable to expect sometime in the next few years. I'm wondering what peoples thoughts are. I'm always looking to buy at a discount, and right now definitely isn't the time for that, especially in atlanta. We're right back to pre-recession prices
How could it not? What is the average income?
Median household income in the US is a bit more than $50,000.
Median house sale price in the US is about $188,000.
Can you explain why you think those metrics indicate that there needs to be an impending crash? It's not clear to me...
Taxes and insurance cost.
How could it not? What is the average income?
Median household income in the US is a bit more than $50,000.
Median house sale price in the US is about $188,000.
Can you explain why you think those metrics indicate that there needs to be an impending crash? It's not clear to me...
Taxes and insurance cost.
Renters incur those same increased costs through higher rents. Unless you live in your car, you won't escape tax and insurance hikes.
How could it not? What is the average income?
Median household income in the US is a bit more than $50,000.
Median house sale price in the US is about $188,000.
Can you explain why you think those metrics indicate that there needs to be an impending crash? It's not clear to me...
Taxes and insurance cost.
Renters incur those same increased costs through higher rents. Unless you live in your car, you won't escape tax and insurance hikes.
You are correct, however, renting in a multifamily building/community the cost for those is much less. Many apartments today are a much better value than to rent a single family home, even if they have a family. Further on the plus side, many can live in a better community in an apartment building than what they can buy a house in that community for and neither do they have to pay for the upkeep. A 1500 dollar a month apartment will get you in a better area than a 1500 dollar mortgage payment. Look around and do the math. My PITI is $1425 a month on my personal home, and my mortgage is only 1010 per month. What is wrong with this picture? Again, I stand by what I am saying. Taxes and insurance is what is killing the single family housing market.
I understand economics to a degree. There are a lot of things to consider. Including the unknown. War, Upheaval. You might want to figure this as a shaky economy. Then again you have some really swift people running the fed. Food and energy out of the core indicators. However energy can sway an economy with really wide variations given the times we live in so maybe that's wise not having that in the core indicators. Who can say? Cheap money and can't go any further back and going forward could slow things down substantially. There are some great minds in economics. Then you have the international take which relies on international trade, manufacturing, currency etc. It's complicated. 9/11 2 wars the MBS blowout we are in a delicate area for sure just recovering however they seem to be doing well with it. So to sum it up who knows? Then again I didn't know about 9/11 two wars and the MBS blowout. So once again who knew? You can't figure those situations into fundamentals when you don't know whats going to take place before it happens.
The problem is, your entire premise is flawed... The single family housing market isn't being killed, by any definition of the word...
Here are the existing home sale numbers for the past 40+ years:
If you ignore the 2007-2012 collapse, trends essentially mimic what was seen between the 1980s and 2006 -- steady rise with some brief corrections...
Again, I'm not trying to forecast where things are going (I'm not smart enough to do that), but if you're going to claim that home sales are flat, I'm going to need to see some data to support that -- I'm not seeing it...
The problem is, your entire premise is flawed... The single family housing market isn't being killed, by any definition of the word...
Here are the existing home sale numbers for the past 40+ years:
If you ignore the 2007-2012 collapse, trends essentially mimic what was seen between the 1980s and 2006 -- steady rise with some brief corrections...
Again, I'm not trying to forecast where things are going (I'm not smart enough to do that), but if you're going to claim that home sales are flat, I'm going to need to see some data to support that -- I'm not seeing it...
Do the percentage of home sales, not the numbers. The population has increased since the 1970's as well. Of course the number of homes is going to be higher, just because of the number of people. If you wanted to use this is proof, automobile sales have increased by 10 times in the same period of time. You are also showing all homes, not just single family, owner occupied homes.
I just looked at the VA website that is full of foreclosures and Repos. I wonder how many of these homes will be sold to people that will buy and occupy these homes? There are around 600 or more that can be bought for $50,000 or less. Matter of fact, look at your local MLS listings, and you will find thousands of them throughout the country by all entities. Again, what is wrong with this picture?
Do the percentage of home sales, not the numbers.
I can't find any data to support flat existing home sales over the past 3 years...
Can you link to the data so we can see it?
I just looked at the VA website that is full of foreclosures and Repos. I wonder how many of these homes will be sold to people that will buy and occupy these homes? There are around 600 or more that can be bought for $50,000 or less. Matter of fact, look at your local MLS listings, and you will find thousands of them throughout the country by all entities. Again, what is wrong with this picture?
I see nothing wrong with the big picture (which yours is not)...
Delinquencies, foreclosure filings and foreclosures have all declined annually since 2011 -- if there is a systemic problem that's not being addressed, it's certainly not indicated by looking at national foreclosure data...
Based on your posts above, it seems to me that you're one of those people who looks around, makes assumptions based on what you see and then declares, "This is the way it is for everyone/everywhere." Your limited, local and current experience isn't generally indicative of what's going on elsewhere and over long periods of time.
The human brain isn't good at extrapolating complex and large-scale data...even though a lot of people think they are the exception...
I just looked at the VA website that is full of foreclosures and Repos. I wonder how many of these homes will be sold to people that will buy and occupy these homes? There are around 600 or more that can be bought for $50,000 or less. Matter of fact, look at your local MLS listings, and you will find thousands of them throughout the country by all entities. Again, what is wrong with this picture?
I see nothing wrong with the big picture (which yours is not)...
Delinquencies, foreclosure filings and foreclosures have all declined annually since 2011 -- if there is a systemic problem that's not being addressed, it's certainly not indicated by looking at national foreclosure data...
Based on your posts above, it seems to me that you're one of those people who looks around, makes assumptions based on what you see and then declares, "This is the way it is for everyone/everywhere." Your limited, local and current experience isn't generally indicative of what's going on elsewhere and over long periods of time.
The human brain isn't good at extrapolating complex and large-scale data...even though a lot of people think they are the exception...
Rather than trying to argue this out, why don't we just accept each others opinion? Agree to disagree? I know what I see on a daily basis, and apparently you do the same. No one can predict the market, if they could we would all be in big trouble I am sure. I am not active in real estate at present and chose not to be because of the condition of the economy. All I can see things will get worst, before they get better. I have bought a home in an upscale town, and I am spending my time and resources getting the property the way I want it, and I do not plan on investing on any more real estate in the future. However, I am not someone that will say "never". You are correct, I can only see what is happening within a 500 mile radius of my home. Enjoy the tax on your rainfall.
It's gotten awfully hard to find decent deals in a lot of markets
Rather than trying to argue this out, why don't we just accept each others opinion? Agree to disagree?
I'm not providing any opinions (I admit I'm not smart enough to have any worthwhile opinions here). I merely provided the data that I've seen, which disagrees with the basic premise underlying your opinion -- specifically that existing home sales have been flat...
If you can provide data to substantiate that claim, perhaps we can have a worthwhile discussion about "why" that's the case...but as of now, I don't believe that your assumptions are correct.
Rather than trying to argue this out, why don't we just accept each others opinion? Agree to disagree? I know what I see on a daily basis, and apparently you do the same. No one can predict the market, if they could we would all be in big trouble I am sure. I am not active in real estate at present and chose not to be because of the condition of the economy. All I can see things will get worst, before they get better. I have bought a home in an upscale town, and I am spending my time and resources getting the property the way I want it, and I do not plan on investing on any more real estate in the future. However, I am not someone that will say "never". You are correct, I can only see what is happening within a 500 mile radius of my home. Enjoy the tax on your rainfall.
Dunno, Edward.
A couple in my investing group just posted on Facebook a (carefully redacted) image of their latest net-profit check on a fix-and-flip: $97K on a mid-scale home in a middle-class area of the Chicago suburbs. One of the group leaders just made $150K net on his most recent rehab. Other profits range down as low as $20K. So, there is money to be made.
However, I can see where the current economic climate may be outside some folks' comfort zone. It takes savvy and expertise in property selection and analysis as well as keen negotiating skills and, sometimes, knowing when to walk away rather than pursue a marginal deal.
In an earlier post, you cited the difference between your P&I and PITI as being around $415. I'd be curious how much of that is insurance, and are those insurance issues due to your location (VA, possible hurricane risks of flooding, tornado damage, wind damage).
For comparison, my property tax works out to some $370/mo. Doesn't seem to be "depressing" the housing market as much as the dearth of lending is doing. Assessments in this area have been lowered the past four years running. Only this year is my assessment raised due to the market recovery.
Just one area, I grant you, but not atypical of what Chicago Metro has seen in the greater scale.
For what it's worth...
This forum is not a Q&A but a Q&O, question and opinion, and that's what makes a forum great!
Real Estate is one piece of the overall economy and due to the wide geographic diversity it will largely depend on your area of investment. Real estate as a whole will strongly correlate with the stock market but certain regions will have more volatile swings, e.g. larger drops, more subdued recovery, hyper appreciation.
For example, I could see Houston having a huge buying opportunity in the next few years. The large oil majors are suffering from the current low oil prices and are reducing their capital expenditure. The service providers for the oil & gas industry typically lag in the cycle and will feel the effects of the oil bust and will drastically reduce their workforce. More unemployment and lower wages will slow down the Houston economy, causing more distress in the housing market. This leads to an opportunity to snatch up real estate at reduced prices. Of course Oil will recover (it always does) and when the industry picks up, Houston will have great price appreciation again.
Of course I don't have a crystal ball, but it's my investment hypothesis. Until its proven or disproved, it's just that, an educated guess.
I do like the opinions that are presented here though!
Plan on it. There are always corrections in any market. The best thing to do is be prepared (liquid) so that you will capitalize on the downswing. Always be cash flowing. Make your money in the buy. Don't wait for appreciation, force it. Real estate goes against common logic. You buy when the market is in the dumps and sell when its at its best.
Dunno, Edward.
A couple in my investing group just posted on Facebook a (carefully redacted) image of their latest net-profit check on a fix-and-flip: $97K on a mid-scale home in a middle-class area of the Chicago suburbs. One of the group leaders just made $150K net on his most recent rehab. Other profits range down as low as $20K. So, there is money to be made.
However, I can see where the current economic climate may be outside some folks' comfort zone. It takes savvy and expertise in property selection and analysis as well as keen negotiating skills and, sometimes, knowing when to walk away rather than pursue a marginal deal.
In an earlier post, you cited the difference between your P&I and PITI as being around $415. I'd be curious how much of that is insurance, and are those insurance issues due to your location (VA, possible hurricane risks of flooding, tornado damage, wind damage).
For comparison, my property tax works out to some $370/mo. Doesn't seem to be "depressing" the housing market as much as the dearth of lending is doing. Assessments in this area have been lowered the past four years running. Only this year is my assessment raised due to the market recovery.
Just one area, I grant you, but not atypical of what Chicago Metro has seen in the greater scale.
For what it's worth...
Basically my real estate tax is only a little more than $2500 this year. Next year I am sure it will increase again. Seeing how the insurance companies have a relationship with God on Hurricanes that my home owners insurance seems to be high. I don't need or have flood insurance even though I am within a block of the harbor here. However, at the same time my home will not likely sell for what the city has it assessed for. I know this is going on in most areas. The city did reduce the assessment of housing here a few years back, but now it is back to full steam ahead. Matter of fact they increased the tax rate to make up for the assessment loss. Some saved, while others got the short end of the stick. We also have something that is called the Chesapeake Bay Foundation here as well. Along with my 100 dollar water bill every two months, I also get a separate bill for sewage that is around 25 to 35 dollars. This is due to the cleaning the sewage twice. The city keeps raising the taxes, and the citizens get nothing in return. Only the high city officials get the raises.
Now I will also tell you that the area I am in, is about the same is J. Scotts'. We did not really get hit hard by the down turn in real estate. The reason is because of Government influence, and Government salaries. However, decreasing the size of the Armed forces has made a difference here already, and will continue to do so. In no way I am saying that it has hurt home prices or home sales, matter of fact this summer was good for realtors. I can say this: The flippers are still making some money, but not like before, I am sure. What the banks want are getting higher by the day, while the condition of the properties are getting much worst.
Now I am someone that looks around the east coast nearly everyday looking for deals, few are to be found now. Sure you can pick up a home that should be appraised for 250 thousand, but when you look at the sales data in that area, you will see the comparable's are selling for much less. Matter of fact the biggest problems here real estate agents have faced is that the bank agrees to a short sale, and the appraiser, appraises the home for full price. It is either that, or houses that should be appraised for much more are appraised for less than they should be.
I agree with J. Scott on the selling of homes in the last few years as well. The thing is, that home sales are up, but not really. Many homes are being sold for less money than should be. Matter of fact you can pick up an existing home for a whole lot less than a new home. It would cost twice is much to build the home than what an existing home is selling for. And that is at full price.
I have bought a home that was built in 1979 that is over 2200 sqft, with a two car attached garage on an acre of land. In the same area it would cost $338,000 to build the house today. I paid well under $100,000 for it. The house will be in brand new condition when I finish with it, and I still will be well under $100,000 for the house and the land. I am flipping it and moving in, and putting my home up for rent. I can assure you this, that it will be much easier to rent my home than sell it in this market, even though the rent will be higher than the payment. I see this everyday here. It does not make sense to me, but that is the way it is. People with high credit scores are renting rather than buying. Did the housing market crash scare them that bad?
Just to let you know, I saw a house sell here on waterfront for $179,000, and that included an attached garage and a 3 car detached garage in one of the better school districts. The home was built in 1983 and is 1800sqft. You also were able to put in a boat dock across the street on the land that was with the home. And that property did not require flood insurance either. I don't know what the new owner is going to do with the property, but I believe I will see it for rent soon. Here, about $20,000 is about all you can plan to make on a flip at present. I am seeing houses sitting on the market for years now in the 5 to 6 hundred thousand dollar and above price ranges. I believe in my area homes that are selling between 150 to 200 thousand mark is the sweet spot. - However, it had better be a show place to sell for that, because the city is funding developers to build new houses in that price range. And just to let J. Scott know, they are doing the same in Baltimore and many other cities as well. I would not be surprised if Chicago is doing the same?
So the bottom line of what I am seeing, that yes homes are selling ok. However, I cannot see this continuing. How can anyone compete with subsidized housing, especially when their taxes are paying the bill for them? How long will be people pay their mortgage on these homes, and how long will it be before you see them on the foreclosure list? Yes the housing market is doomed and will continue to be that way until the Government gets their hands out of it.
Again, I think you're providing your personal empirical experience, not true metrics. Do you have data to support that belief?
Personally speaking, I just built my personal residence not too far from where you live. I finished with about $100K in equity, and my total cost was a good bit less than what I could buy something similar for in my area. So, my empirical evidence is different than yours.
I have no data one way or the other, though...
Since you didn't cite the comp.'s I'd need to research them and see where your market really is according to the buyers. We often disagree with the buyers, but in the end, any market is only worth what people are willing to pay.
@Vincent Crane, my 2 cents: market correct itself every 10 years. Since the market has rebounded, depending on what part of the country you are in, it will be another 4-6 years for the next correction. I do not believe the market will crash, and @Jay Hinrichs has explained why will not beautifully.
As the interest rates will rise and the economy will slow down again, the Real Estate market will slow down also. Until then prices will continue to rise and for the savvy investor, the low interest rates still makes this RE market an amaizing time to buy. Buy right, make sure the numbers work and buy with a long term vision. Focus only on paying your property off and in no time, 10-20 years from now you'll just wish you bought more, and if you are still not convinced, look at @J Scott 's graphic that show the home prices over the last 40 years. One last thing, while property tax and insurance are high, remember that your tenant is really who pays them, not you, the tenant that has his net-worth 40 times less than yours, the homeowner (per National Association of Realtors).
How could it not? What is the average income?
Median household income in the US is a bit more than $50,000.
Median house sale price in the US is about $188,000.
Can you explain why you think those metrics indicate that there needs to be an impending crash? It's not clear to me...
The taxes could be approximately $564.00 a month not including HOA fees, flood and insurance.
These types of questions are a complete waste of time, and anyone who attempts to answer them seriously probably has something for sale or just likes to hear him/herself speak hoping to impress other people with his/her pretend knowledge.
How could it not? What is the average income?
Median household income in the US is a bit more than $50,000.
Median house sale price in the US is about $188,000.
Can you explain why you think those metrics indicate that there needs to be an impending crash? It's not clear to me...
The taxes could be approximately $564.00 a month not including HOA fees, flood and insurance.
Huh?
These types of questions are a complete waste of time, and anyone who attempts to answer them seriously probably has something for sale or just likes to hear him/herself speak hoping to impress other people with his/her pretend knowledge.
I can agree with you, like some have stated. Real estate (like anything else) is only worth what someone will pay.