Signs the market is nearing its peak

Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes

I've noticed a steady increase in the frequency of unsolicited mailers I receive offering my buy my house ("why worry about repairs, we'll buy you house as is, all cash, quick close" etc., etc.). I take this as a sign we are nearing market peak. I've seen other peak market indicators, such as the number of friends approaching me for advice on how to get into RE investments, and the number of kids (teenagers) posting on BP about getting rich in RE. As Joe Kennedy said, when the shoe-shine boys start giving you stock tips, you know the market is saturated. What are some of the indicators that you have seen that the market is nearing its peak?

5 Reply

117 views

Most Popular Reply

Alexander FelicePro Member

Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes

This site has been saying we are at the top of the market for almost 3 years now.

I almost want things to tank just to save my eyes the pain of constantly rolling them at every freaking Nostradamus on this site.

tldr: YAWN..............

[email protected]Podcast Guest on Show #301

23 Reply

See this reply in the discussion

63 Replies

Jump to latestLatest

Sort by

Carlos Zapata
Investor · Miami, FL · Member since 2015 · 363 posts · 143 votes
8y
@Ryan D. prices now are almost at the same level than 2005 2006, lenders guidelines already started to be easier, a lot of people wants to flip a house like TV shows, it is time to be intelligent and invest for cash flow, if the numbers make sense let's do it, if not leave the deal to others
1 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Ryan D.
Timing the market is difficult, but not impossible. Yes, I believe the market gives you hints like case-shiller index top 20 largest metro markets, interest rate/Fed, median home prices, sales monthly/YoY, jobs report, economy, housing starts, stock market, etc.
However, your signs are not the most logical. You might be correct, but not mainstream.
Terry
Terry
4 Reply
Ryan D.
OP
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
8y
Thanks @Terry Lao, interesting graphic. Of course there's no reliable way to predict exactly when the market will peak, but there are definitely ways to qualitatively observe the increasing level of market saturation, and thus get a better confidence that we are nearer to the end of the cycle than we are to the middle. There are lots of quantitative metrics ("mainstream" as you say) to observe here (P/E for the S&P - see chart below, margin levels, ratio of total market cap to GDP, etc), & anyone with access to google can see the same numbers. What I'm looking for are the more direct experiences RE investors are are seeing. I am seeing an acceleration of newbies enter RE, lending standards slipping again, lots of unsolicited purchase offers, and prices in my local markets making good investments much harder to find than they were just a year ago, all of which I take as early indicators that the cycle is soon to level out.
Everyone is aware the market is significantly overvalued, but what as RE investors are we doing to better position ourselves to be prepared for the cycle changes, whenever it eventually does. Of course, if congress passes the tax bill, this will all be impacted.
I've been slowing moving more assets to cash, to be in a better place for when assets are available at more profitable prices - things like turning off dividend reinvestment, and slowing down my accelerating of debt repayment in favor of holding the cash.
0 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y
This site has been saying we are at the top of the market for almost 3 years now.
I almost want things to tank just to save my eyes the pain of constantly rolling them at every freaking Nostradamus on this site.
tldr: YAWN..............
[email protected]Podcast Guest on Show #301
23 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Ryan D.
Did you notice the two charts ( Real Estate cycle and the Case Shiller top 20 index largest metros) are striking similar? The RE Cycle is just a stand chart that real estate cycles go through. The Case Shiller is an actual chart based on current historical numbers (chart #2, based 10 years).
Even more striking is Case Shiller 30 year, (chart #3). Looks almost identical.
I think the below is a foreshadow of future. Now, if only can time market.
Terry
0 Reply
Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
The truth sign I see is, extremely low inventory in most cities everywhere in USA, that being said, huge demand and very little supply. That being said, we are absolutely not near the end of the cycle yet. If you think housing market is in a bubble and crazy high? Compare to the stock market and bitcoin, housing market is not at the stage of crazy yet like stocks and bitcoin. Everybody has been saying that housing will crash, stock will crash, bitcoin will crash soon since year 2013; however, none of it have crashed yet four years later - 2017. If I predict the crash is coming, I would bet both stock market and bitcoin would crash before housing market crash, because both stock market and bitcoin are much much crazier than housing market. I’m long and bullish on housing market at least the next few more years.
3 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Account Closed
I'm on your side Mary. I'm looking for more multi-units. I think real estate market good (Las Vegas) good for at least 2-3 more years. I will re-evaluate the market when reach 2-3, and see how leading market indicators look.
Terry
0 Reply
Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
I could not feel people are emotional about housing market yet. I don’t see everybody jumping to the housing market yet. People have not crazy about housing market yet. Today housing market don’t have the crazy feeling yet. We still have room to grow. When we see the crazy emotional feel like stock market and bitcoin, it may be close to end of the cycle...
0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
Originally posted by @Alexander Felice:

This site has been saying we are at the top of the market for almost 3 years now.
I almost want things to tank just to save my eyes the pain of constantly rolling them at every freaking Nostradamus on this site.
tldr: YAWN..............
Couldn't agree more. Further, what does it even matter if we are at a market peak. If prices soften, just buy more tomorrow than you would today. If prices soften and interest rates rise, your payment on the same asset could conceivably be higher even at a lower price.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group545 Reviews
Website View Page
11 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y
Originally posted by @Russell Brazil:

Originally posted by @Alexander Felice:
This site has been saying we are at the top of the market for almost 3 years now.
I almost want things to tank just to save my eyes the pain of constantly rolling them at every freaking Nostradamus on this site.
tldr: YAWN..............
Couldn't agree more. Further, what does it even matter if we are at a market peak. If prices soften, just buy more tomorrow than you would today. If prices soften and interest rates rise, your payment on the same asset could conceivably be higher even at a lower price.
LOL Russell when I got an email alert from a moderator I figured you were in here telling me to stop being such a smartass ;) ;)
and yes, regardless of when the market turns if you're buying up cheap debt that will make you tons of money for the next 30 years then the next short term downcycle will be largely irrelevant. Play the long game
[email protected]Podcast Guest on Show #301
3 Reply
Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
The writing is on the wall all over the places. San Jose area has ~1,000 properties on the market for rent. There are few new renters as people have left the SFBA frustrated by the ridiculous housing cost. Most investors follow fools they are reluctant to unload thinking home prices will double, triple. They are enjoying the upswing ride thinking it is go even higher. Home price of $1500/sf, $2000/sf are their goals.
The inventory in Alameda, Santa Clara, and San Mateo counties are 8% of the peak yr (2009). November 2017 is 35% of same time 2016 at 1,385 SFH units, and 2016 Nov had 2100 homes on the market. Just about anything on the market sellers gets more offers than they know what to do. The low inventory and relatively strong economy has prevented a bubble.
When the interest rates go up a few times in 2018( say 5% or higher), gas price go up most buyers will freak out. They realize they can not afford a $1M+ mortgage for 30 years. When the economy slows down with disappointing earnings, you will see local companies reducing head count and in one quarter or two the demand for housing diminishes, and home prices will tank.
At this moment there are no large scale hiring and there are same number people leaving SFBA than coming for jobs so unemployment is steady. If a Bicoin, political instability, oil prices, local company stock prices erode people will realize they should have done this or that earlier.
One way to tell is the commuting traffic. That is employment indicator.
Sam Shueh
3 Reply
Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
If you feel that it is close to the end of the cycle and don’t have confidence on it anymore, an exit strategy would be sell all your houses today. Many buyers have been waiting and are very happy to buy your properties today. If you have confidence on the housing market that it will go up more, hold it tight on your properties.
0 Reply
Tyler Weaver
Investor · Cincinnati, OH · Member since 2008 · 319 posts · 243 votes
8y
Unsolicited mailers are likely just as much a result of inventory being low as anything else. On a similar note, a few years ago the foreclosure sale at the courthouse used to have 90%+ of the properties go to the bank, and the bank takes a hit on the price and offers it as an REO. Now, a lot more are being bought by investors, and less REO's are hitting the market.
Most of the lending I am seeing that is opening up is targeted towards investors. Not speculative but for people trying to do forced appreciation.
1 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
8y
Idk and seems peakish however if we are talking Bay Area type, the market is near peaks 75% of the time past 35 years or so. That is just how the ball bounces up there.
Good luck!
2 Reply
Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
In Bay Area, the downturn in year 1991 and 2001 was only 10%, about the same fee/cost (6% agent commission, escrow fee, property transfer tax, owner title policy etc.) to sell a property. It may cost more than 10% to sell properties at the downtown then buy it back at a later time. The downturn in year 2008 was 27% due to a lot of mortgage fraud. Today price in Bay Area is only a little bit more than last peak 2006. Even though we have a downturn starting tomorrow, I do not expect a huge drop like last time (27%) in year 2008. Unless the price goes up another big step like Bitcoin, then I would expect a big drop after more big raise on the price.
0 Reply
Aron D.
Rental Property Investor · San Diego, CA · Member since 2008 · 89 posts · 65 votes
8y
Inventory is low and demand is high in CA. The only thing that could sink this ship is employment. If companies starting leaving CA to cheaper places (TX, NV, etc.), then I can see markets declining, but the larger markets (LA, SD, Bay Area) are also getting foreign money and investors that are parking cash from their corrupt governments. Every time I visit SD, I see more foreigners moving into once rough areas. These places are gentrifying and creating increased appreciation. Our liberal state creates more headaches and costs of doing business for builders so it increases the cost for new construction. The increased costs of doing business in CA has created less inventory and resulted in more appreciation. New home build prices are outrageous. They come out with new requirements every year like fire suppression systems. HI is also in a similar situation. I was losing money on a condo I was renting out, but someone bought it and that market is also still appreciating. More inventory would solve this situation of affordable housing, but we have all the environmental concerns in this state. CA is also the 6th largest economy in the world.
http://www.politifact.com/california/statements/2016/jul/26/kevin-de-leon/does-california-really-have-sixth-largest-economy-/
3 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Terry Lao I am looking at those charts and can't help but think you are seeing what you want to see. You claim chart #3, the Case Shiller 30 year, looks almost identical to chart #1. First of all, I don't think they look identical. Second of all, are you claiming that we are in a 30 year housing cycle?
@Ryan D. you are observing the herd mentality. As prices go up, more people are attracted to real estate, making it a worse investment. When prices dropped, less people were interested in real estate making it a better investment. The market corrects itself and people get caught in the swings.
The hard part is predicting the top or bottom. Worse yet there may not be a major swing. We could have ten years of leveling prices. The charts are useless. It is like trying to drive your car by looking in the rear view mirror. It only works on a straight road, but we all know there are twists and turns.
3 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Joe Splitrock
It's an opinion, and I think the below charts look strikingly similar. The real estate cycle chart does not have a timeline, while the Case Shiller top 20 largest metros does have a time line of 30 years.
Again, I did not say exact, I said "similar".
Terry
0 Reply
Ryan D.
OP
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
8y
@Account Closed
0 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Joe Splitrock
@Ryan D.
@Aron D.
I guess I have to draw the line that shows the resemblance.
Terry
0 Reply
Justin Merchant
Real Estate Broker · Tampa, FL · Member since 2017 · 43 posts · 24 votes
8y
Maybe it will crash soon, maybe it won't. Anyone that tells you they know when it will or won't crash is is full of themselves. Historically, this is a very long upward trend on values. That said, underwriting standards from lenders are much stricter than they were in the past and the supply still lacks demand almost everywhere. The best way to avoid losing your shirt in a crash is to not over leverage yourself and underwrite best and worst case scenarios to make sure you can weather a hiccup in the market.
5 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
There are plenty of signs indicating it may be time for an adjustment.
For me, based on what I have seen in the past, when there is a steep increase in Flipping shows on the TV it is a bad sign. This year there a half a dozen new shows and increasing every day.
The market in flipping grows with rapid appreciation and once saturated corrects itself.
3 Reply
Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
8y
@Ryan D. You raise some interesting points about the Bay Area market, but the age old maxim that the three most important things in RE are location, location, location Extrapolating what you've seen to the "US Real Estate Market" is pointless. There is no such thing as a nation wide RE market.
The supply of SFRs in San Jose has next to no bearing on my investments in eastern NC. This is one of the many reasons that the Case Shiller is a lagging and not a leading indicator. Yet that doesn't matter since it was never meant to serve as a baromter for "market health"
You'd be better served to pull out the SFRX index and see if it confirms or disproves your empirical data.
0 Reply
Robert Ortiz
Cambridge, MA · Member since 2017 · 15 posts · 14 votes
8y
Market saturation alone is not necessarily an indicator of market peak. What the really says is that demand is still growing. Of course, not everyone who talks about real estate actually plays the game. A better indicator to go by are absorption rates and list to sale ratios. You'll need a broker for these unless you have an MLS account. Absorption rate tells you how many months of inventory is on market. Less than 4, a seller's market. 5-7, a balanced market. 7+ buyer's. List to sale ratio also helps give an early warning whether prices are dropping or still popping. Another piece of information that you can get from a mortgage broker whether or not pre approvals are increasing. This is another sign of the health of the market. Of course if you are worried about a sudden bubble burst---realize it doesn't just come out of no where. You could tell before 2008 there was going to be trouble because it was obvious there was recklessness in lending. But the worst of that was over in 2 years anyway. So you switch from flipping to holding for a bit to get through it. You've got the right idea to be looking for indicators, but you need more than a few friends and the shoe shine boy. I was sure we were close to the height of the market in Boston 3 years ago. Rent increases seemed tapped out, which suggested that would cap the purchase prices. But I was wrong---investors (mostly Chinese) accepted lower cap rates or cash on cash return, speculating on appreciation---and the first-time homebuyers just put more down. Maybe now is not the time to try and flip a house right next to the railroad tracks---but I think we still have a few years left of growth before it stabilizes.
5 Reply
Bettina F.
Investor · Post Falls, ID · Member since 2016 · 606 posts · 699 votes
8y
Developers are offering 0 down VA loans in my area. These little 3/2s will make good rentals when the marriage breaks ups and the owners default in a couple of years. I am keeping my eyes open, ready to pounce.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.