Signs the market is nearing its peak
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Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votesThis 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..............
63 Replies
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Terry Lao I have never heard that real estate cycles in large metros over a 30 year cycle. I have heard reference to 8 year cycles. If you look over the last 100 years, the cycles are all over the place with no clear patterns. Your hand sketched graph shows a climb followed by decline, followed by another climb. That is literally just a peak and valley. Everyone acknowledges that real estate can go up and down over time, but it is the predicting part that is near impossible. Your chart is telling us we are over 15 years away from a drop in value. Maybe that is true, but I don't see enough data to support that as true or false.
Keep in mind the changes over 30 years make any historical chart irrelevant. What do I mean? Look at what happened over the last 30 years. We had huge shifts in the economy from manufacturing to a post-internet economy. Compare interest rates and down payment requirements between now and 30 years ago. Compare how people worked and lived. The older generations valued things, newer value experience. Older generations worked at companies for 40 years and retired on a pension. Newer workers job hop every few years and move around the country, with no pension. Most people now put their money in the stock market through a 401K, which was very uncommon 30 years ago. How do you trust a chart when all the underlying variables have changed?
Even when you look at the historic charts, trends are hard to follow. Up and down trends can last months, years or even a decade or more.
Look at this Case and Shiller chart that goes back to 1890. It is a few years old, but look at the older trends as they coorelate to world events. The crazy thing is that from 1950 to 1997, house values were basically flat with some ups and downs. The run from that point lasted around 10 years to the peak, which just about doubled values. What happened around 1997? The internet for one thing. Our economy changed and the high paying jobs in coastal markets drove housing values up. We also saw interest rates drop. Congress pushed to promote home ownership through programs and relaxed lending standards. The result was record high home ownership reached in the mid-2000's right before the crash. Home ownership is now at a 25 year low, but values have rebounded.
The line that I drew was basically was a upward slope, hitting peak, and then downward, repeat. This is the real estate cycle. The only other factor is time, whether sharp peak valley, or long drawn out.
I took the chart that you put, and circled in RED, the many real estate cycles that I saw. If you don't see them, then its because you are not in accounting and finance, or just not used to seeing patterns.
Terry
@Terry Lao How can you say there are cycles in a market that doesn't exist? You are extrapolating data from 20 Major Indices to the entire nation and using that to predict a bubble. Do you drive your car looking through the rear view mirror? While a pattern may exist it doesn't mean any causality exists behind it. Look at a few of these graphs with high correlation:
@Joe Splitrock hit the nail on the head. The patterns you see could be noise or signal left over from other major events, like stagflation, oil embargo, the dot com bubble. population shifts, inter generational wealth transfer, unemployment et al... change the economic dynamics. Housing prices are tied to other market events and don't exist in a bubble. Nevertheless, the Case Schiller is a lagging index, so why use it to try and time the market?
I never said there is going to be a bubble. I did not post original topic "signs the market is nearing its peak". I'm vested in Las Vegas market and said good for next 2-3 years, then re-evaluate.
Based upon historical Case Shiller top 20 largest metros, you can see the real estate cycle. Whether you agree or not, it is my opinio. Again, I do not think it is a bubble.
I also said that it look very similar to eric @Eric Fernwood , real estate cycle.
I will post again.
It is opinion, don't have to agree or not. The saying, you can't see the forest for (thru) the trees, might apply.
Terry
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Terry Lao:
The line that I drew was basically was a upward slope, hitting peak, and then downward, repeat. This is the real estate cycle. The only other factor is time, whether sharp peak valley, or long drawn out.
I took the chart that you put, and circled in RED, the many real estate cycles that I saw. If you don't see them, then its because you are not in accounting and finance, or just not used to seeing patterns.
Terry
You are not reading what I am writing. I said everyone acknowledges there are cycles. My point was that future cycles are impossible to predict using historical charts. It is not like the rotation of the planets that can be mathematically modeled. Cycles can be a couple years or 20 years. You said real estate has 30 year cycles, yet you circled 10 cycles on this chart that covers a 120 year period. That averages out to one every 12 years and if you look closely there is actually more than that. Although each cycle has a peak and valley, every one looks different, making them hard to predict.
Since you are in finance, I am sure you know that it is more useful to identify leading factors that correlate to real estate prices. That can be done by comparing historic charts for things like unemployment versus home values. Another would be interest rates versus home values. By comparing these charts, you can identify leading factors to try to predict where you are in a cycle.
Agreed, there are cycles. That's all I'm saying. There are characteristics of a cycle, like good economy, jobs, low unemployment, consumer confidence, new building permits, new loan applications, low interest rates, etc. The graphs I was showing had those characteristics. Now, the time factor just made the lines either longer or shorter. The Case Shiller index just confirmed the line characteristics.
This post said, " signs market is nearing peak", could or could not be true. I think not, and at least 2-3 years more upward swing. Too many positive leading indicators. In fact, the Case Shiller top 20 largest metros all had positive gains (home price). Now, if one or two, or half had negative, then points to more downturn.
Since, my market is Las Vegas, I think a good example is like a craps game. If you are rolling, and you are on a streak, then just go with the streak.
Just my two cents.
Terry
- I can't speak to a market peak but some signs bother me: - More and more investors vs home owners - More chatter on real estate. Real estate is now the number one topic in most cocktail parties In San Francisco we have started seeing a correction in the rental rates and an uptick in vacancy partly due to an increase in new rental inventory and buyer fatigue with high prices. Few things are happening in 2018 which could impact: 1) Fed will raise interest rates 2) Fed will shrink its balance significantly 3) Lots of big retailer debt is coming due in 2018 and that will likely trigger bankruptcies and employment loss 4) Can the stock market grow? What about big tech which has been the major driver of growth in this cycle.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8ySimply mentioning a lot of people wanting to invest in real estate is mostly anecdotal and shouldn’t be considered evidence as to market timing. Now if you can point me to quantifiable data such as social media mention about real estate investing over time, then that’s different. But saying my brothers friends sisters cousin is now wholesaling doesn’t do it for me. Tax reform, FED balance sheet, North Korea, rising rates will all affect this more than that. Also I️ just read a report the other day on fortune that nationally housing supply is stop short, which means we’re probably several years away from meeting that demand. Plus on top of all of this, REI is usually local. Prices may drop in California but that probably won’t be felt as much in rural Iowa. I grew up in small town Midwest and I️ didn’t even realize the recession was going on. Just food for thought.
- Earth · Member since 2017 · 297 posts · 187 votes8yCurious on the actions of other people ion BP. What would you do if the housing market start to fall tomorrow? Sell all your properties tomorrow? Or sell half? Or keep all properties? Etc. etc About me, I’m bullish on the housing market at least the next few years. “IF”, “IF” the housing market starts to fall tomorrow, I will still hold on to all my properties and not selling any, because I do not expect a huge drop like last time (year 2008), the housing price today is not “crazy high” to me. With estimate of 10% selling fee (escrow fee, 6% agent commissions, property transfer tax, Owner title fee, etc, etc) plus the estimate 15% capital gain tax, it cost too much too sell, I would rather hold on to my properties for long term. Unless, unless, the price goes up skyrocket, then I will sell it. However, “IF”, “IF” it goes up to skyrocket high, it may take another few month years to reach the crazy high price. Either way, whether the housing price start to fall tomorrow or not, I’m not selling my portfolio. This is my plan and action on my portfolio.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yI’d hang on tight, wouldn’t sell anything. Fundamentally I don’t plan on selling anything I️ ever buy.
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes8y
It has already begun...leading economists have confirmed it.
http://www.nbcnews.com/id/43946055/ns/business-us_...
https://www.cnbc.com/id/44855323
Oh wait, that is from 2011....I got it now
https://www.forbes.com/sites/merrillmatthews/2012/...
https://www.huffingtonpost.com/2012/10/08/recessio...
Shoot...my bad, those are from 2013.....Got it now, definitive proof
http://fortune.com/2014/10/28/global-recession-us-...
https://www.forbes.com/sites/billconerly/2014/12/2...
Rats...that was my 2015 folder
Just stop....you cant predict the business cycles. There will be another recession and another recovery...no one knows when
- Every investment bear market has a "common mans" indicator! When the investment conversation and participation moves from the classes (the professionals, the experienced and the educated) to the masses it is an indicator of froth if not a market top. There are no quantitative metrics to tell you that unfortunately.
I think I got the short end of the stick. The only prediction my crystal ball gives out is that I'll be 20lbs heavier in 10 years.
Only item I'll add is my anecdotal experience getting a pre-approval for way more than I can afford. There is no way living in Los Angeles with a wife and 2 young kids that I can reasonably afford a loan using a 50% DTI, unless I project my income to rise sharply going forward (which I will not bank on).@Terry Lao I think we may be talking in circles around each other. When you say 'market' do you mean the stock market, the Real Estate market, or the US economy as a whole?
If you are talking about a nationwide real estate market, my assertions is: that a nationwide real estate market does not exist and the 'cycles' you see in the Case Schiller are the second and third order consequences of fluctuations in the greater national economy, which has demonstrated cycles.
A market is a place where people go to trade goods and services and the main driver of these markets is scarcity. Different people see different supply and demand characteristics depending on if they are looking to buy a house in Dallas or Reno, thus making them different markets. A building boom in Dallas has no bearing on a supply shortage in Reno. Real Estate does not yet share the characteristics of the market to market equity world. A Geo political event can cause people to sell of their S&P EFTs/mutal fund when no fundamental change to any of the underlying securities has taken place, yet their supply increases, thus decreasing the price, to reflect redemption.
Now I'm not asserting that feedback loops don't exist by which housing in one area can't impact another. For example when Toyota moved its US HQ from Torance Ca to Plano TX, there is an obvious link between the two markets;Supply in Torrance will increase along with demand in the Plano area. This logic can extend to a larger metro's impact on the nation's economy, which in turn could have effects in unrelated markets, through the drivers you mentioned, Fed Funds Rate, equities/debt market, ect...
In short, all real estate is local and thinking that just because the the Case Schiller says or trends one way is no reason assume 100% correlation to your local market. Better data exists to make buy and sell decisions about where you live than the Case Schiller index.
@Ryan D. I respectfully disagree on using the number of solicitations as a sign the market has peaked. I believe much of that can be accounted for by the increase in real estate gurus we've seen in recent years. This is a phenomena we've never had to factor in when trying to figure out where the top is.
I believe it is also market-dependent. Let's look at two states at the opposite end of the spectrum: Texas and Illinois.
Illinois is the number one state Americans are fleeing right now. I will have to defer to Illinois residents as to how that is affecting their real estate market. That said, I will go out on a limb and say having people fleeing the area in record numbers cannot be helping the market.
Texas has been a very pro-business state for years. We've all seen the stories of companies moving to Texas. The economy in the state is strong, even with oil in the $50 per barrel range. Just wait until it goes back up to $80-$90 per barrel! There is plenty of building going on in the DFW area. There is a labor shortage. The growth is strong and I know there will be a bubble in the future.
I'm referring to real estate market. Yes, markets are local, and the Case Shiller is top 20 largest metros, which is only an indicator for those 20 markets. However, there is for national is based on the below definition:
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is a composite of single-family home price indices for the nine U.S. Census divisions.
My target city is Las Vegas, and it is one of the cities in the Case Shiller top 20 largest metros. If your target city is Stockton, California, then it would not be in this index. Local statistics would apply. However, you can take information in general, if top 20 cities all rise, then overall national real estate market is in good shape.
I'm just using information provided, and using logic, and coming up with my own conclusions.
Terry
@Bill F. your right about there being no nation-wide RE market, though RE markets nation-wide are ALL being impacted by the (overvalued) stock market. Middle class incomes have been more-or-less flat for many years, and house-hold savings rates are declining, so where else is everyone getting the money to drive up housing prices? Price is a determined by supply/demand AND how much capital buyers have.
The stock market will eventually correct (it always does) and this will impact housing markets across the country. Its true that high-end markets will be more strongly impacted than middle-tier markets (the wealthier one is, the more capital they tend to have in stocks), and the effects will not be isolated to just a few coastal metros.
Its certainly foolhardy for anyone to say they can precisely time the end of the cycle, but it think its pretty clear that market data shows we are nearer to the end of this cycle then we are to the beginning.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Stan Hill I was going to say the same thing on the mailers.. I get 5 to 10 a week and have for years.. this is all a function of get rich quick guru's and those marketing their direct mail services so well.
has nothing to do with market peaks or valleys..
but I do see a leveling off at least in Portland.. I think our big run has occurred and we are in for stable pricing for a while now.. although I get reports from our title companies and its still a strong sellers market.. but I am not seeing over bids like we got last year.. and on my new construction were we sold last year in one developemtn 18 homes in 6 weeks we are at 2 a month right now.. which is just fine.. we sell out in 12 months.. but our prices are 75k per home higher than they were last year.. and our cost are up 20k so net gain of about 50k in bottom line profit on this particular subdivision..
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
We are at a peak when the Ace cashier starts giving me real estate tips and everybody and their brother seems to be a syndicator. Check and check.
I had to buy a new $14.95 FSBO sign because I have 2 going at the same time. As I was walking out of the store, I was stopped by 3 people to talk RE. What are you selling? Do you have any more? Are you looking to buy 2 towns away? I know a guy looking to buy, give me your number.
I am selling easily by owner at make me move prices. Not sure if it's a peak we are in, but I'll continue to sell a couple houses a year as they turn. I am definitely selling more than buying these days.
I took an Uber recently..and the driver was saying he flip houses too. Not sure if true. I asked him if he knew about Biggerpockets but said he hadn't heard of it.
It might be one of those things like every other person in L.A is an actor or producer.
, it's funny you mentioned that about syndicators , it does seem like there are a ton of them these days. I know that it's not a new concept..and there are a lot of syndicators with many years of experience.. but it's funny there will be posters saying they invest in syndications..but they are actually syndicators themselves.
Kind of like when someone asks what is a good market to invest in. Then every real estate agent jumps in to say their market is a great place to invest. Of course they are a bit biased.
- Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes8y
@Ryan D. honestly we likely need some sort of event. I doubt it will be RE that leads the way. If you think the Valley is too hot, that might be a trigger. There is a lot of money out there that still is making sense out of purchases so I try to see where "smart" money is going when I can. It is not quite apples to apples, but if someone is willing to bet their shirt and $100M it usually means that something went into their diligence (doesn't mean it is right, but still worth factoring in).
- Ryan Landis maybe a crash in the bitcoin / cryptocurrency markets ? Some of the returns have been really amazing. Some people think bitcoin is going way higher like $40,000 or more by next year and others saying it's going to crash down to nothing . A lot of these new companies (ICOs) have been raising millions usually with just a white paper idea .. It does feel similar to the dot.com bubble .
- Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes8y
Real estate is local that's why some cities were affected more or less by the last recession, so some might have tops sooner or later than others. There is no way to predict if we are at the top, but there are some indicators that I noticed in my market. past several years appreciation was crazy and homes would sell above list price with multiple offers. This year though the price continues to rise it does so at a slower pace and even though there is little inventory, I noticed some properties have dropped their asking price. Also rental prices are stagnant or dropping with higher vacancy rates. With higher purchase prices and lower rents, we have to look at purchasing power and see what people can afford. if they cant afford to buy and the rents are cheaper than a mortgage they will rent. there are many new developments that have finished or about to start that will increase the supply side and help the correction. Do i believe we are in a bubble, nope, but are we overpriced and due for a correction soon, yes.
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