Is a Real Estate crash imminent?
Long Beach & Orange County, CA · Member since 2018 · 11 posts · 7 votes
Is a Real Estate crash imminent?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8yYes...so you should sell me all your properties at a 20% discount so you can avoid the 30% crash.
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- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes8y
Originally posted by @Greg H.:
Originally posted by @Anthony Dooley:
A prudent investor, which I aspire to be, shouldn't care if the market crashes, corrects, or continues upward. Unlike the last crash, I am in a much better position to take advantage of foreclosures than I was 10 years ago. And if you are not over-leveraged and you have plenty of cash flow, a crash is not a scary thing. It is a buying opportunity just like today is a selling opportunity if you want to take some gains.
I am in the position to handle a crash as I owe nothing to nobody
With the competitive and refuse to lose drive in me, it would drive me crazy if the market crashes and my properties are worth less than I paid for them!!!
Yes, it does matter
It would only affect you if you sold in the crash. Rents will not crash, so to me it would be a buying opportunity.
- Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes8y
Yes it would. That is my DNA. I have lost money on a property once in over 500 transactions and that amount was insignificant.
Let me put it this way....if you bought toilet paper on Amazon cheaper than me.......it would bother me
@Anthony Dooley - Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes8yMatthew Runfola This is a classic cope out not to do anything. You have to find deals that are value add (equity untapped) and cashflow that you are happy with to outlast the loan term. This is typically more than 7 years so you can out last a recession. Overall have your funds in play but hedge in recession proof asset classes.
- Santa Ana, CA · Member since 2018 · 7 posts · 2 votes8y
I think values in Orange County, and to some extent LA county, are inflated at any given time - anywhere between 25% and 30%. That's up or down market. It's just the nature of CA.
Bloomberg tends to have a bit of a pessimistic bias.
- Santa Ana, CA · Member since 2018 · 7 posts · 2 votes8y
Originally posted by @Jack McTavish:
I think the markets are approaching a correction. These things come in cycles and the market is pretty bloated in places. Though I don't think all places will crash simultaneously herein the good ole' USA. You may be investing in a region that will be largely unaffected when the correction comes.
I agree with this. California is a prime example of where prices are bloated to a point that I would consider out-of-control. But, in some place like St. Louis, prices might be more realistic and stable and should a crash happen in California, the crash may possibly not affect Missouri as bad. I hope, anyways!
- Insurance Agent · Sacramento, CA · Member since 2017 · 45 posts · 33 votes8y
I'm with @Gordon Starr on this one. People will always need housing, it's just a matter of where millennials are choosing to go. Many of them are renting in urban areas...maybe this will change, but suburban McMansions are being shunned with this crowd but (anecdotal example coming) that's all I'm seeing be built here in Sacramento county. Once the boomers move into care facilities (being built like gangbusters out here too) or die there will be a glut of zero lot line homes on the market.
When will this day come though? My ham fisted guess is 2028. Average age of death is currently 78.7 years and the baby boomers range from 1946-1964. This group is (on average) grossly underfunded for long term care needs so I'm betting these homes will have a lot of deferred maintenance as the owner's retirement dollars are siphoned off to medical and paramedical services. Cheery stuff huh? Who knows though...maybe immigration will loosen up, birthrates spike from the boom we're seeing, any number of things could happen to keep values high. Buy for cash flow and make sure there's something keeping the area hopping (a good college, multiple large employers, government agencies, etc) and the rest should work out.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Account Closed:
Originally posted by @Ned Carey:
Specifically where are you talking about? Statistically nationwide crashes are non existent. The 2008-20010 crash was an extreme anomaly. We are back to a more normal nationwide market meaning some geographical markets are behaving differently than others.
I have no doubt some markets will see downturns - quite possibly very soon. It is also quite possible we may not see another nationwide housing crash like we saw recently in our lifetimes. The exception being total economic crash which brings housing down with it.
Right on. "Statistically nationwide crashes are non existent. The 2008-20010 crash was an extreme anomaly."
In fact, The crash was only 6 areas. 1) Maricopa County (Phoenix), 2) Clark County (Las Vegas), 3) Florida, 4) Riverside and Los Angeles Counties (California) 5) everybody's favorite, Wayne County (Detroit) and 6) Mrs. McGreggor's Health Spa and Fishin' Hole in Rosebud Montana.
Everywhere else was down some or stayed neutral. A few areas actually went up in value. The reasons the Crash happened no longer exist so they will find new reasons for a crash the next time. ;-) @Matthew Runfola
there were many more markets than that that crashed.. Atlanta was one of the biggest.. I lived it as a HML in that market as well as other cash flow markets of the deep south.. if they did not crash I would not have ended up owning 200 plus homes that I foreclosed on.
some markets held better.. our little portlandia saw a 15 to 20% lower of the median.. and in the high end over 1 to 2 million it crashed 50% or better.. I was just about to buy ( in escrow) a home to live in from my bank they were in it 3.2 it was new construction and they would sell it to me for 1.5 with 50k down and 3% interest I got cold feet and thankfully I did not buy that I think I could have squeaked through but still a better play to not have that huge loan on my books going through 08 to 2011..
And I was a HML in Detroit in 2002 for turn key operators and I can tell you it started to crash way before the crash that we all think of in 2008.. it was going downhill in 2005 precipitously I had homes that appraised when I made the rehab loans at 120 to 150k investors bought them back then with the nefarious instant equity at 100k I loaned 65k on them and still took it in the shorts on the last two I did. But I did do a few hundred maybe 300 successfully so it was not a nightmare for me like the deep south was.
- Rental Property Investor · Houston, TX · Member since 2018 · 106 posts · 56 votes8y
It all depends on what's your holding period and your liquidity needs are. We all know that the crush is coming. Unfortunately, nobody knows when it will come. Rather than sit around and wait, if you see a great deal and you like the numbers, you should go for it. The crush may not come in 4-6 years or may come in 3 months. Nobody really knows.
Investing is all about consistency and rather very hard to time the market. It just doesn't work for the long run.
- Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes8y
Originally posted by @Ned Carey:
....We are back to a more normal nationwide market meaning some geographical markets are behaving differently than others.
I agree to a point but I don’t know of any area that is not seeing appreciation around th country. Sure some may be 5% and some may be 15% a year but all signs are up. Do you know of any markets in a downturn now?
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Account Closed:
It all depends on what's your holding period and your liquidity needs are. We all know that the crush is coming. Unfortunately, nobody knows when it will come. Rather than sit around and wait, if you see a great deal and you like the numbers, you should go for it. The crush may not come in 4-6 years or may come in 3 months. Nobody really knows.
Investing is all about consistency and rather very hard to time the market. It just doesn't work for the long run.
as well as having ample reserves ... folks are kidding their selves if they think rentals are immune to crash's.. I had clients in Vegas and PHX who had 4 plex's lose 100% of their tenants for extended amount of time then lose the 4 plex to the bank..
where I see this irrational exuberance is the high debt load folks want to have on rentals IE max leverage refi till you die and minimum reserves this while in this rising tide is fine.. but slow down or correction could lead to some exciting times and not necessarily fun times.
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes8y
@Jay Hinrichs I've been self-employed for 5 years and I haven't had a problem getting financed on several deals. Mind you, I'm not getting million-dollar loans (yet). I am only about 20% DTI.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Anthony Dooley:
@Jay Hinrichs I've been self-employed for 5 years and I haven't had a problem getting financed on several deals. Mind you, I'm not getting million-dollar loans (yet). I am only about 20% DTI.
got it but for many with out a W 2 its very hard to get a loan.. many show loss's and that alone will keep you from getting a loan..
my main point is lenders are not going wild giving out loans like they did pre 08 .. I think we in the business can all agree to that.
- Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes8y
@Jay Hinrichs Man your telling the truth about those self employment loans.....In the process of getting a home loan took 3 months to get preapproved and I think 57 letters of explanation along with countless documents. Closing statements etc.....they certainly aren't giving out home loans like candy that's for sure.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Philip Williams:
@Jay Hinrichs Man your telling the truth about those self employment loans.....In the process of getting a home loan took 3 months to get preapproved and I think 57 letters of explanation along with countless documents. Closing statements etc.....they certainly aren't giving out home loans like candy that's for sure.
this is a little different but I went to Banner bank in the NOrthwest with a construction loan request I paid cash for the dirt.
I needed 300k for vertical on a 700k home.. ARV.... new construction..
I hand my 4 inch thick tax returns with 14 LLCs etc etc.. and the Lender / broker / decision maker looks at me and says.
If you think I am going through all of that for one 300k loan your nuts.. come back when you want to borrow 5 million and build a bunch of homes.. LOL
I have a very difficult time getting a conventional owner occ mortgage it takes months and months and that's just a refi and last year after all this I told them screw it .. I will just pay cash and or not refi and pay the loan off.. so now I am close to having my primary and secondary homes paid for and will just keep them that way.. even though its BP blasphemy to have cash tied up.. its just too painful.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Real Estate Crash, Car Crash, Crash Bandicoot, The Movie Crash.....Don't matter to me. I'm making money in any market.
If you set your business up the right way you'll also be able to make money in any market.
- Investor · San Antonio, TX · Member since 2015 · 34 posts · 24 votes8yNo crash isn’t imminent in the near future. It’s likely 3-7 years to next peak. Dodd-Frank roll back, crowdfunding and massive under supply will continue to drive hot market conditions. Then when it seems like you can’t lose you’ll have people with no business jumping into things like development. As true crashes don’t happen till people start speculating in significant ways and pay over intrinsic value for dirt. Leading to an oversupply of a market. Is there any market in the US that has an oversupply of inventory?
- Santa Ana, CA · Member since 2018 · 7 posts · 2 votes8y
Also, I forgot to mention: I haven't had a chance to read the article, but I can tell you that there are down payment assistance programs and other state programs available to borrowers. The borrowers must meet certain minimum credit requirements (FICOs, income, and employment) These programs can offset the cost of getting into a home. At least that's their stated intention anyways. (Usually these programs require occupancy for a certain duration or else the programs are voided and the borrower is liable for those costs.)
In fact, Fannie Mae just announced a couple of months ago that they are now offering closing cost assistance to borrowers/lenders. If you combine this with down payment assistance, silent seconds, grants, and whatever other programs the borrower is eligible for, they can get into a home REAL easily and the lender isn't going to back out of the deal because they bear virtually no risk. In these scenarios, the government does: both federal and state - sometimes local. And the deal is practically guaranteed to be approved.
The whole point of some of these regulations is that lenders (bank or non-bank) are required to try, at the very least, to make credit available to EVERYONE. Some of these regs were in effect before the crisis.
In 2008 the government stepped in and imposed all kinds of regulations to banks and lending institutions to prevent a repeat of the crisis. What actually happened, it seems, was the government become the biggest investor and writer of risky loans. Basically, the government stepped in and told the banks: "You can't do that!" but went ahead and did it themselves.
Lately, though, a lot of non-bank lending institutions have started to crack down on the credit quality of borrowers. Traditionally, a borrower can get an approval for an FHA loan with a FICO as low as 580. As far as I am aware, that's still the case. However, lenders are now starting to require better FICOs to get those loans. (Usually 620 or better.) This is for a straight FHA loan, not state first-time buyer programs which usually tend to have higher FICO requirements (660 or better.)
It's a very unusual world we live in right now to say the least!
- Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes8y
Yep that's exactly what i'm talking about @Jay Hinrichs at least they had the courtesy to let you know they weren't even going to do it. I got a lot of oh it's gonna take me a while to sort through this and then they disappear lol.
- Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes8y
I just finished listening to the audiobook version of Nate Silver's book "The Signal and the Noise: Why So Many Predictions Fail - but Some Don't". In that book, he does talk about the math and accuracy of people's ability to make accurate predictions about the future. Definitely an interesting chapter in there about the real estate market in 2008 era which would be appropriate to read if you're interested in that. He also talks about trying to predict future which I found very interesting.
There is an interesting article from Harvard about predicting housing bubbles:
https://www.extension.harvard.edu/inside-extension...
Economists are historically not great at predicting stuff like interest rates. Here's an image from a Wall Street Journal article that show what the economists predicted for interest rates and what actually happened:
This is where I got that chart from to give full credit and so you can read it from the source: https://obamawhitehouse.archives.gov/blog/2015/07/...
My belief is that if the smartest economists historically can't accurately predict interest rates, I suspect it will hard for them to predict crashes. Some will predict a crash and may ultimately be right and the some will predict a crash and may ultimately be wrong.
Personally, because my tendency is to be a worrier, I do think about possible market corrections and crashes. I wrote myself some software that allows me to model all sorts of what-if scenarios including market corrections and crashes.
For example, I just ran a quick comparison of buying $100K properties with just slightly positive cash flow ($25 per month at the time of purchase) one per year as a Nomad.
For the base scenario without a crash, I modeled appreciation to be the same as the historical Case-Shiller inflation rate of 3% per year.
For modeling the crash, I said what if we have 10% decline in property prices and rents per year for 3 years (starting in Jan 2021 and going through Dec 2023). After that, starting back up in Jan 2024, it resumes its 3% per year for both price and rent.
In both cases, I assumed you bought one house a year as Nomad (buy house as owner occupant, move in, live there for a year, then covert it to a rental and buy your next owner occupant). 3% down payment for the first 3 properties. 5% down payment for the remaining 8 properties.
So, in the "crash" scenario, you have 3 houses you already bought affected by the full crash. You buy 3 more houses as the crash is happening. The one you buy in Jan, 2021 goes down for 3 straight years 10% per year right after you buy it. The one you buy in Jan, 2022 goes down for 2 years and the one in Jan, 2023 goes down for a year. After that, you're buying the last 5 properties post-crash when the market is in recovery.
The big picture is the difference in terms of net worth is almost $2M OVER 40 YEARS with a market correction.
Almost $5,000 per month in True Cash Flow(TM) (which includes cash flow from depreciation and cap ex) in year 40.
And here's a breakdown of total equity between the two scenarios.
If you want me to change my assumptions and run the software again (or even change the setup) let me know.
- Fort Lauderdale, FL · Member since 2018 · 97 posts · 48 votes8y
If someone asks “Is a plane crash imminent?”. “ Is a terrorist attack imminent” what do u do? Do U stop flying or traveling ?
As long as the home price levels are sustainable and lending practices are sane a housing crash will not happen. Market corrections are possible. Correction is different from a crash.
If a crash does happen, I would see that as another opportunity and make a kill. Disciplined investors should not have a problem as long as they stick to their numbers and keep ROI in mind we should be good
- NY · Member since 2016 · 116 posts · 29 votes8yi live in new york city, 2008 crash in few areas was not effected at all, even it went up and very steady. but some part was 'under water' so based on that, you might take a wild guess where market will correct itself. I learned once some guru said, you should think and navigate to make money when market is up and down, cuz somebody will make money one way or another regardless.
- Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes8yAn old Chinese investor who owns about 1000 apartment units and 30 or so single family homes called me in to value his largest apartment complex in Dallas. When I asked him why he's selling he said 1) he's getting very old 2) there's an inherent global recession coming worse than 2009 (he has three partners in this one apartment and has owned for 25 years). He held up an article from a Chinese newspaper that mentioned China unloading $3.1M of US treasuries. I'm no economist or pretend to act like I know what he was talking about, but essentially he said: Rising interest rates will halt any economic growth. Treasury having less bond buyers drives up rates. The debt is skyrocketing plus an increase in rates will make it worse. Tax cuts benefit wiped out by govt spending. The only solution they have is to print more money in this bad scenario. Which drives up inflation. Oil 100+ a barrel coming soon. Chinese arent stupid. They will allow bonds they own to mature and sell dollars on the forex market. Which drives down the value of dollar. Gold skyrockets. Housing, commercial RE, bonds, stocks - kaboom. Pretty much what Kiyosaki has been saying for years. Quantitative Easing won't bail us out. Dollar will be worthless. Crypto/gold are insurance. I'm preparing for both scenarios: A slight correction and a collapse.
- Member since 2018 · 162 posts · 73 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Anthony Gayden:
Originally posted by @Matthew Runfola:
Small-Time Bankers Make Millions Peddling Mortgages to the Poor - Bloomberg Business Week https://apple.news/A-FtZMr0uTJSudDsEPZrF-Q
Was I the only one who read the article? The article seems to be suggesting that we are headed to a crash because lenders are pushing unqualified buyers into loans they can't afford.
well then i say that simply is not True Anthony.. just try to be self employed and get a loan these days..
LOL. Or a travel nurse grossing almost 100K/yr.
- Rental Property Investor · Philadelphia, PA · Member since 2014 · 240 posts · 94 votes8y
@James Orr Nice analysis. It seems that even if there is a correction it is not a big deal in the long run. What is the software that you are using to produce those charts?
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