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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- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
The Crash didn't happen all at once - it cascaded over a period of years. It affected different areas at different times because lenders didn't want to flood the market and in some markets that are judicial, the courts were clogged with cases. The Deed of Trust States foreclosed faster.
It isn't until about late 2013 and into early 2014 that things get back to relative "normal". From about 2006 to about 2014 housing was a mess. I, along with some people I know continued to buy understanding that markets rebound. A declining market is actually a very good time to do Subject To's and Wraps. But conventional financing was on the skids and hard for Buy & Hold investors along with Fix & Flip investors. It will happen again, we just don't know it until it cascades.
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes8y
@Anthony Gayden this isn't a wide spread problem. If it happens at all, it would be rare. I think the article is just trying to create a mountain from a mole hill (old expression).
- Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes8y
@Account Closed Thanks. I believe real estate tends to be more forgiving the longer you hold it. We could probably model some scenarios that make it look really ugly, but not sure how realistic or likely they are. It is software I wrote to do the real estate portfolio modeling for my portfolio and clients. If you want me to run another scenario, let me know.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
One thing I know for certain as a group and combined with their trade associations, people who sell real estate are about the worst people to ask if a crash is coming, they always claim it's a great time to buy, regardless of the market.
- Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes8y
I ran a few more scenarios with the same initial assumptions I posted above. This time I changed when the 10% per year decline started to see how much impact that had and also changed how long it lasted.
Here's a summary of the net worth from each scenario in year 40.
And, here's how cash flow changes at the end in year 40.
I just made these and have not really dug in to study them, but at first glance, it looks like the later a crash happens (which is when you have more properties impacted), the larger the impact on your net worth.
Cash flow was not impacted that significantly though by when it happens.
The longer a crash happens (like a crash that is 10% per year over 4 years), has a bigger impact than a crash that is 10% down per year over 2 years. That seems like common sense to me.
- Garden Grove, CA · Member since 2017 · 50 posts · 19 votes8y
Mathew, seems you asked a question that was on everyones mind.
I have been asking myself the same thing over the last 3 years. I sold a 4 plex in 2015 thinking the market was going to turn. Guess what it kept going up 40%. Now trying to get back into the market seems I am behind the curve. But like many stated each market is different but the same and the common thread is demand, job growth and interest rates. Locally in Los Angeles vs other places is always going to be different and high demand. Buying nowadays it is hard to find a property that you can buy and flip, its possible but takes lots of work and cash to purchase or down payment. But take a long term view, if you bought a property today what is the likely hood of that property going to be worth more in 10 years. Can you buy today with historically low interest rates and either cash flow or afford the payments on the property. Is is cheaper to buy than to rent. if you can answer these questions then you can figure out where your market is going. Long Beach is overvalued of course like anywhere in LA but if you can afford it chances are those prices will go up over time.
- Member since 2018 · 162 posts · 73 votes8y
Originally posted by @John W.:
@Account Closed how come they give travel nurses a hard time? Curious because I was thinking of switching to travel nursing. I was told the stipend they give you is non-taxable.
1. The stipends/per diem/car allowance are non-taxable. So they aren't on your w2.
2. It's contract work so it's not "steady" income.
We've gone to Maui and now in Alaska, so it's still worth it but long-term and investing plans...I don't think so. My wife is actually the nurse...
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jake Harris:
No 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?
one thing is for certain its still quite difficult to get development loans.. and spec loans are still quite tough and not really available to those without experience.
I did the first horizontal loan 2 years ago that my commercial Oregon bank had done since 06 :)
plus our banks just wont let us get way out over our ski tips they will only give us 12 to 15 spec loans at once.. so only like 5 to 6 million at a time.. compared to in the old days when 50 spec homes was easy peasy.
- Rental Property Investor · Caledonia, IL · Member since 2015 · 289 posts · 213 votes8y
Agree with your last post Jay Hinrichs it can be painful. But again if it was EZ everyone would do the heavy lifting. ( Philip let me know how it goes with TC and RBT ) I am in the process of financing a large 8 figure project with 60-65% LTV and educating myself with various lenders some who have ( declined to even look at the project ) ads on this website. What I am finding is very enlightening:
1.) Rates vary from lender to lender - getting quoted 4 1/2 to 5 1/4 - this is my biggest surprise.
2.) All lenders "want the deal" but then when it gets into the fine details many times they create goblins that do not exist / appetite for new construction class A disappears / Loan committee does not like the color of the exterior / the location of the project / the income projections . Point is they invent reasons for NOT to loan funds vs being upfront from the beginning.
3.) Most are very very lazy - per your reference of the 300k vs the 5M request that's absurd. Prove to me you can handle the EZ loans and then we can talk about larger projects. The seasoned LO's know how to get creative with rates / swaps etc... and will work with you on your current needs and also the exist strategy. Sidebar - loathe time hog lenders who cannot execute.
I'm close to landing the end loan financing of my project and when I do can share if there is interest. Large national bank which is also very surprising.
One more comment about words like "crash and crush" . What is the point wasting time discussing what is not on anyone's radar - waste of time and fear mongering.Lets discuss correction sure no worries but crash and crush? My advice get out of the biz and leave it to the rest of us investors. Of course thats just my opinion and everyone has one!
- Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes8yIsn’t real estate by nature a long term buy and hold investment vs an instrument you buy and sell often? If that is the case I wonder what is the point in predicting or anticipating a turn in the market. Ok you buy a property. Well clearly no savy investor is going to buy one if it is not priced right or at a discount. You rehab it and rent it. Your analysis should reflect a “stress readiness” also called margin of safety on certain variables if they were to go south. Let’s say rents drop 20% or vacancies rise 25% etc. Frankly a lengthy debate on a potential downturn makes me nervous because the debate only has merit if investors are highly levered and have been borrowing like crazy to expand against their equity and purchase more assets / doors. That is what was happening in 2008. Lots of leverage, crazy financing terms etc. If the “balance sheet” is solid then the only debate to have is 1) Can I survive if rents fell 20% 2) Vacancies rose 25% 3) where to load up RE when the market takes a turn. If on the other hand one is levered up the wazooooo like 2008 or bunch of your mortgage debt is at a short term variable rate, you may have essentially thrown a party for a whole lot of people all of whose last name is trouble. One thing to fear is the non savy investors. Your neighbor who is clueless and is levered up to his eyes. Unfortunately when he falls in the downturn, he may take you the and rest of the neighborhood down with him.
- Earth · Member since 2017 · 297 posts · 187 votes8yLooking forward for the new topics of “how do survive the next downturn?” instead of crash coming weeks. :)
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes8y
In many cities the market is out of equilibrium, people can not afford to live in there. Where do teachers and firefighters live in San Francisco? If you are someone who is facing that situation why would you stay in the most expensive city in America or commute 2 hours? There is going to more of a migration than crash. More people are being pushed out and looking at alternative locations to the gateway cities. This is going to take a lot of the upward pressure off. The further out suburbs are going to see more growth. Companies are facing the same problem. Land and labor are to expensive in the gateway cities and they are looking for alternatives, which is bringing jobs to out of the way places.
correction, YES
CRASH, no!
- Missoula, MT · Member since 2016 · 163 posts · 55 votes8y
There was an article on BP about news outlets always trying to forcast the next big crash. Long story short, it rarely happens when they assume it will.
Just because the market is back up or exceeding pree crash numbers from yester years doesnt mean its imminent.
If anything, the real estate market gets nervous when interest rates go up. When they do there is typically a whirlwind of panicked investors dumping there shares in the stock market.
This is of course an oversimplification but im not worried.
- Real Estate Agent · Baltimore, MD · Member since 2014 · 113 posts · 71 votes8y
The nationwide, err worldwide crash in 08, will not likely happen anytime soon. If it does, it will happen for another reason and we will likely see more than mortgages go down. Student loans and auto loans are in much worst shape. My 2 cents for what is worth will be local markets that are depressed and local markets that will continue to rise. The article looked at what happened in 2008 and applied it to now. Although concerning, I think it is an alarmist article. When Dodd-Frank is rolled back we may see a boom and a quick bust based on the other factors. I don't think we will see a crash, as much as some areas fizzle out and just stay flat for rents and sales. The larger problem with finances in the US is debt. The cause for the increased debt is a shrinking middles class. And the reason for that is low and stagnant wages, for many and growing earnings for others. The correction we saw in 08 was caused by people not having enough money and taking on debt. The government's solution of cheap and easy only exacerbated and quickened the problem. One anomaly is that house sales are down because inventory is down thus causing house prices to rise. Sorry, for my long post that goes way off but the question of will we see a correction is, yes. My prediction for when will it happen, it already is and will be slow not all markets will performing equally. Essential there are markets that will continue to do well at astonishing rates and others that will decline.
- Earth · Member since 2017 · 297 posts · 187 votes8y
During last recession, some people had their houses forclosured because they could not afford the mortgage payment, but not all of them. I knew many people (some of my friends, friends' friends, or friends' relatives) didn't lose the jobs, they were able to make the mortgage payment, but they still chose to walk away because the debt they owned the bank were much higher than the the market value. They thought it "was" a saving. For an example, they bought the house at $500k with $480k loan, the house price dropped to $200k, they chose to forclosure or short sale it. They thought it "saved" them $280k loan debt. Ended up with a bad credit, lost the house that the equity could have been come back today, flushing the rent money to the toilet instead of paying the mortgage many years after it. I don't think that was a smart choice.
- Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes8y
Originally posted by @Account Closed:
During last recession, some people had their houses forclosured because they could not afford the mortgage payment, but not all of them. I knew many people (some of my friends, friends' friends, or friends' relatives) didn't lose the jobs, they were able to make the mortgage payment, but they still chose to walk away because the debt they owned the bank were much higher than the the market value. They thought it "was" a saving. For an example, they bought the house at $500k with $480k loan, the house price dropped to $200k, they chose to forclosure or short sale it. They thought it "saved" them $280k loan debt. Ended up with a bad credit, lost the house that the equity could have been come back today, flushing the rent money to the toilet instead of paying the mortgage many years after it. I don't think that was a smart choice.
I don’t know what area of the country you are in
Where I am many many houses are still no where near where they were before the crash.
For example one area people ought for 300k today it would sell for 140k
Thousands of people just stopped paying their loans so they lived for free for 2 or 3 years.
- Lynchburg, VA · Member since 2017 · 44 posts · 48 votes8yAs somebody who is currently looking for their first deal, in a market where you sometimes have to bid $12k over asking price within 24 hours of list, on a house that already seems overpriced for what it is, and still lose... I could use a correction so I can buy in at the dip.
- Investor · Paso Robles, CA · Member since 2016 · 106 posts · 31 votes8yQuantitative easing= buy bitcoin. I think maybe Kiyosaki is correct but we shall see.
- Debary, FL · Member since 2017 · 110 posts · 113 votes8y
Correct me if I'm wrong, but a nation-wide collapse of housing prices like we saw in 2008-2009 is exceedingly rare historically, correct? Isn't it more likely that corrections result in a substantial slow down of the values?
Of course if the Community Reinvestment Act is still active and with banks now knowing with certainty that Big Brother will be there to bail them out I can see it happening again.
Fortunately with the cost of borrowing money on the rise and the collapse still being so fresh in people's memory it seems like that will help temper the situation.
For what it's worth, the prices in my area of Florida have gone up a lot in a few years but prices still seem a lot lower than 2007.
- Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes8y
The economy, especially real estate, moves in cycles. There will be another downturn but don't expect anything like the last time, there are to many buyers that would see the opportunity and buy.
As to what will cause the next downturn? It will be some kind of a shock, oil prices, a shooting war, major trade war, a large spike in inflation / interest rates, the election of a truly socialist presidant. The cause is always a surprise, if it was not it would not get far enough out of hand to cause a shock to the system / recession.
At some point the government debt bubble will pop but I believe we have a few more cycles before that crashes. When it doe the housing bubble will look like a picnic.
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes8y
@Robert Fisher you are describing an environment where I personally would not buy. If the numbers don't work, they don't work. Regardless of what others are doing there. There are better markets to invest in, you just have to do the research.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Anthony Dooley:
@Robert Fisher you are describing an environment where I personally would not buy. If the numbers don't work, they don't work. Regardless of what others are doing there. There are better markets to invest in, you just have to do the research.
Anthony just musing here.. but with these escalations in value.
I would think there are some appreciation plays to be had.. especially if these assets are selling for less than replacement costs.
As markets tend to run up to and above what new builds cost... new building has been extinct in many markets but i can see it coming back in some of these markets.. So break even or even losing a hundo or two hundo a month may not be a bad thing if you marry it with deprecation and mortgage pay down.. then when your property goes up via appreciation.. you can sell at the top or perceived top and cash out or 1031.. you would have some recapture but if you were just moving in and out of deals.. that could work
sure has worked for us west coast folks..
And for me when i went into Charleston just west of down town that was once pretty rough no one would have thought to build a new home next to all those old or in many cases falling down houses.. I sold my first one to Shep of southern charm for 350k 4 or so years ago now the same homes i am building are selling for no less than 550k per door.. so some pretty substantial gains.. were cash flow while i get it .. just is not going to get you that bang that nice appreciation can.. UNLESS of course you own 50 to 100 doors then i get that..
- Lynchburg, VA · Member since 2017 · 44 posts · 48 votes8y
Originally posted by @Anthony Dooley:
@Robert Fisher you are describing an environment where I personally would not buy. If the numbers don't work, they don't work. Regardless of what others are doing there. There are better markets to invest in, you just have to do the research.
I somewhat misspoke. I guess it would technically be our second deal - our second live-in flip. I say "first deal" because we didn't have the intentions of investing in real estate when we bought this house. We have about $90k equity in our current place and would like to either rent it and use it as a HELOC to fund other investment properties or sell it and use the equity to invest. We need a new place to support our growing family and can't go elsewhere. Once we get out of this place, I probably will need to look elsewhere.
And instead of saying $12k above asking, I should've said 10-15% above asking price within 24 hours of list. That's not always the case on every house, but we've gotten beaten out on offers 3-4 times now because we've only went over asking price once and only by a couple thousand.
- Long Beach & Orange County, CA · Member since 2018 · 11 posts · 7 votes8y
Thank you everyone for the input. I went through most of the posts and appreciate the expert opinions in relation to experience. However, I don't think a majority of people read the article I posted in relationship to how lenders are using very similar tactics as they did right before the 2008 crash, which I think is the alarming factor here. Therefore, is anyone considering how that it plays into a "crash" or "downturn". As a result, everyone merely responded to the post headline, and not what the article was conveying it seemed like.
-Matt
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