Why hasn't the market crashed yet?

145 Replies

I have been listening to all of the podcasts recently and reading and searching the forums alot. It's has been said that the market will crash soon for the past 3-4 years from what I have found. I am not a market follower and I am not well versed. Why hasn't the market crashed yet. What has made it Outlast alot of well versed people's expectations and estimates? Thank you!

Stock market or real estate market? Stock market "crashes" happen every 10 to 15 years or so. Real estate market "crashes" about once per lifetime .

@Collin Savunen because anyone foolish enough to "predict a market crash" is playing amateur economists and most likely have little idea what they are talking about.

Anyone who has studied the markets knows that they are far to complex to predict with any degree of certainty. 

And if you are talking about the Real Estate, I hate to break it to you, but there is no such thing as a single real estate market.

Be patient, be patient, it may take another 5 to 100 years to see the crash... 

There has been no reason for it to.  You hear that mostly from people who missed the opportunity, 10 years ago.

...because "Chicken Little" isn't in charge of the economy...Thank God.

@Collin Savunen

You can use the 2008-2010 financial crisis as an example. In that period there many that lost their jobs which ultimately lead to missed payments, and eventually had bank foreclose on property, whether it was primary or investment property. If you look at the markets now, great economy, many jobs, and very few if any foreclosed properties. In fact, it is still more of a seller's market than buyers. It is true that more inventory has been coming onto the market, and maybe a current 3 months supply. You have to get to 6 months supply for a balanced market.

Ask Jay Hinrichs.

Terry

Thank you everyone for your replies I am referring to real estate market.
@Bill F. That brings another question how specific do you take a real estate market to? By type? By state? By city?
@Terry Lao thank you for the detail Mr Lao! Can you explain the market supply? Also can you tag Mr Hinrich? I seem to be having some technical difficulty tagging. It works when I hit reply but it won't load names when I try to tag during a post.

Consider the stock market. 

Some people think that it's a meritocracy, so smart people can predict it. Other's think that it's a casino rigged by the powerful, and only fools invest in it.

Which is true?

Neither!

The truth is that the universe is full of black swans mating with butterfly effects, so that even though it IS as fair as anything can be, no human can predict it.

There are reasons for which people are predicting a crash, and there are reasons that it hasn't happened. We can't understand them all.

What we CAN do is invest intelligently.

Originally posted by @Collin Savunen :
@Bill F. That brings another question how specific do you take a real estate market to? By type? By state? By city?

I'm no economist, but I'd say type (SFR, MF, Commercial ect) and MSA.

@Collin Savunen

Can't seem to tag @Jay Hinrich. He's the guru, and been there, done that.

All markets are local. You can look at Case Shiller 20 City Index for more of a national index. It's about a one month lag, but you can get a good idea of the sales and median home prices. All 20 cities are still positive gain for year over year ending September 2018.

The market supply is the amount of homes/SFR for sale, which has been steadily increasing to about 3 month supply, but that still does not translate into a buyers market, as 6 months as normal. During the 2008-10 crisis, there was greater supply of homes for sale than buyers, thus creating a buyers market.

Terry

RE markets dont have to crash unless there is something wrong with the way the country is managing the economy or when a great depression hits and many homeowners are left unemployed and no longer able to pay the mortgage resulting in a huge influx of foreclosures and homes hitting the market.

In BC where the prices have been skyrocketing in recent years, they've anticipated people buying properties beyond their means & taking on too much debt. The government have implemented an extra 2% "stress test" qualification to prepare people for the anticipated future interest rate raises so they are not stretched beyond their means - while you are not currently charged that 2% extra mortgage interest, it significantly affects how much the banks are willing to loan for the mortgage and how much people will qualify for as they are testing your income against the current interest rate + 2%

RE is local. I look at a neighborhood, and many times sub areas in a hood. I don't put as much weight on national, state, or even city trends unless it's a small city. These are broad trends, I want to see local micro area what is going on. You do have to watch for the govt ****ing things up worse than usual. 

Then look at property types. Compare like to like. :>)

And to the original question, it has not crashed here because things are going gang busters economically. So, we're not there yet, give it time.

Well i would say hang around for a bit.... while there probably wont be a crash ala 2008, there are plenty of folks that are over leveraged in a softening market.    

You can already see posts here that shows the beginning of this trend.....

Let's look at the last real estate crash of 07-10.  Market prices skyrocketing because of loose lending, low-interest rates, speculation, and cash out refinance to drive up the economy.  Lending programs that existed were 100% financing, no income no asset loans, negative amortization loans.  If you had good credit and a pulse you could buy a house. 

Speculation.  So many buyers owned 2, 3, and even 4 homes each.  Many of these homes stayed vacant and investors were buying them thinking they were rich because of the inflated value. As the market turned and these homes went into default you can quickly see why it went on a free fall.  Banks also had zero liquidity so they needed to liquidate the assets.

Now let's look at the market today and the increase in value from the last 5yrs.  Markets were driven up by a scarcity of homes, true demand by owner-occupied buyers, low rates, real job growth and high tech paying jobs (my area specifically but many parts of the country).  You now had to verify your income and assets with tax returns to buy a home.

Both increases driven by two different factors.  The big difference I see this time is the lack of homes available and the cost to build is so much higher.  As prices come down I see buyers coming in and buying the houses up.  If prices come down this time around I see it as a softening of the market vs straight crash like we saw in 07-10.   

Could the market crash?  Sure I am open to that idea anything can happen.

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The economy is very strong. We have lowest unemployment since 1960s.  Way too many jobs unfilled. Interest rate is at historical low. 

Enjoy the best economy we have and one should not worry about things that does not happen. I, however, should alert people to put a system in place as contingency.


@Collin Savunen @Terry Lao   hey guys i am no guru.. or economist or any sooth sayer.. 

my fundamentals come from Bruce Norris..  he says and i quote. you will have a severe correction

when you have at least 30% OF MLS listings as short sales or OREO foreclosures.. we are a long way from that.

then the other thing is so many probably millions of Americans locked in 3 to 4 % long term money .. and payments are cheaper than rent. if payments are less than rent why would they walk.. 

also the loans of the last 8 to 9 years are not NIJA loans.. or liar loans or whatever you want to call them

I was at seminar a few weeks ago here in Vegas.. and there was some talk of weakness for those that bought larger MF or commercial with 5 year calls .. and the talk was if and when interest rises and rents being the same cap rates go up. which causes values to go down so the whole premise of refinancing out can be threatened.. at least thats what was being talked about.. not my area of expertise at all.

However thanks for the kind words and dont forget about aheroshome.org  

Originally posted by @Bill F. :

@Collin Savunen because anyone foolish enough to "predict a market crash" is playing amateur economists and most likely have little idea what they are talking about.

Anyone who has studied the markets knows that they are far to complex to predict with any degree of certainty. 

And if you are talking about the Real Estate, I hate to break it to you, but there is no such thing as a single real estate market.

Bill you hit the nail right on the head. I'd go further to also lump folks who buy properties to make money on "rapid appreciation" (like a property increasing in value 50% in a year w/ no improvements) in with that group - most have NO understanding of all of the market forces that cause these movements and no clue how to actually analyze the market .Even the experts who have substantial education and work for multi-billion $ firms don't predict major market disruptions (in either direction). Its simply easier to always claim a major event is coming - when it happens, they can say, "See! Told you so!", and when they're wrong (as it is 99% of the time), nobody paid them any attention in the first place to call them out.

What do folks think about college debt being one of the factors in a softening market? I have read that not only college kids have massive debt, but parents and grandparents too ( helping to fund college). Lots of that is HELOC orLOC which are affected by interest rates.

In any case, all markets are cyclical so change is inevitable.  

I think there is no point on trying to predict the Market Crash because you should always put in the protection on the downside because the upside doesn't need protection!

The problem is that most regular investors really don't know how to protect their downside.

For instance, they have heard about Hedges, but they either don't what it means or don't know how to implement it in their Investments.

An example would be buying a PUT to protect your Stock if it should Fall. If you followed that, those who owned GE stock would not have lost very much.

Because this is Real Estate forum, finding out about protecting the downside of your real estate investment should be something you should be doing.

In my case, I buy in Prime neighborhoods. Even during the Financial Crisis, there was barely a blip when it came to finding tenants. The rents were stable. Prime Neighborhoods has an implicit PUT in large Metro areas, especially with a lot of job.

The question for most of you who are NOT buying in these Metro areas, especially those with added protection like NYC, what is your protection against the downside?

It would be interesting to hear from those that went through the Financial Crisis. What affected your properties the most in either positive or negative? AND, would you have bought differently if your Investments took a severe hit?

If you were like me and really did not get affected at all, how do you attribute that kind of stability? What was it? If it was stable rents, why was the rent stable in your area versus other places like Vegas and Miami (moved down more than 50% of property values)?

For those wondering what I am attributing to NYC as a resilience against property value decreases in prime neighborhoods, there are quite a lot of reasons.

One primary one, for instance, is that most of the Apts are NOT CONDOs. They are Cooperatives.

A Coop will not put up with flippers. The Coop Board will do a better job of qualifying you than even a Mortgage Company. So you cannot pull the games that were done in Miami. Those big skyrises with empty apts were being flipped online on Websites like CondoVultures.com No one really lived in them. It was playing musical chairs and ultimately, the music will stop.

The other great thing about NYC is that it's very international. Foreign investments and tourism pick up when ever the dollar gets weak, for example, during a Crisis.

And YET another is that NYC has a large amount of Reputable Universities including New York University and Columbia University. When we are in a crisis that affects employment, one of the first things people do when they are unemployed is to get more education to become more competitive in the job markets.

Anyway, these are several reasons I attributed towards why I did not really feel the kind of pain I know occurred during the financial crisis.

Just curious what happened to others.

@Collin Savunen I think it's tough for even a well-versed economist to predict when exactly the market will crash. There are so many variables to it even someone that analyses the stock market for a living couldn't possibly know when the market will crash.

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