Why hasn't the market crashed yet?

148 Replies

I can't believe the generally upbeat tenor of most posts in the thread. I am involved in a number of markets and track a lot more, and I'm seeing slowdowns all over the place. Price reductions, increased DOM, reduced number of offers, reduced quality of offers, and my personal favorite metric: How much is my phone ringing? Not much, despite having a number of properties on the market. I'm sitting on a lot more than my usual amount of cash reserves. It's difficult to want to reinvest at this point.

@Collin Savunen the general concerns of the majorIty of peIple about the health of Real Estate Industty are fueled by a couple of things in my opinion, appreciation of the assets and increasing interest rates, this will lead to fewer people buying and eventually everything will start coming down, some geographical areas more so than the other, hold your breath it’s coming. I’ve heard it’s coming by 2020. But there are still markets where theres a legit shortage of housing and demand is stable
The tone in the mainstream media recently has definitely gone more negative recently . I noticed this starting probably a few months ago or less and it wasn’t the same last year this time . I agree with Jay it can become a self fulfilling prophecy. The media does have an effect on people for sure . Of course media is usually focused more on the single family residential market rather than investment property . some recent headlines Real Estate Markets Cooling Across The Country, And It's Not Just The Winter Effect https://www.forbes.com/sites/carolinefeeney/2018/11/15/real-estate-markets-cooling-across-the-country-and-its-not-just-the-winter-effect/#7c035751172b Why the Housing Market Is Slumping Despite a Booming Economy https://www.nytimes.com/2018/11/15/upshot/housing-market-slumping-despite-booming-economy.html At real estate conference, there’s talk of a coming slowdown https://www.bostonglobe.com/business/2018/10/10/real-estate-conference-there-talk-coming-slowdown/Npnbm0Nz4ipUCAH2EuONRK/story.html

The market will have a correction soon. If you keep saying that, you will eventually be correct. 

The one thing that I know to be true is that prices today are higher than last year and much higher than the bottom. In most market cycles, however, we see the top much higher than the previous top. Today most markets are less than 10% higher that 2006, giving me reason to believe that we still have a ways to go before our next peak.

When we all let our guard down, we will see the market correction. I think that is starting to happen, but we still need to get a bit more arrogant, before a crash

It's crashing right now. The high end real estate market has dropped dramatically. People don't talk about it. But that's where it starts.

Inventories are starting to build, and prices are coming down in the most expensive areas. California in particular is seeing some of the worst real estate sales since the crises in many areas. We're starting to see compression in New York and in the commercial markets.

One factor however, is that houses aren't actually that expensive, priced in a stable monetary baseline, like gold. (Try a site like stockcharts.com or pricedingold.com to see that for yourself.) What's anomalous is that rents are extremely low compared to carrying costs.

So could housing crash down? Yes. But I think it's somewhat more likely that rents (and taxes and energy and other carrying costs) all go up while home prices continue on as "normal" in nominal dollar-denominated terms.

Hope that helps!

Here are my thoughts on crashes, be it real estate or stocks. You can sit around waiting for the crash so you can jump in and make easy money (which sounds alot easier than it is when everyone thinks the world is about to end) or you can be a smart investor and find good deals and make solid money the whole time while the other guy is waiting on the crash that may not happen for 25 years. My bet is the guy hustling the whole time will come out on top!!

Its unexpected market dislocations - 2007 it was the unexpected size of derivatives markets that so few people understood. If you did you saw it was SO risky - a house of cards bound to fail. Enter the government to make sure that doesn't happen again.. I like real estate because it is buffered against a widely predicted precipitous drop in the dollar market dislocation. Not buffered against robots taking 30 % of the jobs. Or the legislature and top bankers getting murdered. How will we fair if  the donald takes it all for himself? I just love the cash flow, its the stuff that backs the AAA bonds. lol.

I'm anticipating a 2× to 4x increase in price within the next 3-5 yrs. Call me crazy, but after record money printing and slow lending, we might not be in for another crash anytime soon. Consider construction stops during the last crash, the lack of bank lending, the lack of present day private lending (playing too safe and requiring returns that won't make sense for investors), the lack of deals due to all the foreclosures drying up, inflation in everything else from groceries to building material, and the destruction of tens of thousands of homes from natural disasters...from a supply demand stance we'll be seeing some rising prices. Plus, interest rates will rise, new election gov't will pressure banks to make easy loans, and buyers will flood market with newly lent money that banks have been sitting on. Of course I could be wrong, but...time will tell.  If you're a new investor, play it safe by acquiring deals only, and hold. A deal is 35%-45% off lust price retail. If you're not seeing that in your area, then consider value add opportunities in commercial where you're getting the deep discount, but have proactive plan to increase value by 20%-30% over retail pricing. I'd say hold what you have if possible, and buy very low where it makes sense. Good luck.

I think the market is softer than it was a year ago - stuff is sitting around for longer, and there are more places being sold for reduced prices. Who knows what a few more rate hikes will do, not to mention, the reality that we have gone a record time (or close to it) without a recession? Granted, the 2007-09 downturn was really bad, so crawling out of that hole took longer, so that may be why this cycle has gone for longer. 

The thing is, unless you are an experienced investor, or have at least done several deals and have some relationships, I think assuming that you'll be able to pile in and buy during a major slowdown is not a great idea. The people doing deals earlier in the cycle, or in the market for a long time, are more likely to get their hands on those opportunities, than someone who is not known.  I think even in 2008 to 2011, when we were at the trough, most of the folks who grabbed great deals had prior experience. So, figuring out what you are looking for, and doing good deals based on it, makes more sense than waiting around IMHO. 

Originally posted by @Shiva Bhaskar :

I think the market is softer than it was a year ago - stuff is sitting around for longer, and there are more places being sold for reduced prices. Who knows what a few more rate hikes will do, not to mention, the reality that we have gone a record time (or close to it) without a recession? Granted, the 2007-09 downturn was really bad, so crawling out of that hole took longer, so that may be why this cycle has gone for longer. 

The thing is, unless you are an experienced investor, or have at least done several deals and have some relationships, I think assuming that you'll be able to pile in and buy during a major slowdown is not a great idea. The people doing deals earlier in the cycle, or in the market for a long time, are more likely to get their hands on those opportunities, than someone who is not known.  I think even in 2008 to 2011, when we were at the trough, most of the folks who grabbed great deals had prior experience. So, figuring out what you are looking for, and doing good deals based on it, makes more sense than waiting around IMHO. 

in those days is was cash buyers..  credit froze like a rock there for 2 to 3 years.. and only the top 1% ers were getting financing.

those I knew were borrowing against their stocks and bonds to buy deals at 1 over libor.. the rich got richer.. :)  average person could not get a investor loan to save their life.. banks went into lock jaw mode and that's one of the reasons the market CRASHED... 

even if rates go up that will create a slow down no doubt.. but not a crash.. its lack of financing altogether that created the crash.. along with all the crappy loans that were written. pre 07  

Originally posted by @Jay Hinrichs :
Originally posted by @Shiva Bhaskar:

I think the market is softer than it was a year ago - stuff is sitting around for longer, and there are more places being sold for reduced prices. Who knows what a few more rate hikes will do, not to mention, the reality that we have gone a record time (or close to it) without a recession? Granted, the 2007-09 downturn was really bad, so crawling out of that hole took longer, so that may be why this cycle has gone for longer. 

The thing is, unless you are an experienced investor, or have at least done several deals and have some relationships, I think assuming that you'll be able to pile in and buy during a major slowdown is not a great idea. The people doing deals earlier in the cycle, or in the market for a long time, are more likely to get their hands on those opportunities, than someone who is not known.  I think even in 2008 to 2011, when we were at the trough, most of the folks who grabbed great deals had prior experience. So, figuring out what you are looking for, and doing good deals based on it, makes more sense than waiting around IMHO. 

in those days is was cash buyers..  credit froze like a rock there for 2 to 3 years.. and only the top 1% ers were getting financing.

those I knew were borrowing against their stocks and bonds to buy deals at 1 over libor.. the rich got richer.. :)  average person could not get a investor loan to save their life.. banks went into lock jaw mode and that's one of the reasons the market CRASHED... 

even if rates go up that will create a slow down no doubt.. but not a crash.. its lack of financing altogether that created the crash.. along with all the crappy loans that were written. pre 07  

 Very true. Know a guy who, with his dad, bought 5 or 6 courthouse auction single family properties, in a 6 month span, in southern California. This was in 2009. All of these were homes in the Inland Empire, built between 1990 to 2000, or later, so very little deferred maintenance. 

Kept them rented and cash flowing throughout the slow times, and they are worth probably 3x what they paid, if not closer to 4x. Think they refinanced out to buy elsewhere :-) Cap rates are insane if you look at what they got these for (I think around $40K to $60K each), and they rent for like $1400 to $1700 today. Can't imagine an opportunity like that again. 

For sure the market has softened a lot I think. As far as I can tell this is the typical ebb and flow with still more of a sellers market in many areas just not at the hot levels anymore. Buyers are asking for more adjustments as inventory grows. To me crash means falling off a cliff, so I am not seeing a crash vs 1 or 2 buyers when it was 10 or 12 last year. 

@Collin Savunen  i’m assuming you’re referring to the real estate market . My area it’s simply not crashed because of supply and demand and a growing economy.   Good luck and all the best. 

Updated about 1 year ago

I see it continuing to rise, to many positive factors

Waiting for the market to crash is like waiting for Armageddon to come.  It'll get here when it gets here.  No one can predict the future.  When it comes just be ready because the bloodsuckers will come out.

@Collin Savunen , because mortgage lending policy changed and banks are much more careful. I predict when the next crash occurred that the BRRRR method will be trashed. When I worked in the valuations industry, lenders were already skeptical of BRRRR and didn't lend when they suspected it.
Originally posted by @James Galla :
@Collin Savunen, because mortgage lending policy changed and banks are much more careful. I predict when the next crash occurred that the BRRRR method will be trashed. When I worked in the valuations industry, lenders were already skeptical of BRRRR and didn't lend when they suspected it.

YUP the BRRR method crashed in 07 to 2011 and took me with it.. it was a painful time to be a rehab lender with your borrower's exit a refi.. even though they were pre approved.. Although today many do the BRRR with thier own cash or heloc's so if they cant refi its not like being stuck in a HML like what happened to thousands of borrowers during the GFC.

and if it gets to be a real crash HELOC"s will get locked.. most folks probably never read the small print.. but banks can freeze and call helocs for any reason.

I am not predicting this just talking about what happened in that very tough GFC ..  Many investors especially on this site being newer investors did not experience those horrors .  If they did they would be less keen on Mass leverage..

@Collin Savunen I think people are growing concerned over rising interest rates which tend to put downward pressure on housing (all other things being equal). Personally, I would look at any market downturn as a buying opportunity.

Not really an expert but i'd guess the 400-800k house range will take a beating, no where else really. That is the only market in my area that seems to have out paced potential buyers with new builds, and there's a lot. 

We are preparing for the market to drop by buying multi family investment properties. While the SF space decreases (values based on the comps around it) multi family properties increase (value determined by income produced by the asset). When people lose their homes in the single family space during a downturn- they still need somewhere to live. This basic fact is what helps increase the appreciation of a multi family asset during an economic down turn. 

I hear the word "crash" and words matter.  

Crashes, no matter what people will tell you, can't be predicted with any real accuracy.  However, there are market conditions which lend themselves to when that has happened.  

First off, which market are we talking about?  The rental market?  The real estate sales market?  Residential?  Commercial?  There were periods in the last 3 decades  where commercial real estate struggled while residential was expanding, and vice-versa.  Defining which market clearly needs to be the first part of the equation. 

Secondly, what defines a "crash" is almost always an oversupply of an asset class.  I am not seeing an oversupply of a certain asset type (although an argument can be made for an oversupply of some high-end multifamily, but not obnoxiously so).    

All that said, are we due, perhaps "overdue" for a "Market Correction" of most residential asset types?   I say yes.   A "crash" on the other hand?  No.  The data just don't support it.  

My advice:  Don't be a motivated buyer.  Keep your powder dry.  Make your shots count.  

Originally posted by @Matt Smith :

I'm anticipating a 2× to 4x increase in price within the next 3-5 yrs. Call me crazy, but after record money printing and slow lending, we might not be in for another crash anytime soon. Consider construction stops during the last crash, the lack of bank lending, the lack of present day private lending (playing too safe and requiring returns that won't make sense for investors), the lack of deals due to all the foreclosures drying up, inflation in everything else from groceries to building material, and the destruction of tens of thousands of homes from natural disasters...from a supply demand stance we'll be seeing some rising prices. Plus, interest rates will rise, new election gov't will pressure banks to make easy loans, and buyers will flood market with newly lent money that banks have been sitting on. Of course I could be wrong, but...time will tell.  If you're a new investor, play it safe by acquiring deals only, and hold. A deal is 35%-45% off lust price retail. If you're not seeing that in your area, then consider value add opportunities in commercial where you're getting the deep discount, but have proactive plan to increase value by 20%-30% over retail pricing. I'd say hold what you have if possible, and buy very low where it makes sense. Good luck.

 Alright, following that logic, how am I supposed to find those discount deals on Multi Family properties in NYC. Properties in SF and Seattle are tanking as we speak, but sellers are just taking their houses off the market, leaving supply low.

Should I give up and just buy whatever the asking price is and let it eat half my income?

Originally posted by @Daniel Maciag :
Originally posted by @Matt Smith:

I'm anticipating a 2× to 4x increase in price within the next 3-5 yrs. Call me crazy, but after record money printing and slow lending, we might not be in for another crash anytime soon. Consider construction stops during the last crash, the lack of bank lending, the lack of present day private lending (playing too safe and requiring returns that won't make sense for investors), the lack of deals due to all the foreclosures drying up, inflation in everything else from groceries to building material, and the destruction of tens of thousands of homes from natural disasters...from a supply demand stance we'll be seeing some rising prices. Plus, interest rates will rise, new election gov't will pressure banks to make easy loans, and buyers will flood market with newly lent money that banks have been sitting on. Of course I could be wrong, but...time will tell.  If you're a new investor, play it safe by acquiring deals only, and hold. A deal is 35%-45% off lust price retail. If you're not seeing that in your area, then consider value add opportunities in commercial where you're getting the deep discount, but have proactive plan to increase value by 20%-30% over retail pricing. I'd say hold what you have if possible, and buy very low where it makes sense. Good luck.

 Alright, following that logic, how am I supposed to find those discount deals on Multi Family properties in NYC. Properties in SF and Seattle are tanking as we speak, but sellers are just taking their houses off the market, leaving supply low.

Should I give up and just buy whatever the asking price is and let it eat half my income?

You aren't really expecting anybody here to answer, "YES", are you?

I'd suggest looking into rehabs and foreclosures. So long as people continue to let their homes fall into horrible disrepair, there will be a market for somebody to hold their nose, take it off their hands, fix it up and flip it.

Also, don't forget, NYC, SF and Seattle aren't the only games in town.

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