Why hasn't the market crashed yet?

148 Replies

While the Stock market and Real estate are separate entities, they are definitely connected in some ways.  

 -A big reason for the massive appreciation in real estate we are seeing is due to the abundance of capital from a strong economy. 

-Psychologically. This is a huge point that may not be brought up as often as it should, when the economy is humming like it is now, its a lot easier to justify obtaining a jumbo loan for your dream home. 

- International investments. When international markets are tumultuous, investors look for a safe spot to park their cash. The strong U.S. economy is a magnet for such transactions. There were blocks in san jose and san franscico called "ghost streets" because the new international owners purchased them (cash) and left them empty. When you have that kind of money a 1% cap rate isnt a concern. This isn't as common any more from my knowledge but the point that foreign investments are funneling in still stands. 

-ESPP's, stake and equity in start ups. If it was just the higher salaries driving up the market in the bay area, I dont think it would reach the levels it has. A lot of homes are bought with the Employee stock options, these options are sometimes in the hundreds of thousands and have a huge impact on the local market. 

A lot of this is local and wouldn't be relevant in a discussion for a region such as the midwest, however most OOS investors are from the coasts so the income generated from their 9-5 would be impacted. 

@John Nachtigall

https://www.biggerpockets.com/blogs/4430/53887-les...

I read your link to post, by Kevin Bupp, and there are lessons to be learn by other people's mistakes. I have this saying, most lessons in life are free, but the one's that you learn the most are the ones you pay for.

Thus, I took from article that he noticed that the 90% of the properties he gave back to the bank, none were multi families, and survived the crash. Multi's in the range of 100+ is and has been my goal due to the economies of scale.

Terry

  • Out of the 90% of the properties he gave back to the bank, not a single one was a multifamily property. They all survived the crash.
Ray Dalio seems to think it will be soon. It's not a guarantee but it's a good read, and you cant discount that he runs the largest hedge fund in the world. Enjoy. https://www.bloomberg.com/opinion/articles/2018-09-12/ray-dalio-spells-out-america-s-worst-nightmare

I think problem is that people misunderstand that a crash or correction doesnt need to impact the whole market. There are lots of variables that can happen from a growing economy that can negatively impact the RENTAL market.

Right now home affordability is an issue and more people are renting than ever before. So thats why many of you are seeing your units filled. However, we are also seeing maximum employment and employers paying more and more. Its possible that these so called renters will then want to buy. You now have a supply of MF housing that will see a dip in occupancy. Does this mean its a crash? No not at all. But your fundamentals will be poorer and valuations may fall because that particular asset class isn't attractive anymore. This is just an example I made up, but it shows you don't need the whole market to collapse just to impact the rental market.

I think the biggest myth from reading these forums is that Cash Flowing Properties don't Crash even in a Crash!

Please.......... don't believe that Myth. There are some really fantastic and long term Investors here who have made it through Crisis after Crisis and we know that is a Myth.

The 2nd Myth is that High Valued Properties will suddenly crash. This again, is another myth which really doesn't make a lot of sense.

If your property is in a highly desired location, particularly if it commands a large demand among renters who are beating down your doors to rent from you, even if your property value goes down, you are actually more immune to losing cash flow in a crash than the supposedly immune cash flow properties in Myth #1!

Now, I'm not saying the above happens to EVERY property in EVERY market. These are Myths that I find to be the case in General and certain counter to the main stream logic on this forum.

In my case, my money is where my mouth is. Even in the upcoming crash predicted by so many people on this board, chances are my properties, being in close proximity to Amazon HQ2 in NYC, will not only continue to rent well, but may in fact rise in value during the next crash!

I'll be keeping my eyes out for that Crash because it will surely be the best opportunity for me to scoop up great opportunities that others have shed at probably the worst time for them to do so in my area.

If you really think about it, most investors will sell at the absolutely worst time and buy at the absolutely worst time.

When you sell into a falling Market, chances are you will sell when the price is at it's bottom. When the recovery occurs, chances are you will probably buy at the top. This is your typical Investor.

Something to really think about.

@Medi Sarwary where is this “ghost street” in SF? I’d like to park my car there.

@Saj Shah If only i knew ;)

Im really not sure what neighborhoods in the city but for sure in the South bay, specifically willow glen. This was maybe 10 years ago but that kind of thing was happening not only in the bay but in Vancouver at one time too apparently.

A more relevant scenario to showcase capital (international) pressure on the market would be the classic h1 individual who gathers their family savings from back home and does a syndication deal in the states. 

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?

 Down to the block in some communities.  

Originally posted by @Ran L. :

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

 Your response is hilarious! I agree with you. Will there be a decline in the real estate market? Sure. When will it happen? No one knows with certainty.  

@Jeff Cagle I agree! Last time there was a slowdown there were a lot of upbeat folks too. Many overleveraged because there was easy money when it was good. A lot of investors who’d only seen a good cycle were taken out and seasoned investors swooped in and bought their properties at a discount. I am hearing many developers who are cranking to sell through their projects with plans to hang tight by 2020. Interestingly enough 2020 is a presidential election year. It isn’t uncommon to see the markets freak out a little during the uncertainty of a presidential election. I can’t see how the current markets are sustainable—-although it’s anybody’s guess when things will correct. I do think one ought to be much more picky in what they buy, and cautious about leverage. If the leverage is what makes a deal worth buying, it’s likely not a deal based on solid fundamentals.

There is a global debt crisis coming and the Fed will respond by printing more money (as it always does) but this time it will  destroy the US dollar in the process.  They debt crisis will turn into the dollar crisis.

All levels of our government are over leveraged.  Once interest rate approach normal levels that is when the bottom falls out.  If you look closely that is what is beginning to happen.  Al Greenspan just talked about this last week in his interview with Bloomberg.

Recessions never look like the past one.  The coming recession will not begin or resemble the Great Recession of 08, but it will be worse.

You are delusional if you think a crisis is not around the corner.  

Originally posted by @William DeRose Jr :
Ray Dalio seems to think it will be soon. It's not a guarantee but it's a good read, and you cant discount that he runs the largest hedge fund in the world. Enjoy. https://www.bloomberg.com/opinion/articles/2018-09...

I noticed that publicly Ray Dalio is bullish on the market, but privately his hedge fund has been buying Gold. If he said how he truly feels everyone would freak and start buying Gold too.

In that article Ray spells it out perfectly.  That's how it is going to end.  I'm surprised he said that on mainstream media.  I guess he feels everyone's head is still in a bubble and people are still high on historically low interest rates for the last 10 years.

@Collin Savunen , You bring up a very interesting topic.  I feel the simple answer to crashes is that they happen when people/entities start defaulting on their debt.  The 2008 crisis was based on single family home loans that defaulted and caused a large tailspin.  The same thing is brewing right now but it has nothing to do with single family homes and the main stream consumer.  I feel that real estate with the exception of apartments and real estate tied to corporate debt are the main issues.  Unlike many folks on this board that feel apartments are safe investments right now, I feel the exact opposite.  There has been so much apartment contruction over the last 10 years I feel that we are sitting on a glut of vacancy to come.  And the proforma's of those apartments will not be met.  With rising refinancing costs I think it might end badly for many projects.  The good news is this will only benefit mainstreet this time around with rents going lower.  For those that are not over leveraging they will weather the storm and be able to pick up more apartments when others run into trouble.

Regarding the macro economy the same thing is happening with corporate debt.  When the debt comes do and it is time to roll it over; those companies (that are over leveraged) are going to run into a lot of trouble.  When/If we see debt not be repaid is when the market crashes.  Till then assets may reprice, correct, and even enter bear markets but the crash won't happen till debt defaults.

You are delusional if you think a crisis is not around the corner. 

Delusional is the certainty that any particular outcome will occur.

Supposed one has, 100k saved up. Wouldn't it make sense to buy in undervalued areas close to big money cities like SF, NYC?

The breakdown would be: 10% down payment on a 350k MF house, ofc not in SF, and maybe 20k in gold for insurance. You still have like 45k in cash and are protected against downside.

Originally posted by @Michael Lenahan :

There is a global debt crisis coming and the Fed will respond by printing more money (as it always does) but this time it will  destroy the US dollar in the process.  They debt crisis will turn into the dollar crisis.

All levels of our government are over leveraged.  Once interest rate approach normal levels that is when the bottom falls out.  If you look closely that is what is beginning to happen.  Al Greenspan just talked about this last week in his interview with Bloomberg.

Recessions never look like the past one.  The coming recession will not begin or resemble the Great Recession of 08, but it will be worse.

You are delusional if you think a crisis is not around the corner.  

 oK….But if the scenario you are laying out comes true, and that we end up with high inflation due to the dollar being hammered, then what you are saying is you want exposure to hard assets.

If you have all of your real estate investments tied to long term fully amortizing fixed rate loans, then give me inflation.  Because most of my costs are fixed, but revenues should go way up in an inflationary market.

Personally we believe the market is slowing, since my wife and I both have day jobs, we don't "have" to do deals to eat.  Our mindset is to be a lot more discriminating on deals.   But if we find a great deal, great, we will buy it, if not, oh well, there is a house on every corner.

I don't think we are headed back to another "Crash".  Maybe a recession, 10-20%, over a 3 or 4 year time span.  That's ok.  We will just pay down our debts, build up our cash reserves and wait until a deal comes our way.

I'm late to seeing this post, however, I did go through the last crash unprepared.  I wrote a blog about the emotional side of investing.  The issue that happens in our digital world is once fear sets in it catches like wildfire.  So, instead of supply vs demand its fear vs. greed. Will the Housing Market Crash Soon? blog. 

Everything comes back to supply vs demand.  Right, now most area have more demand than supply and the bids rise.  When the buyers stop bidding, the race to the bottom begins.  Soft landing is being predicted now in the near term for RE (1-3 years) generally.  Of course, your local, city, county and even state might be an outlier.  

Originally posted by @Jackson Pontsler :

@Will F. I totally agree with you regarding rentals and buying sound deals from the start is the key to weather the storms however this inventory being still so tight its hard to find those these where the property is cash flowing decently from the start.  Just curious how many rentals do you buy a year?  It might be a good bench mark for me to know whats realistic

 Sorry I haven't been on here in a while nor answered your question.

Well in my market rentals go for $160-300k/ unit depending on the submarket and if it's a newer build, value-add or rehab.

So it's very difficult to say and it depends on your own personal finances.

But for buy and hold I've purchased 22 units in 2016, 6 units in 2017, and a few in 2018 and 12 u in 2019 

Some were local Los Angeles County and some are in SE Florida.

I also sold several properties in LA last year, some were hybrid hold/flips and more development deals...

Also asking how many units could be completely different in a market like OKC or Utah where you can likely get units cheaper, OR the market might not have larger apartments, unless it's in a larger metro like Salt Lake.. so it really depends.  like is the market $60k/door or $150k/door, and this will be very different if they're SFRs or Multi Fam

Sorry but anyone who doesn't say it depends is probably a noob or a REI crook lol...and ther'es a lot of those in this business. Phoneys etc...

Good luck bud

Not to make it Political, but it's because we have someone in charge who actually knows how to make smart deals happen which strengthens our economy. The last time we saw this was with Regan. 

Originally posted by @William DeRose Jr :
Ray Dalio seems to think it will be soon. It's not a guarantee but it's a good read, and you cant discount that he runs the largest hedge fund in the world. Enjoy. https://www.bloomberg.com/opinion/articles/2018-09...

 Hey dude Ray Dalio kicked his prediction back a year or so recently since the China/US trade seems to be stabilizing and stocks are bullish... it's kind of odd how these fear vs greed markets work.

Anyways always be ready for a recession and BUY MORE when there's blood in the streets. If you're a true real estate investor then you welcome recessions as cycles  part of our capitalist society. One just sbuy low sell high

Sounds simple but that's all it takes see Warren Buffet's value-add investing strategy. Essentially that's what you do with BRRR methods. Think long term, plan, strategies, rinse and repeat. the BRRR method and buy and hold works in up and down cycles if you know what you're doing. If you don't just wait it out until we're in a bear RE market.... Cheers

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