The history of markets tells us that we will always have a crash. This graph shows total consumer debt in the US since 2003 Housing crashes come from over indebtedness, this graph shows that US consumers have more debt today than they did during the housing crisis in 2008 Total US consumer debt in 2008 $13T Total US consumer debt in 2019 $13.9T Total debt per US consumer according to US Census Bureau data: $41.77, this exceeds the record established in 2008 of $41.68 (this is total consumer debt divided by the entire population) So, are we in for a crash?? UNLIKELY There are two key financial indicators that tell us that US consumers are in better shape today than they were in 2008 (even taking the pandemic into account): • Median household income 2019: $68,703 • Median household income 2008: $57,010 Consumers make more money; the median household income is up 20% from 2008, while total debt is only up 6.9%. The second indicator is the consumer debt delinquency rate 2005: 4% 2016: 4% 2006: 4.25% 2017: 4.125% 2007: 6% 2018: 4.25% 2008: 8% 2019: 4.125% Delinquency rates for 2020 are not yet available, but there is no evidence that delinquencies have spiked anywhere close to 2008 levels. Anecdotally it seems unlikely that there will be a real estate market crash at any point in the next 3 to 5 years. The federal reserve has dropped interest rates to 3% or less, which is being reflected in current mortgage rates (a recent Buyer of ours put less than 5% down and obtained a 30 year mortgage with a 2.37 interest rate). The federal reserve is now committed to a low interest rate environment for the foreseeable future, IF they were to raise interest rates back to 4% ALL homebuyers and many consumers that refinanced their properties would be under water as purchasing power would decrease and there would be a subsequent impact on sale prices (historically there is an inverse relationship between interest rates and property prices; drop interest rates, property prices go up and the reverse applies). What do you think? Many pundits disagree with me and believe that market is long overdue for a correction. Reply and let me know what you think.

All those "pundits" that agree with you have agreed with you for the last 20-25 years. Trouble is, they all went to the the University of Chicken Little. What's really going to be funny, is when the market does crash, they will all claim the saw it coming,...the year before. What they will conveniently forget, is they also predicted it coming the next year...for the previous 2 and a half decades. Point? Setup your RE so you can adjust the the crash.

1032AM 17 January 2021. You're welcome, don't say I didn't warn you.

I'm with you I do not see a crash coming anytime in the near future. I see a potential spike in foreclosures once the dust settles from Covid which will slightly impact pricing but nothing drastic like the last crash at all. Rates are low enough that people have equity in their homes and can afford it, its the new buyers when higher rates return that have an incentive to walk away if their value is underwater. Like you said there exists an inverse relationship to home value and interest rates tied into income of the buyer affecting the purchase price and value of a home.

The 2008 crash won’t happen again, a different one certainly will. Escalating aggregate DTI isn’t the cause, it’s an indicator of overall societal irresponsibility. My guess is the root cause this time around is a weird interlinked syndrome of ETF inflation and zombie corporations, both further inflated by covid emergency facilities, and the unfortunate reality is that the QE spigot is likely to remain open. 1990s Japan looks like America’s fate to me lately. Sometimes there are things worse than crashes.... Wait and see what Biden does, a lot can change very quickly.

I don't see a crash, but I do think that there will be price adjustments or correction in the immediate areas surrounding cites like NYC and Philadelphia. The pandemic has reduced inventory - foreclosures/evictions have been reduced, people refrained from listing their homes because they didn't want to invite COVID into their homes, companies moving to 100% remote work allowing people to move to more desired locations, people moving out of cities because of the civil unrest and riots they have been experiencing, etc... Eventually, people will feel comfortable enough to sell their homes and the foreclosure/eviction processes will open up. Once that happens, I think that inventory will increase and prices will naturally deflate a bit, but not crash. I don't expect that people are getting loans they cannot afford and will be walking away. Instead, people won't have equity in their homes, which will prevent them from moving in the future, if they wanted to. Rates are low and chances are that the 30 year mortgage payments are cheaper than what a city apartment costs. This, of course, is if the job market keeps up. If the Biden administration raises taxes on companies as he has promised, you could see companies move overseas and tax increase passed down to consumers. I do think that there will be issues with commercial real estate. As offices are embracing remote working, there will be less of a need for rent. Companies are realizing a savings in rent, electric, air/heat, phone lines, internet services, etc... which increases their bottom line. I wouldn't normally think that there would be an impact on commercial real estate if the pandemic was only a couple months, but we are fast approaching a year, which has forced companies to invest and embrace the remote workforce. We have seen this in the restaurant business. Those that are surviving the pandemic have had to establish a delivery service that they didn't have, so people could order. In addition, people not wanting to go out have increased their online spending, which has led to the unfortunate closing of other brick and mortar stores. Landlords will have to decrease their rents too. Overall, I don't see any doom and gloom for the residential market. Just remember that you make money when you buy real estate, not when you sell. As long as you keep this in mind when you buy an investment property, you should be fine.

You're both wrong. You're both right about it starting in the morning, but wrong about the date and exact time. The 17th is a Sunday. It's more likely to start in a Monday when businesses open, so the date will be the 18th. I also think it will start out west and move eastward, which means it will start at 8am PCT, that would be 11am EST. Now just because we are making light of this doesn't mean we don't take this event to be a serious thing. We just figure that since the so called experts have had their tries at predicting when it will happen, over the last 10-15 years, and missed the mark avery time, that we might just as well make our predictions and see if we can guess predict the "when". Maybe one of us will be right, and we can call ourselves the next experts.

You moron.......it’s more like 9:32 AM.

@Moises R Cosme If only I could predict a crash or a pandemic!! If only I could.

When Will The RE Market Crash?

Michael Noto

Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes

5y

Hold on, let me get my crystal ball because that is essentially what everyone else is doing. No one knows when/if/how why. Add to that real estate is a local game, always has been. Learn the ebbs and flows of your local market and take it from there.

3 Reply

Steve Morris

Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes

5y

Originally posted by @Moises R Cosme:

What factors do you think will drive the next RE crash?

Government interference with tenant rules and then messing with tax breaks that have been around for 50 years. The former is already happening in Portland with tenant rent rules and a marked drop in interest in Portland purchases of multi-family.

3 Reply

Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

5y

The fed is printing trillion of dollars this makes real estate (and everything else like cars, groceries, etc.) go up. This isn't something that will fall once they stop printing money as the damage of inflation has already been done, it will just go back to normal rates of inflation/appreciation. The 08 crash was due to poor lending standards, in 2020 we have very strict lending and no one is getting liar loans etc. I actually would like market to fall as it would make it easier working with buyers and finding deals but do not see it happening. In Chicago we have multiple offers on everything. Lots of people chasing deals and it seems coronavirus mainly affected low level workers who were not in the market for properties to begin with. Especially investment properties in the gentrifying neighborhoods that millennials want to live in. That demand is not slowing anytime soon and the shutdown has not affected it atleast here.

4 Reply

Alexander Szikla

Real Estate Agent · New York City · Member since 2020 · 820 posts · 641 votes

5y

Timing the market is a mistake. If you miss the top or the bottom by even 5% it will have been better to just consistently deploy. Time IN the market is what matters!

It is always a good time to buy, so long as you are buying right.

9 Reply

Victor S.

WorldWide · Member since 2016 · 1k+ posts · 1k+ votes

5y

i was starting to get worried we haven't had one of these threads in a while. means crash will be pushed out at least another 6 months.

btw, why would interest rates go up in this environment?

5 Reply

Bill C.

Rental Property Investor · Pittsburgh, PA · Member since 2016 · 51 posts · 11 votes

5y

@Victor S.

The fed has a dual mandate:

Full employment ( around 4% but debatable) and inflation around 2%.

Recently, J Powell has committed to that inflation goal being an average rather than a target to hit and stay at, so since inflation has been below the target for years, they’re willing to let the market run hot. So theyll be ok with inflation at around 2.5% probably.

Now the issue would arise if inflation starts to go above this, this would essentially force the fed into a tightening cycle which will have the unintended consequence of driving down asset prices and may trigger a series of other consequences as the cost of revolving credit goes up etc...

Having said all that, I think this is a low risk since demographics, work from home, globalization and automatization all make the type of inflation seen in the 80’s a remote risk.

1 Reply

Victor S.

WorldWide · Member since 2016 · 1k+ posts · 1k+ votes

5y

Originally posted by @Bill C.:

@Victor S.

The fed has a dual mandate:

Full employment ( around 4% but debatable) and inflation around 2%.

Recently, J Powell has committed to that inflation goal being an average rather than a target to hit and stay at, so since inflation has been below the target for years, they’re willing to let the market run hot. So theyll be ok with inflation at around 2.5% probably.

Now the issue would arise if inflation starts to go above this, this would essentially force the fed into a tightening cycle which will have the unintended consequence of driving down asset prices and may trigger a series of other consequences as the cost of revolving credit goes up etc...

Having said all that, I think this is a low risk since demographics, work from home, globalization and automatization all make the type of inflation seen in the 80’s a remote risk.

My girl is in restaurant business and already seeing increases in food prices (just an anecdotal observation). Talk about a double-whammy. Gas prices will most likely start going up as well. We're already seeing home prices increase. Stock markets are booming. Looks like you might be on to something there with your inflation comment. Interesting times, indeed.

1 Reply

Eric M.

Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes

5y

Originally posted by @Moises R Cosme:

The history of markets tells us that we will always have a crash.

This is simply a false premise for your whole clickbait post. How many Real estate "crashes" have there been? History tells us there are always cycles. Not always crashes.

And you have zero clue when or if the next one is going to come. We all know this bull market is long in the tooth and we are due for a decline. But when it happens, no one knows. For every stat you can cite making it look like a crash is imminent, someone else can cite one saying there is still room to grow.

And even if you knew when it will crash, you have no clue by how much it will crash. Should you buy 20% lower? 40% lower? 60% lower? You have no clue and if you think you have a clue, you are going to get yourself in trouble because most likely you are wrong.

4 Reply

Bill C.

Rental Property Investor · Pittsburgh, PA · Member since 2016 · 51 posts · 11 votes

5y

@Victor S.

Yes this is another great point.

How the Fed measured inflation is a topic of great debate since anecdotally, many have commented on increasing prices that are very palpable but the fed continues to rely to metrics like Core CPI that don’t seem to reflect this.

The disconnect is interesting but I think Jay Powell is very attuned to this and he’s spoken multiple times about how inflation and productivity can be measured in the internet era.

But fundamentally I think when the majority of jobs have become non-union, workers have very little negotiating power and so a primary driver of inflation like wage growth may remain stagnant for a long time. While oil prices may go up in the short term, the increase will be capped I think due to massive shale capacity and increased alternatives. Finally, the population is no longer growing, the trends that pushed population growth in the 80’s are no longer there. Overall, most experts think the chance of inflation accelerating drastically is low but present and of course experts ( ESPECIALLY in economics) can be wrong.

This is a good BP thread, fun times!

Personally I agree with the idea of treating real estate like the stock market:

Don’t try to time it, simply keep buying as you go along, it’ll be similar to dollar-cost averaging. You’ll win some and lose some but overall, you likely to end up more ahead than not.

2 Reply

Justin Thorpe

Member since 2020 · 437 posts · 675 votes

5y

@Moises R Cosme

It’s like the old saying where even a broken clock is right twice a day or some wise guy who predicts that 90% of the people who are alive today will die by the year 2120. Why? Oh hmm because data will show that’s how life expectancy works. Respectfully I see your analysis and conclusions exactly that way. Sure there could be crash and sure there could be a massive boom or a couple of them. The argument can be flipped both ways.

0 Reply

Joshua Shockley

Investor · Las Vegas, NV · Member since 2015 · 13 posts · 7 votes

5y

@Moises R Cosme

Fannie and Freddie are very profitable. The gov has been stealing their profits and sweeping to treasury under the guise of “conservatorship”

0 Reply

Joe Bertolino

Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes

5y

Originally posted by @Account Closed:

@Moises R Cosme

Housing prices don’t always correlate with GDP. There have been recessions where housing prices went unscathed.

3 of the past 5 recessions had price increases in real estate. I think the wounds from 2008 are still fresh enough that it is all a lot of people remember.

1 Reply

Roxanne Whitaker

Realtor · Gettysburg, PA · Member since 2020 · 38 posts · 11 votes

5y

@Moises R Cosme I am not seeing a crash like the ones we have seen in the past. I’m seeing a huge foreclosure coming in late spring and summer of next year. People did not listen to their mortgage companies and so they think that by not paying their mortgage for several months they can just pick up where they left off. However, many mortgage companies are expecting all that money to be paid right away. We will see a lot of short sales and then foreclosures. The crazy RE market right now where buyers are paying way over the value of the home, they are going to have a hard time selling the home at a later date, making money and possibly having to bring money to the table to close. For investors the foreclosures that will happen will be a time to pick up great properties.

0 Reply

Jason Merchey

Investor · Hendersonville, NC · Member since 2013 · 757 posts · 282 votes

5y

Markets don't have to "crash." There are four part cycles which come around about every 18 years in normal circumstances. Unless there is a confluence of downturns, real estate won't lose its *** unless lenders are allowed to be or incentivized to be irrationally exuberant. My two cents.

1 Reply

Jim Spatzenfeld

Investor · NorCal · Member since 2015 · 282 posts · 240 votes

5y

@Moises R Cosme

“...(historically there is an inverse relationship between interest rates and property prices; drop interest rates, property prices go up and the reverse applies)”

I’m sure these crazy low rates wrecked up home prices dramatically, but can you post an example where the rise of interest rates caused prices to decline?

The purpose of raising interest rates is to cool off an overheating economy. Rates only go up when the economy is doing real good. I cannot see a real estate crash happening during an overheating economy.

1 Reply

Alexandre Marques dos Santos

Rental Property Investor · Member since 2020 · 215 posts · 137 votes

5y

@Moises R Cosme

I am still very worried. In fact i wanna see what will happen in March/April 2021.

Reasons:

1) median of household dropped significantly in 2020.

2) unemployment grew. Government distributed tons of usd. Firstly sending checks for householders, this is over. Then unemployment benefits, this process is finishing. Now some people lost their income. Then through reduction of interest rates ( refinancing added a lot of money to economy)- this will fade.

3) government imposed a measure to avoid foreclosures and evictions. When this is over, we might see it growing and the reality. Foreclosure/ eviction processes might resume and then landlords will face reality that income is actually lower.

I am not in a hope to see this to happen. But like any patient in a hospital full of medicines, we could be seeing a situation that doesnt reflect a stability and get worse quickly.

I am taking the opportunity to reduce my portfolio, selling some properties and growing my cash. If i am right, i will be in a good position to buy some cheap properties, If i am wrong, i was about to make the relocation in my portfolio.

2 Reply

Tom Shallcross

Rental Property Investor · Chicago · Member since 2018 · 613 posts · 1k+ votes

5y

We should all be aware of the market, but trying to time the market is like trying to catch a wave when you should instead focus daily on becoming a great swimmer that can thrive in any waters.

3 Reply

Jeremy Blevins

Folsom, CA · Member since 2018 · 134 posts · 100 votes

5y

@Alexander Szikla where does the 5% come from? I mean where have you seen this or where is the math on it? I agree with your point, just curious to see math on the numbers

0 Reply

Dan D.

Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes

5y

Not based on any scientific theory, but I am of the belief that in 2030, everyone will look at 2020 prices and say "I should have bought a lot more in 2020 when prices were cheap."

4 Reply

Adam Melon

Rental Property Investor · NY · Member since 2019 · 30 posts · 19 votes

5y

@Moises R Cosme To furthur drive your point home, inflation needs to be part of your analysis. Would actually defend your case even more when talking about consumer debt.

However, it would hurt your argument about median income comparisons.

The best metric is probably comparing Median income/median home price ratios. That would give significant insite into comparing how Americans were leveraged in 2008 vs today.

But all in all without doing a real deep dive, I'd say we're no where near a housing crash. The economy will start humming again, once covid is handled.

And all the businesses that were lost will come back 1 way or another due to the simple fact demand on consumer goods will inevitably come back to pre pandemic standards.

2 Reply

Rodney Sums

Laveen, AZ · Member since 2016 · 584 posts · 528 votes

5y

@Moises R Cosme share your perspective more about why businesses are seeing employees working remote is not as productive? Arguments can be made to the contrary. People are less likely to call in sick if they're already home. People are less likely to be tardy since they aren’t commuting. There's higher satisfaction for the employee not dedicating hours of their day commuting. Employees are less likely to be around each other talking and chatting. Employers save money on renting large office space. I know people that have had their employees transition from expecting them to work in the office to permanently working from home for the aforementioned reasons.

.

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1 Reply

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

5y

Interesting post @Moises R Cosme

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0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

5y

Originally posted by @Dan D.:

Not based on any scientific theory, but I am of the belief that in 2030, everyone will look at 2020 prices and say "I should have bought a lot more in 2020 when prices were cheap."

If your prediction isn't based on and science, then what is it based on?

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

5y

Seeing all of these predictions, I suddenly feel a strong urge to join in on the fun. The problem is, my crystal ball is in the repair shop. The prognosis is not good. I'm told it may not be fixable. I guess it doesn't really matter though since it was never that accurate anyway.

Now if only I could find my Ouija Board. Where did I leave it last?

0 Reply

Bill P.

Investor | Syndicator | Instructor · Cincinnati, OH · Member since 2008 · 435 posts · 198 votes

5y

@Joe Villeneuve I'm going to go on the record and say watch out for 2024 - 2026. I say this because there are so many macro issues with economy that the piper will have to be paid.

But if you're flexible with your investment plans you can still prosper. Cash will always be king. Access to credit, if available, will always be queen.

1 Reply

When Will The RE Market Crash?

When Will The RE Market Crash?

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