What if there is no housing "recovery"?

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What if there is no housing "recovery"?

Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes

One of the things I always try to be conscientious to is herd mentality. Recognition of herd mentality and the pure luck of a well timed divorce kept me from investing in real estate in 2007 and waiting until 2008 when I could get property at 20% of 2007 prices. Recognition of herd mentality also pushed me to start flipping a rental here and there in the past couple years when post sub prime fallout out, everyone thought the answer was in buying steady, secure, cash flowing rental properties rather than flipping.

There's a new herd mentality and you can see it by reading what the majority of posts assume here and any other place on real estate investing is discussed. It's the assumption of recovery. Just like everyone assumed in 2006 that every flip could be profitable (look in the old posts on here - it's in there) everyone is assuming that these new lows in real estate pricing are just waiting for a market correction to bring them back up. That may be true but it's to the point now that your barber can tell you REOs are a good investment. When your barber can give you just as good investment advice as a financial professional that's not a good thing.

What if things don't change? What if these prices are the new norm for real estate? Are you mentally ready for that? Is your business ready for that? What are you doing to be ready for the chance that the herd mentality is wrong? What's your attitude, plan and strategy going to be?

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y

Historically, Real Estate has provided gains pretty much equivalent to pure inflation, though not along the same curve. Given the scarcity and the integrity of the underlying asset involved (land), this will most likely continue forever (in many economist's opinions).

For a long time (the past 50 years or so, inflation adjusted home prices diverged significantly from nominal prices, but in the past 25 years, the curves have started to converge, and are now pretty much aligned:

http://mysite.verizon.net/vzeqrguz/housingbubble/

In my opinion, if you believe inflation is a given over the long-term, then you should assume that real estate will appreciate over the long-term. If you believe deflation will reign over the long-term, then you should assume that real estate will depreciate from here.

As for what I'm doing, I'm just doing whatever is profitable in today's market. Currently, that's a focus on rehabbing and flipping lower-end SFHs to first-time FHA buyers. I also have some cash invested in a couple big apartment complexes, in the case the rental market rebounds. And I'm always looking for good commercial deals. In other words, diversification on a small scale (actually, within a small market space), with a cash and effort focus on the strategies that are working today.

If tomorrow there is a more lucrative investment strategy, I'll move my focus in that direction, while still maintaining some diversification.

Or, if MIkeOH's predictions come true, we'll retire, move the family to another country and sit on a beach until we die or get bored again...

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  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    BTW - I think there is a way to ride this out through multiple levels of preparation. A lot of folks refer to building a financial "ark" for these times and if you look at the origin of the term back in the Old Testament it was a very diversified portfolio of commodities in a vehicle with one focused intent - to float. No sails or rudder or lavish interiors.

    What's your diversified plan to keep everything afloat? The worst of times will probably suck royally by comparison to the good times but won't last forever. The problem is most folks are too used to living 1-2 months from complete financial meltdown. I previously spoke about creating a storage of food. If you hit a patch of rough weather, how could the impact of temporarily eliminating 70-80% of your living expenses help you weather it out?

    Time for investors to get themselves into paid off homes and paid off cars and carry their secured loans on rental properties paid as paid off as possible with bills, especially utilities, paid by tenants so with it does hit the fan you can live in the ark while keeping your bills paid. It's not sexy, it's not a cruise, you're not commandeering the HMS Pinafore while you sing, it goes against every hip/cool "OPM" speech you heard from gurus, but it just may keep your butt from drowning.

    1Reply
  • James Harkness
    Real Estate Lender · Philadelphia, PA · Member since 2009 · 216 posts · 112 votes
    16y

    Tim, I agree with you completely. Instead of taking a more agressive approach to investing right now, I am making sure that I carry zero debt so that should things get bad, I can still get by with little or no income. I have never been a pessimist, but all of the economic indicators IMO point to things getting worse before they get any better, and consumer debt can really bog a person down when things get tight...

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by James Harkness:
    Tim, I agree with you completely. Instead of taking a more agressive approach to investing right now, I am making sure that I carry zero debt so that should things get bad, I can still get by with little or no income.

    Very good approach. The beauty of this is really in how this will help you invest. If you don't have to worry about your household expenses, it requires less investing to achieve your financial goals which means you will more critically examine properties and throw away the ones that aren't the best performers. You will get more aggressive in your investing but it won't be aggressive in the number of properties you buy - you will buy only the most aggressive performers. And because you don't need as many "deals" to cover yourself - you can afford to throw away 90% of the "deals" you run across.

    This is investor "psychology" more than investor tactics because this puts you in the position of investing from a place of real security rather than a place of desperation because you're drowning because you haven't built your ark. When you invest from desperation, this is when you really get into trouble.

    1Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Eddie Ziv:
    Oh and one more thing. You are at least 15 years younger than I am. You have much better chance to see the return of the RE market than I have


    Missed this. Yeah, I thought about that but I hope to be spending the last 15 years blowing all my cash on young gold diggers so it evens out. :wink: :lol:
    0Reply
  • Account Closed
    Homeowner · Inverness, FL · Member since 2010 · 8 posts · 3 votes
    16y

    "Time for investors to get themselves into paid off homes and paid off cars ... with bills, especially utilities, paid by tenants so when it does hit the fan you can live in the ark while keeping your bills paid. It's not sexy, ... but it just may keep your butt from drowning."

    Well said. It is so sad that so many still don't understand what is happening right in front of them. It is not getting better, there are still no jobs. Rents are still dropping.

    No way I would buy another thing I don't absolutely need right now, time to hold on, reduce expenses, and wait it out as cheaply as possible.

    1Reply
  • David Breitzmann
    San Francisco, CA · Member since 2009 · 171 posts · 24 votes
    16y

    Great post topic.

    Full disclosure: I am a spending minimizer and saving maximizer.

    I tend to focus on not speculation or media theatrics but rather the source of growth. So many national shows that say they have a feel for the consumer "pulse"
    {"Hey, get your clamy subjective hands off my arm!"}

    If we are so heavily dependent on consumer debt driving "growth" and there is a low personal savings rate a downward trend when jobs are slashed isn't a surprise.

    The future lays in beginning to deliver goods in the new era, including information, that can be commodified in a transparent manner for consumer consumption.

    We're on the verge of shifting from post-industrial service sector to a neo-industrial economy where information, versus tangible manufactured goods, is the product du jour. It is now consumed cross-platform in the home, auto, and on mobile devices.

    I do not perceive a consumer shift towards responsible levels of debt exposure as a negative. News cycles cast a shadow by saying purchasing power is declining and retailers are "reeling" [don't they have whiplash by now?] Just as we are now saying of exotic mortgages (remember, "free cruise at closing") we should return to sustainable debt (can't wait for a discussion on student loan trends in other forum sections).

    It may be painful by my generation [28 y/o] may actually be able to retire sans pensions if we do so.

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Tim Wieneke:
    Originally posted by Eddie Ziv:
    Oh and one more thing. You are at least 15 years younger than I am. You have much better chance to see the return of the RE market than I have


    Missed this. Yeah, I thought about that but I hope to be spending the last 15 years blowing all my cash on young gold diggers so it evens out. :wink: :lol:


    Isn't in it wonderful to be young? BTW about those gold diggers? Don't tell that to your beautiful Iranian princes... You know, the one you plan to turn into IPW... :lol:
    0Reply
  • Rich Schroeder
    Real Estate Investor · Elkhorn, WI · Member since 2008 · 453 posts · 104 votes
    16y



    " Traditionally, the country experienced its great innovations as the result of personal disparity. At this point the country will not only have to create innovation, but also to reinvent itself."

    This is our greatest obstacle...we now do not innovate or reinvent...that's all done overseas for cheaper! There are too many barriers in the U.S. currently to spring back. We need a bottom-up clean house session first.

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Eddie Ziv:
    Originally posted by Tim Wieneke:
    Originally posted by Eddie Ziv:
    Oh and one more thing. You are at least 15 years younger than I am. You have much better chance to see the return of the RE market than I have


    Missed this. Yeah, I thought about that but I hope to be spending the last 15 years blowing all my cash on young gold diggers so it evens out. :wink: :lol:


    Isn't in it wonderful to be young? BTW about those gold diggers? Don't tell that to your beautiful Iranian princes... You know, the one you plan to turn into IPW... :lol:



    Thankfully she doesn't know about BP. What happens on BP stays on a Google search. :lol:
    0Reply
  • Kenneth Johnson
    Real Estate Investor · Fremont, CA · Member since 2010 · 68 posts · 19 votes
    16y
    Originally posted by Tim Wieneke:
    Originally posted by nationwidepi:
    I don't think anybody will either Tim because they can't. NOBODY has a crystal ball and nobody can say that recovery is imminent, however, IF history has taught us anything, it is that there will be many recessions and recoveries to follow. I don't see this one any different. I do agree that things wil be getting much worse before they can get better.


    Tim's comments start here: (formatting out of whack)

    That's the thing Will. If you ask for conclusive evidence to the contrary that things are going to get worse.....that's not hard to find....jobless or cut salaries on a devalued dollar combined with the largest "stimulus" package we've ever seen spent with nothing to show for it.... I'm not pessimistic but I'm not high either. This ain't good.

    On top of that, we have the Rich Dad book no one wanted to read "Rich Dad's Prophecy" timing massive legislatively mandated sales of stock shares care of ERISA coming when the baby boomers hit 65 within the next couple years. What happens when you have more stock sellers than buyers?


    0Reply
  • Aaron Mund
    Real Estate Investor · Arvada, CO · Member since 2009 · 68 posts · 5 votes
    16y

    If there is a recovery it will be on the backs of investors and both in business and RE. Not on Obama's back or Congress' back.

    1Reply
  • Scott Nachatilo
    Real Estate Investor · Oklahoma City, OK · Member since 2009 · 86 posts · 39 votes
    16y
    Originally posted by Tim Wieneke:
    What if things don't change? What if these prices are the new norm for real estate? Are you mentally ready for that? Is your business ready for that? What are you doing to be ready for the chance that the herd mentality is wrong? What's your attitude, plan and strategy going to be?


    One thing is for certain - "things" will change. It's simply not possible for all conditions effecting the housing market to stay the same.

    Our job as entrepreneurs and business owners is to make the best decisions we can based on the information we have at the time.

    If we don't make adjustments as we see the market move, it's on us.

    I think most people make the mistake of making that process of making a decision and acting way too hard. Even the barber knows that real estate is a good buy now. Come on- what more do you need? :D

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, it was the best of times, it was the worst of times, it "is" the age of wisdom.. and it does not matter. As long as people desire to live under a roof, there will be profits in real estate. History will repeat itself, look at the 70s and the supply, high interest rates in the 80s, the boom of the 90s, just ride the tide. Going in other direction from heard will be the direction to go. Buy when no one is buying, sell when no one is selling. Improve what you have in between and make others pay for it. Bill

    3Reply
  • Steve Doyle
    Developer · Lake Orion, MI · Member since 2009 · 17 posts · 2 votes
    16y

    Well put Bill. What else are you going to do?

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, short trm profit taking, know the buyer first, find the deal, buy it and flip it. Put all that money in food and ammo, I already have enough guns. LOL

    Funny thing too, for those inclined to buy gold and hide it in the basement, hording food, etc. Others may shoot you for that stuff, but they can't take your property with a gun, it takes a pen to do that! Good Luck and see you at the bank! Bill

    0Reply
  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    Store food is great idea. If you don't have a water supply or storage, food will be of little use. Rich

    0Reply
  • Bob Hines
    Real Estate Investor · StL, MO · Member since 2008 · 296 posts · 152 votes
    16y

    Something to think about-in the Great Depression unemployment was 25%, that means 75% of the workforce was employed. Today, with the U6 unemployment number around 17%, that means about 83% of the workforce is working. I'm not cheerleading the 'Green Shoots' theory but it switches the 'common knowledge' around and gives you a chance to look at things from another angle. Even if times 'get worse', there will still be opportunities out there-people will still be renting and they will still be buying. Will the opportunities be the same tomorrow as they were yesterday? Maybe not. But opportunities will still be there.

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Bob Hines:
    Something to think about-in the Great Depression unemployment was 25%, that means 75% of the workforce was employed. Today, with the U6 unemployment number around 17%, that means about 83% of the workforce is working. I'm not cheerleading the 'Green Shoots' theory but it switches the 'common knowledge' around and gives you a chance to look at things from another angle. Even if times 'get worse', there will still be opportunities out there-people will still be renting and they will still be buying. Will the opportunities be the same tomorrow as they were yesterday? Maybe not. But opportunities will still be there.



    Hurray to the optimist!!! I'm with you Bob!

    OMG we have an unemployment rate of 17%!!!! But hey, look at the bright side, we have 83% employment rate... not too bad, eh???

    I haven't worked in my regular day job since march of 2009. Last year was the worst year for me since 1991, so I had to reinvent myself and create a new niche in real estate to support my family.It worked!! I'm now finally going back to my "day job" this month to work on the second season of the Jonas Brothers series for Disney.

    I think that this past year was good for me since it forced me to "reinvent" myself and it is good for America as well. We, Americans accustomed to "the good and easy life". It's time to go back to reality and reinvent ourselves as a nation.

    0Reply
  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    Several successful people on this forum have talked about storing food and water (and ammo). If you have any question about what would happen in an emergency, all you needed to do was watch the news today. Fox news has a reporter in a grocery in Washington D.C. People were lined up all the way to the back of the store waiting to check out and the shelves were nearly stripped bare! All this panic was for a little snow. What would happen if there was a REAL EMERGENCY?

    Furthermore, if you really think about what's happening, what we're headed for is not a routine recession. The 2008 recession was NOTHING! There are a BUNCH of things converging to cause the country to collapse in the near future. I'm not talking about a recession or even a depression - I'm talking about a COLLAPSE! It's happened over and over again throughout history and it's getting ready to happen here.

    1Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by MikeOH:


    Several successful people on this forum have talked about storing food and water (and ammo). If you have any question about what would happen in an emergency, all you needed to do was watch the news today. Fox news has a reporter in a grocery in Washington D.C. People were lined up all the way to the back of the store waiting to check out and the shelves were nearly stripped bare! All this panic was for a little snow. What would happen if there was a REAL EMERGENCY?

    Furthermore, if you really think about what's happening, what we're headed for is not a routine recession. The 2008 recession was NOTHING! There are a BUNCH of things converging to cause the country to collapse in the near future. I'm not talking about a recession or even a depression - I'm talking about a COLLAPSE! It's happened over and over again throughout history and it's getting ready to happen here.

    Should I buy my plane ticket to Costa Rica now or wait a little more?
    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Eddie Ziv:

    Should I buy my plane ticket to Costa Rica now or wait a little more?


    For the price of a Costa Rican plane ticket, you can have a 6 month supply of food and water ready. It's not the long term disasters that will kill you. It's a 3 day one. Remember the Rodney King riots? How would you have been if you needed to walk through those 3 +/- days of rioting to go shopping (assuming the store wasn't looted bare)?
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  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Tim Wieneke:
    Originally posted by Eddie Ziv:

    Should I buy my plane ticket to Costa Rica now or wait a little more?


    For the price of a Costa Rican plane ticket, you can have a 6 month supply of food and water ready. It's not the long term disasters that will kill you. It's a 3 day one. Remember the Rodney King riots? How would you have been if you needed to walk through those 3 +/- days of rioting to go shopping (assuming the store wasn't looted bare)?


    I lived through the Rodney King riots. That is a bad example. Didn't really effected my life that much. It was hard for me to match the site on the TV with my neighbourhood surrounding. Anyway, I doubt that this is what Mike is referring to. He seems to refer to some kind of Obamapocalypse. Something like "The Road" or the "Book of Eli"...
    As far as the three days, I'm good for at least a week with food, water, portable gas-power shower, genie Angle refrigerators (2) and a power gate to the property... No I don't carry any gun - just pepper spray... :wink: I don't need to wait for a riot. This is an earthquake country, you know.
    0Reply
  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y
    Originally posted by MikeOH:


    Several successful people on this forum have talked about storing food and water (and ammo). If you have any question about what would happen in an emergency, all you needed to do was watch the news today. Fox news has a reporter in a grocery in Washington D.C. People were lined up all the way to the back of the store waiting to check out and the shelves were nearly stripped bare! All this panic was for a little snow. What would happen if there was a REAL EMERGENCY?

    Furthermore, if you really think about what's happening, what we're headed for is not a routine recession. The 2008 recession was NOTHING! There are a BUNCH of things converging to cause the country to collapse in the near future. I'm not talking about a recession or even a depression - I'm talking about a COLLAPSE! It's happened over and over again throughout history and it's getting ready to happen here.

    Actually, it appears that what Mike was referring to has nothing to do with Obama at all, but a natural disater or even the threat of one such as was the case in Washington DC.

    Lets not forget what Katrina also tought us. If that food that is stored is vulnerable (flooding, looting) or unaccesable (storage access cut off by earthquake) then all your storage efforts were of wasted time to you. The same could be said about storage of ammo, ect.

    And should there be an ultimate total collapse of the government you will need to be able to get to those things as well, or they will do you no good.

    0Reply
  • Eliott G.
    Real Estate Investor · Elgin, IL · Member since 2009 · 135 posts · 9 votes
    16y
    Originally posted by Tim Wieneke:
    Originally posted by Eddie Ziv:
    The Real Estate market will recover, period!


    Will any of us live to see it?

    Personally...based on a small amount of research the 2004/2005 high prices will not be seen again until 2022 or so...obviously this depends on what area of the country you are in. Some will be a little sooner 2018-2020 others not until 2026-2028! Yes people it may be that long!

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    16y


    That IS what history says will happen, based on real estate only. Unfortunately, that's not the right history for this situation. I'm not saying that prices won't equal the recent highs by 2022 - in fact it could happen MUCH sooner than that. However, it wouldn't be because there's a recovery - it would be because hyperinflation occurs. In a hyperinflation situation, prices could rise rapidly far beyond the recent highs, but of course that will be meaningless if a loaf of bread costs $100!

    The situation that we have here is that the US has over-spent; over-borrowed; and over-promised for DECADES. Now, we're broke and virtually insolvent. The banks are only surviving because the government is giving them money at 0 percent interest and then paying them 3 percent on that money. The auto companies have either been taken over or have been given handouts through cash for clunkers. Freddie and Fannie are both insolvent and the government has now promised an UNLIMITED blank check. Furthermore, almost all home loans are now backed by the government. The US can no longer sell it's debt, because no-one wants it, so the FED is buying our own debt AND WE'RE PAYING INTEREST ON IT!

    All that taken together tells me that no recovery is forthcoming, but rather a total collapse of this broke country is on the horizon.

    The people on this site that have recommended stocking up on water, food, and ammo understand what is coming. I'm not talking about stocking up for a tornado, small earthquake, or other natural disaster. We're headed for a disaster alright, but there's nothing natural about it. It's all being caused by our government and the malaise of the American people.

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