Are we headed towards housing crash 2.0?

23 Replies

Hello I’m relatively new to real estate investing and to this website. As I started to dig into some research I noticed that in fairly affluent areas here in California and in select states that I’m looking (Florida and Arizona) are showing a significant amount of pre-foreclosure homes. Places that you wouldn’t expect people to be underwater on their mortgages. Does anyone else have any insight to this observation? What strategies would you create from this information?

I, too, noticed this and would love some information on:

a) What this means for the economy in these particular markets &

b) How do I go about analyzing and correctly purchasing a pre/foreclosure to buy and hold as well as potentially flip? Is there a BP book in relationship to such?

Do not get too focused on the numbers in the short run. Look at the data over a long period of time. Also factor in the prevailing interest rates over the same time frame.

Predicting a crash is never easy. The folks who claim to have predicted correctly in the past generally are confusing luck with a prediction. Or, they are not telling you about the other predictions that did not work out as planned.

If you are really worried about a market, use less debt. Even in 2008, most people continued to pay their loans and continued to own their homes.

Originally posted by @John Corey :

Do not get too focused on the numbers in the short run. Look at the data over a long period of time. Also factor in the prevailing interest rates over the same time frame.

Predicting a crash is never easy. The folks who claim to have predicted correctly in the past generally are confusing luck with a prediction. Or, they are not telling you about the other predictions that did not work out as planned.

If you are really worried about a market, use less debt. Even in 2008, most people continued to pay their loans and continued to own their homes.

And as it relates to Investors if you have a 2.0 crash very few will be able to buy anyway since there will be very few lenders in the space.. ONLY those with cash will be able to partake.  so unless your in a great cash position.. you could have desire to purchase but no ability.. owner occ is always there.. but not investor loans. 

this is why the crash of 08 was so severe the investor loans froze like the Antarctic.. before global warming. 

then what happens is you try to time the bottom you get nervous and really with credit so tight and nerves you never do execute. 

Originally posted by @Jay Hinrichs :
Originally posted by @John Corey:

Do not get too focused on the numbers in the short run. Look at the data over a long period of time. Also factor in the prevailing interest rates over the same time frame.

Predicting a crash is never easy. The folks who claim to have predicted correctly in the past generally are confusing luck with a prediction. Or, they are not telling you about the other predictions that did not work out as planned.

If you are really worried about a market, use less debt. Even in 2008, most people continued to pay their loans and continued to own their homes.

And as it relates to Investors if you have a 2.0 crash very few will be able to buy anyway since there will be very few lenders in the space.. ONLY those with cash will be able to partake.  so unless your in a great cash position.. you could have desire to purchase but no ability.. owner occ is always there.. but not investor loans. 

this is why the crash of 08 was so severe the investor loans froze like the Antarctic.. before global warming. 

then what happens is you try to time the bottom you get nervous and really with credit so tight and nerves you never do execute. 

Great perspective Jay and so true. How are you going to buy when you can't get a loan?  Lots of people say they will buy when prices are low and markets crash.  Are you sure you are willing to do that when the world looks like it will collapse?  Just look at the stock market last December.  What a great buying opportunity and one that I have been waiting for all year. Lots of people did not buy and missed the bounced. Why?  Investor psychology.  Bear markets are scary and they play tricks with the investor's mind.  

Originally posted by @John Corey :

Jay, I see you list LO as a place you live. I lived in LO for a period in the 1990s. Love the city.

I am a NV resident and a summer time Lake O.. just switched for tax year 2018..  Oregon Is mean to us developers tax wise..

But that does not slow down the great growth here and building opps.. its spectacular  for guys that cant compete say in the Bay area were values are so astronomical.. I mean I bought 90 lots in Canby last Dec for what I would Pay for a fixer in Los Altos hills  LOL   

Funny, I lived in the SF Bay area when working in Silicon Valley. 

These days I live in London. Prices here make most of the USA look really cheap. That said, the plan is to be spending more time on the USA West Coast or Hawaii with the London place a 'lock and leave' bolthole.

Originally posted by @Frank Wong :
Originally posted by @Jay Hinrichs:
Originally posted by @John Corey:

Do not get too focused on the numbers in the short run. Look at the data over a long period of time. Also factor in the prevailing interest rates over the same time frame.

Predicting a crash is never easy. The folks who claim to have predicted correctly in the past generally are confusing luck with a prediction. Or, they are not telling you about the other predictions that did not work out as planned.

If you are really worried about a market, use less debt. Even in 2008, most people continued to pay their loans and continued to own their homes.

And as it relates to Investors if you have a 2.0 crash very few will be able to buy anyway since there will be very few lenders in the space.. ONLY those with cash will be able to partake.  so unless your in a great cash position.. you could have desire to purchase but no ability.. owner occ is always there.. but not investor loans. 

this is why the crash of 08 was so severe the investor loans froze like the Antarctic.. before global warming. 

then what happens is you try to time the bottom you get nervous and really with credit so tight and nerves you never do execute. 

Great perspective Jay and so true. How are you going to buy when you can't get a loan?  Lots of people say they will buy when prices are low and markets crash.  Are you sure you are willing to do that when the world looks like it will collapse?  Just look at the stock market last December.  What a great buying opportunity and one that I have been waiting for all year. Lots of people did not buy and missed the bounced. Why?  Investor psychology.  Bear markets are scary and they play tricks with the investor's mind.  

Which is why the really successful investors are in the minority. The masses rarely get it right when we are talking about extreme conditions. Buffett and others talk about this. Buying when there is blood in the street.

And extreme markets favor cash buyers. Expecting mainstream lenders to be ready to lend is flawed.

A more general question. Why call it Crash 2.0?. As if this would be the 2nd time? What about all the other crashes or near crashes? Do they not matter?

While 2008 was a humdinger, it was not as bad as the Great Depression. And housing has had other crashes though many in the USA were more regional than national. I can think of 3 crashes for S CA. There was the S&L blow out that wiped out 1,000 financial firms and the developers who depended on them.

The problem with using debt to magnify leverage is leverage cuts two ways. Use it and be aware that the downside is always there.

Wouldn't a crash be a "good" thing from an investors perspective?  Stabilizing the market.  Adding tons of new potential deals.  And the way Bigger Pocket teaches investing those that follow core principals should be able to manage the hit with properties that are already own or atleast one would think so.

Someone correct me if I'm wrong...

@Nigel Charles it can be potential great, if you are properly positioned to capitalize on the situation. Deals will be cheaper, but it becomes increasingly difficult to obtain the money to fund those deals. Like it was stated earlier, there will be deals, also, once you acquire then, you may have to hold onto them longer, and since no one can time the bottom of the market, you may find that the value of the property goes down even more before you are willing to sell. Also, depending on your business model, and how you’re playing the long and short game, you can be drastically affected by the drop in the market. If you’re have rentals which are tight on their numbers, what’s gonna happen when the market drops significantly and renters can rent across the street in a home that is hundreds of dollars cheaper each month than your property is. There’s so many negative scenarios that can happen if you are not properly prepared for them.

I doubt there will be another crash that bad anytime soon. Not around here, anyway.

It is amazing how much construction of 7 figure homes is going on in the more expensive LA hoods. And apartments going up all over the place. It can't go on forever, but there is a lot of momentum at this time. Lots of big construction cranes out there.

I can't speak to other parts of the country, but Jacksonville is rocking along.  The amount of new construction in the area is staggering.  I can think of 5 major new construction projects off the top of my head.  Both national and local builders are developing like crazy.  A lot of very savy publically traded builders are putting their money in large multi year projects.   

  

Wildlight has broken ground in Nassau County, Fl and is starting to build out.  It is a mixed use planned community.  At fullcapacity it will be 80,000 residents, making it one of the largest current residential projects in the country.    

I completely don't care any more. I honestly don't. Unless the country collapses, I know I can weather any lesser storm now. I am a cockroach of the real estate world.

Real estate crash has been a topic for awhile.  I am in the camp that it most likely will not be as deep as the last time.

It is good to follow real estate foreclosure filings as an indicator of what is to come.  Right now, they are fairly low.  The addresses in previous years were heavily weighted to lower value properties, probably reflecting subprime loans.  

Today, I am seeing great addresses being filed on, which I find very interesting.

@Kris Marmol is from California, which is a State to be watched.  Many buyers have to overreach to purchase pricey houses, so an employment slowdown can send properties back to the bank.  

@Lesley Resnick I have been preaching Nassau for years and it has fallen on deaf ears until Wildlight. I am concerned now that the prices in Yulee and Fernandina and even Callahan are rising at the pre-crash rates. On the investment side finding anything with an upside is becoming increasingly difficult and finding affordable housing that is not a trailer is near impossible. I am not convinced that a "crash" is coming but something has to stabilize in NE Florida for sure...prices cannot continue on this trend. I do fear for the folks buying in this "hot" market. 

For those concerned about capitalization to get deals if we crash again: NOW is the time to be building relationships with private money.  Go find doctors, lawyers, business owners, etc who have $100K - $500K sloshing around doing nothing, and show them your success.  Invite them to be a part of it if/when the economy slows down or falters.

During a downturn, many semi-wealthy people will flee the stock market but will still have a lot of cash lying around looking for a strong return.  Enter well-performing, well-located, undervalued rental real estate.  If you have a proven track record in their market, you may be able to pick up some excellent deals with them as cash partners.  This strategy probably won't work for the newbie investor who has little or no experience, but for anyone who has been doing this successfully for 5-10 years I see a lot of opportunity.

Matt Faircloth wrote a book called "Raising Private Capital" available on this site.  It's a good primer for getting into this kind of investing.

Originally posted by @Jeremy McAlee :

@Lesley Resnick I have been preaching Nassau for years and it has fallen on deaf ears until Wildlight. I am concerned now that the prices in Yulee and Fernandina and even Callahan are rising at the pre-crash rates. On the investment side finding anything with an upside is becoming increasingly difficult and finding affordable housing that is not a trailer is near impossible. I am not convinced that a "crash" is coming but something has to stabilize in NE Florida for sure...prices cannot continue on this trend. I do fear for the folks buying in this "hot" market. 

At this moment, NE Fl is being fueled by the new property tax laws effecting people in the North East. We are still the most affordable major city in Florida. (MIA, TPA, ORL). We are somewhere between 25%-33% below the national cost of living. Just getting to average cost, we have a lot of run way! Next year's census is going to paint a very different picture of NE Florida. Affordable housing is an issue everywhere. The answer is not a government program. There will be a company that is going to break the current model and will make a fortune doing it. Clearly SFH stick built on site are not going to be the future of affordable housing.

Originally posted by @Erik Whiting :

For those concerned about capitalization to get deals if we crash again: NOW is the time to be building relationships with private money.  Go find doctors, lawyers, business owners, etc who have $100K - $500K sloshing around doing nothing, and show them your success.  Invite them to be a part of it if/when the economy slows down or falters.

During a downturn, many semi-wealthy people will flee the stock market but will still have a lot of cash lying around looking for a strong return.  Enter well-performing, well-located, undervalued rental real estate.  If you have a proven track record in their market, you may be able to pick up some excellent deals with them as cash partners.  This strategy probably won't work for the newbie investor who has little or no experience, but for anyone who has been doing this successfully for 5-10 years I see a lot of opportunity.

Matt Faircloth wrote a book called "Raising Private Capital" available on this site.  It's a good primer for getting into this kind of investing.

 this is a good thought but easier said than done.. when things go sideways those higher net worth folks tend to clam up and do nothing. 

now is the time to get them in your camp..  They are like anyone else they will be fearful that the bottom is not here.. and if there are deals that means someone is losing money in real estate and that will dominate the news.. 

When things go bad money stops circulating..  back in 08 to 2010 is was near impossible to raise capital from private folks. 

@Jay Hinrichs ...."now is the time to get them in your camp.."

.

Bingo!  That's exactly what I'm encouraging folks to do now.  As I said, NOW is the time....  not when everyone is freaking out.  Prove TODAY that you can find excellent deals, recruit the best/fastest labor, and complete projects on time and under budget.  Build trust so you don' t look like a vulture or worse...incompetent!  Private money is always a challenge, but if we can prove we know how to make it work when times are good, maybe 1 or 2 out of 5 investors will still be willing to take a chance during a downturn.

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