Housing crash deniers ???

Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes

Unfortunately I've been away for a few months while taking care of some personal matters, so I haven't been able to keep up on discussions.

However, several months ago there were ample amount of folks here insisting that a market crash/ correction was impossible and that prices would only continue to increase.

Curious if there are still people out there who feel this way? If so, I'd love to see some data that supports your view that the market isn't going to crash/ correct.

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Greg ScottPro Member

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

The market may correct, but I firmly believe there won't be a crash. The reason is simple, equity.

Before 2008 people with no income could get liars loans and buy much more real estate than they could afford. We heard stories of cleaning ladies buying multiple million dollar homes. When home prices starting falling, the whole thing collapses like a house of cards because nobody had any equity. They couldn't sell and get out. We had cascading foreclosures creating a downward spiral.

Recently, prices have been surging. Given the laws passed after the Great Recession, appraisals and lending is highly restricted. Appraisals have not been keeping up with prices and lenders won't lend above appraised value. We sold a house in 2021 and in one day had 20 offers. Several of them had acceleration clauses stating they would pay more than anyone else up to $X. Both of them waived any financing contingency because they KNEW the house wouldn't appraise for what they were offering. They had to make up the difference with cash. Those people have a ton of equity in their homes. If they had to sell, they might take a haircut, but they aren't going to get foreclosed.

There is no house of cards here to come tumbling down.

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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y

"West coast will absolutely see a larger % down because they are FAR more impacted by rates. My last mortgage swung ~$310 bucks from 5% to 6.125. I could care less about overall dollar shifts that small. In the bay area it's a far more painful swing. So in the east and southeast people who have to move will just write the numbers off. IN the West, I bet you have a lot of stagnation in the market with people on 3-4% rates just sitting tight for a very long time - on a 1.5 million dollar loan you are talking about $4,000 a month more with rates. That will make anybody pause. "
I used to think that way until I read the housing inventory for sale is lesser than eight hundred homes, and $200k job availability is the highest nationwide. I suspect LA metro/San Diego will drop more becoz they have too much inventory and the local economy can't support such heavy appreciation.

Will see what happens next but it seems since everyone has 2008 GFC experience, seems like more people already prepare for such a thing to happen.

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Nick H.
Investor · MI · Member since 2018 · 37 posts · 40 votes
4y
Back to some fundamentals.
Increasing rates:
- Lowers demand (more expensive to buy same priced house - so demand curve shifts as some get priced out) and also lowers supply (as rates go up, supply curve shifts as most of supply has low rate mortgages and on a relative basis, it's expensive to trade out of them into more expensive mortgages). Who knows, my guess is these may roughly offset, and looking at inventory levels may corroborate that
- Reduces supply of new builds. We're already have a supply problem. This only worsens the supply problem........
So yes, rents could go down and "motivated selling" could happen. But the only way that seems plausible, is if unemployment were to tick up, massively. Since the labor market is, like, historically tight right now, the fed is just trying to get it somewhat normal to help in their efforts of inflation fighting. They have not said, nor does anyone credible expect that the labor market will get to 6%, 7% etc. let alone the 10% it was at in 2009......
People are expecting it to get to like mid-4's, which is not a doomsday situation by any means, and is not likely to result in meaningful (or any?) rent decreases, forced selling, etc.
So YES to forced selling and rent decreases if something insane (and unexpected) happened with unemployment, otherwise, no.
On the supply side - any smart buyers of any asset - whether the asset is a company or real estate, whether the buyer is someone on biggerpockets or Blackstone - is looking at the discounted cash flows from now and into the future, not just what that 1st year looks like. Housing supply is already an issue, and that's being compounded by increasing rates lowering new builds, means in 2024 when the fed is likely to start their dovish lowering rates process, with extremely low housing supply......... that seems like a setup for much higher rents and even higher prices. Low supply of homes = higher rents. Higher rents + bringing rates back down = higher home prices. It possibly makes sense to keep that dynamic in mind?
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Nicholas L.:

@John Carbone
I'm in the "I don't know what's going to happen" camp.

I think everyone is actually in this category. Even grandpa Powell doesn't know what's going on. Some that are very investment savvy and understand risk like John will be more conservative , and some that are more aggressive will see opportunity in any situation.

For me it's a simple reward/risk. Too many people here think they can only make money thru direct rental ownership.
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Greg R.
OP
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
Quote from @Bruce Woodruff:

Quote from @John Carbone:

What is your opinion of people who are waiting for this new 'bottom' to buy? Who will then purchase and plan to refi once rates go down again in a couple years, so capitalizing on lower prices and eventually get lower rates as well...? A double win?
That's kinda my plan, and is certainly 'gambling'.....
I'm right there with you Bruce. I think that's the smart play. Seems that some people took my stance on the market crashing as me wanting to get out indefinitely. My stance on the market crash is simple... wait for prices to go down -> purchase, wait for rates to go down -> refi.
Some folks have been of the mindset that "now is always the best time to buy - there's never going to be a better time". I completely and fully reject that notion.
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Greg R.
OP
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
Quote from @Carlos Ptriawan:

"West coast will absolutely see a larger % down because they are FAR more impacted by rates. My last mortgage swung ~$310 bucks from 5% to 6.125. I could care less about overall dollar shifts that small. In the bay area it's a far more painful swing. So in the east and southeast people who have to move will just write the numbers off. IN the West, I bet you have a lot of stagnation in the market with people on 3-4% rates just sitting tight for a very long time - on a 1.5 million dollar loan you are talking about $4,000 a month more with rates. That will make anybody pause. "
I used to think that way until I read the housing inventory for sale is lesser than eight hundred homes, and $200k job availability is the highest nationwide. I suspect LA metro/San Diego will drop more becoz they have too much inventory and the local economy can't support such heavy appreciation.

Will see what happens next but it seems since everyone has 2008 GFC experience, seems like more people already prepare for such a thing to happen

It's reasonable to think that the markets that saw the biggest peaks will have the biggest fall. For instance, in the data that James presented earlier, seems that in the last 3 years values only increased 16% (median home prices) in MN.

Places like that aren't going to experience that same crash that places like CA and TX will.

In DFW for instance, 2019 median home prices were 292k. Peak of the bubble in May 2022 they were a hair under 500k. That's a 70% + increase - which is insane. These bubble prices were a flash in the pan, not a sustainable/ permanent shift in the market.

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
4y
@Carlos Ptriawan
Can you elaborate on what you mean? Are you saying folks should invest in RE in other ways than direct rentals? Or folks should invest in other investments than just RE? Or both? =-)
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Account Closed
Property Manager · Las Vegas, NV · Member since 2017 · 108 posts · 149 votes
4y
anyone think pre-pandemic prices maybe the target of the government?
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Nicholas L.:

@Carlos Ptriawan
Can you elaborate on what you mean? Are you saying folks should invest in RE in other ways than direct rentals? Or folks should invest in other investments than just RE? Or both? =-)

easy. In high-interest rate environment, investors got more reward/risk from credit investments rather than equity investments; why ? because in equity investments, if there's a large whipsaw like what John/Greg mentioned, the loser would be an investor in equity investments.
This is like "general" rule. Gov. is giving you 4% of your cash now for free without risk, why do you want a rental that may have a flat appreciation and perhaps even reduced rent? That's one point of view to reconsider.

John really understands financial risk during different business climate

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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Account Closed:

anyone think pre-pandemic prices maybe the target of the government?

it is. they want their balance sheet equal to pre-covid. easy to understand, extra difficult to comprehend.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
4y
Quote from @Carlos Ptriawan:

Quote from @Account Closed:

anyone think pre-pandemic prices maybe the target of the government?

it is. they want their balance sheet equal to pre-covid. easy to understand, extra difficult to comprehend.
This is what I’ve been expecting to happen since beginning of the year when Covid was determined to be over. My base case is 2019 plus 5-10 percent.
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Greg R.:

Quote from @Carlos Ptriawan:

"

Places like that aren't going to experience that same crash that places like CA and TX will.

In DFW for instance, 2019 median home prices were 292k. Peak of the bubble in May 2022 they were a hair under 500k. That's a 70% + increase - which is insane. These bubble prices were a flash in the pan, not a sustainable/ permanent shift in the market.

They call it the "Great Unwind" of Fed balance sheet. Somebody on twitter has a nice video of this. Still interesting who will win. Market or Fed LOL
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
4y
@Carlos Ptriawan I think I agree with you, I wouldn't recommend anyone grind out a 1% return on a rental just to "be a real estate investor," when they can get 3% in savings or 9% in I-bonds. But I like to be diversified as I suspect many others do too. And I have a couple properties that have appreciated spectacularly since I bought them - I didn't do it on purpose, right? I just bought at the right time.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
4y
Quote from @Carlos Ptriawan:

Quote from @Greg R.:

Quote from @Carlos Ptriawan:

"

Places like that aren't going to experience that same crash that places like CA and TX will.

In DFW for instance, 2019 median home prices were 292k. Peak of the bubble in May 2022 they were a hair under 500k. That's a 70% + increase - which is insane. These bubble prices were a flash in the pan, not a sustainable/ permanent shift in the market.

They call it the "Great Unwind" of Fed balance sheet. Somebody on twitter has a nice video of this. Still interesting who will win. Market or Fed LOL

If the market beats the fed, then I’ll take the loss on the chin. It’s not a 50/50 coin flip though, odds are definitely in favor of the fed winning, they usually do. I almost see this like a football team laying 14 points in a game and some co-worker who is a big fan of the underdog wants to bet that “his team” will win straight up, he doesn’t want the points because he wants the win, and he will wager $100 to win $100…..since I know the likelihood of the underdog winning is more like 10 to 1, I’ll take the foolish bet from “homer co-worker”…. 10 percent of the time I’ll lose $100 and 90 percent I’ll win $100….a lot of people would still say I’m gambling….

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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Nicholas L.:

@Carlos Ptriawan I think I agree with you, I wouldn't recommend anyone grind out a 1% return on a rental just to "be a real estate investor," when they can get 3% in savings or 9% in I-bonds. But I like to be diversified as I suspect many others do too. And I have a couple properties that have appreciated spectacularly since I bought them - I didn't do it on purpose, right? I just bought at the right time.

Right, and the very reason why your house is appreciated spectacularly is that becoz you purchase that house during the lowest interest rate environment.

In a low-interest rate environment, it's better to do equity investment, as a business activity is growing as well.

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Alicia MarksPro Member
Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
4y
Quote from @Account Closed:

anyone think pre-pandemic prices maybe the target of the government?

That may be their goal, but the influx of money they injected into the economy, even trying to slow down inflation, doesn't seem to make that a realistic scenario. We still have a shorting of housing either way.
[email protected]Podcast Guest on Show #204
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Quote from @Carlos Ptriawan:

Well, the Govt (ie Feds) can eventually rein in a runaway economy. Eventually. At least they have been able to in the past. But sometimes after damage has been done....
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Quote from @Nicholas L.:

And I have a couple properties that have appreciated spectacularly since I bought them - I didn't do it on purpose, right? I just bought at the right time.
But you didn't and wouldn't have bought them at the 'wrong time'. So you didn't do the right thing 'on purpose', but you didn't do the wrong thing on purpose either, which shows some foresight. Meaning it's not just luck...
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Greg R.
OP
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
Quote from @Bruce Woodruff:

Quote from @Nicholas L.:

And I have a couple properties that have appreciated spectacularly since I bought them - I didn't do it on purpose, right? I just bought at the right time.
But you didn't and wouldn't have bought them at the 'wrong time'. So you didn't do the right thing 'on purpose', but you didn't do the wrong thing on purpose either, which shows some foresight. Meaning it's not just luck...
In my mind the goal isn't to buy at the very bottom - that's virtually impossible. The goal is not to buy at the top of the bubble with horrible buying conditions. Even if I'm somewhere in the middle, or in the bottom half that's ok.
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Bruce Woodruff:

Quote from @Carlos Ptriawan:

Well, the Govt (ie Feds) can eventually rein in a runaway economy. Eventually. At least they have been able to in the past. But sometimes after damage has been done....

The gov. wants to add jobs.
The Fed wants employers to fire people.

Strange times LOL
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Michael Wooldridge
Member since 2022 · 485 posts · 216 votes
4y
Fed vs markets. I'm not evening seeing why people are thinking that way. It's fed vs. inflation. The Fed specifically wants to bring down fed without destroying the economy - and both those points are key.

ON the inflation front it's not like there is a lot to rehash there. I'll say a couple of things on inflation: Every month of inflation going on makes it harder for it to continue. ON top of that Trajectory wise we are trending down so the path is already working just not fast enough for the fed. Finally, the fed doesn't want to crash housing specifically, shelter is a huge portion of inflation right now so they have singled it out. 9 months from now if housing has dropped 8% but inflation is at 3% - they don't care that they didn't hit some level of valuations on homes. They only care about inflation.

Simultaneously if you read through the fed meeting notes, from yesterday, they don't want to crash the global economy and that's a direct comment tied to what happens in UK, some of the Asian markets and Credit Suisse. Why? Because those dominos end at the US eventually and could crash our economy. So as much as they want rates down they are going to push only so hard/fast.

Anyway housing and jobs aren't the end goal - inflation is they just see those two sectors as ways to hit inflation directly and it's hard to disagree. But it's not like they have some ultimate end goal with housing.
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Justin Fox
Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
4y
@Michael Wooldridge
I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive. The road to hell is paved with...
The next 12 months is going to be interesting.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
4y
Quote from @Justin Fox:

@Michael Wooldridge
I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive. The road to hell is paved with...
The next 12 months is going to be interesting.

I won’t give @James Hamling too hard of a time when he’s wrong next winter. This one wasn’t as easy to see as 2008. A calculator is needed this time.

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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
Quote from @Justin Fox:

@Michael Wooldridge
I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive. The road to hell is paved with...
The next 12 months is going to be interesting.

Yep, Fed is telling us to reduce the demand by reducing the demand at 1.0x velocity, but the market is even more aggressive by reducing supply side at 1.2x velocity, it creates a mild imbalance in the market where there's slight more demand than supply.

My biggest headache is trying to understand how could homebuilder company make the highest gross profit margin when the interest rate is at its peak.
There're just so many dynamic variables that I do not know.
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Michael Wooldridge
Member since 2022 · 485 posts · 216 votes
4y
Quote from @Carlos Ptriawan:

Quote from @Justin Fox:

@Michael Wooldridge
I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive. The road to hell is paved with...
The next 12 months is going to be interesting.

Yep, Fed is telling us to reduce the demand by reducing the demand at 1.0x velocity, but the market is even more aggressive by reducing supply side at 1.2x velocity, it creates a mild imbalance in the market where there's slight more demand than supply.

My biggest headache is trying to understand how could homebuilder company make the highest gross profit margin when the interest rate is at its peak.
There're just so many dynamic variables that I do not know.

Same way the food companies and other companies have had record profits last year. Not all of the price increase is there costs. more than a small amount is them grabbing more margins.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
4y

A lot of fine print here. This was sent to me by someone in DFW.

They really need to move this, offer valid until end of October (need to close by Oct 31)

If you want to fight the fed, these could be some real steals for investors.

Check out this one…20 percent off!

it’s funny on the same day james spewing his nonsense we are seeing real 20 percent price cuts on new construction. What kind of acid are you on today? If there were so many buyers why would they be cutting prices like it’s 2008?

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