Thoughts on the next housing crash

Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes

10y

I see it more regional than national like 8 years ago.

A couple cities come to mind like, San Francisco. Tech bubble 2.0 all over again right now, and that bubble is bursting right now.

I haven't seen any one on BP talking about the numerous deals they're coming across. Some areas are just absurd considering the tenant you're buying at these prices.

No one has mentioned the exponential growth in markets now. Tech has expedited this, and now consistent low interest, QE policies have allowed economies to boom and bust at a much more rapid rate. We won't see another great recession like we did, but we will see more regional boom/busts on a much more rapid rate than has traditionally been the case.

Douglass Benson

Investor · Mason, MI · Member since 2014 · 151 posts · 152 votes

10y

Originally posted by @Russell Brazil:

I agree that things do seem a bit bubbly, especially in multi-family, and residential commercial properties. However if it were easy to predict bubbles, they would never occur.

If you buy right, meaning your portfolio of properties is cash flow positive, and you plan on holding long term...then it doesnt matter if there is a bubble and it bursts, because you will be able to ride it out. I was not investing pre-housing bubble and crash, but I have family members that were...and you know what...the ride up the bubble, then it bursting didnt affect that all that much. The bursting of the bubble just created buying opportunities for them...and provided the opportunity for me to start investing.

This. Real Estate is no different than anything else. If the price is right, buy. We purchased 4 units in 2003, 16 more in 2005, 12 more in 2009, 12 more in 2011 and 37 more in 2015. I am EXTREMELY conservative so I always invest for cashflow first. When appreciation does occur then that is a bonus. We have NEVER sold a single multi-family unit and probably never will. When the bubble burst in the housing market, we benefited from an immense supply of great tenants, while the bubble is inflating we get appreciation and increased rents. It is one heck of a merry go round and there is nothing you can do to stop it!

3 Reply

Neil G.

Investor · Socal · Member since 2015 · 222 posts · 34 votes

10y

My thoughts are pretty much based on events in the past few months (ie Paris, San Bernardino, and many many massacres) as well as the 2016 cover of The Economist, ie they have a baby staring at a globe which represents the growing global pandemic of a virus patented decades ago and spread by GMmosquitoes and effective in reducing brain mass/intelligence of most children of infected mothers.

That plus school shootings, massacres, water shortages, power outages, and a possible shutdown of EBT Food Stamps could quickly spark a chaos scenario in America's most populous multifamilies & cities.

Look around at how many commercial/retail spaces are vacant. Entire strip malls are going ghost-town vacant fast. People are shortsaling left and right barely before they foreclose and moving into cheaper rentals or mutlifamily co-ops and sharing with multiple generations in the family to make their welfare checks cover overprice iphones androids and lux vehicles.

Are rents really falling in Denver, already? Is NYC vacancy rate really at its highest since 2008? Thats a huge flag/warning sign right there as well.

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Anson YoungBusiness Member

Flipper/Rehabber · Denver, CO · Member since 2009 · 1k+ posts · 726 votes

10y

Originally posted by @Neil G.:

My thoughts are pretty much based on events in the past few months (ie Paris, San Bernardino, and many many massacres) as well as the 2016 cover of The Economist, ie they have a baby staring at a globe which represents the growing global pandemic of a virus patented decades ago and spread by GMmosquitoes and effective in reducing brain mass/intelligence of most children of infected mothers.

That plus school shootings, massacres, water shortages, power outages, and a possible shutdown of EBT Food Stamps could quickly spark a chaos scenario in America's most populous multifamilies & cities.

Look around at how many commercial/retail spaces are vacant. Entire strip malls are going ghost-town vacant fast. People are shortsaling left and right barely before they foreclose and moving into cheaper rentals or mutlifamily co-ops and sharing with multiple generations in the family to make their welfare checks cover overprice iphones androids and lux vehicles.

Are rents really falling in Denver, already? Is NYC vacancy rate really at its highest since 2008? Thats a huge flag/warning sign right there as well.

Looking at the jan 2016 numbers, no rents are not falling in Denver. They were still up in January, and up every month prior to that in 2014 and 2015.

Max T.

Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes

10y

Originally posted by @Neil G.:

My thoughts are pretty much based on events in the past few months (ie Paris, San Bernardino, and many many massacres) as well as the 2016 cover of The Economist, ie they have a baby staring at a globe which represents the growing global pandemic of a virus patented decades ago and spread by GMmosquitoes and effective in reducing brain mass/intelligence of most children of infected mothers.

That plus school shootings, massacres, water shortages, power outages, and a possible shutdown of EBT Food Stamps could quickly spark a chaos scenario in America's most populous multifamilies & cities.

Look around at how many commercial/retail spaces are vacant. Entire strip malls are going ghost-town vacant fast. People are shortsaling left and right barely before they foreclose and moving into cheaper rentals or mutlifamily co-ops and sharing with multiple generations in the family to make their welfare checks cover overprice iphones androids and lux vehicles.

Are rents really falling in Denver, already? Is NYC vacancy rate really at its highest since 2008? Thats a huge flag/warning sign right there as well.

The end is nigh!

Marco G.

Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes

10y

Let's say the bubble deflates. For those that have experience when that happens, what happens to rents historically? I don't think we will have the same massive mortgage defaults as mid last decade, but did people experienced declining rents then? When DO rents go down?

George Wines

Investor · Denver, CO · Member since 2015 · 61 posts · 23 votes

10y

Yes, I agree with @Marco G.. Instead of postulating when/why/how a market crash will happen (it inevitably will over a long enough time span), lets discuss the different scenarios and their effects on rent/property values. Something like if there are a lot of foreclosures, property prices are likely to fall. Im no expert so I would love to hear from somebody with a long tenure of real estate investing experience

James B.Pro Member

Investor · Monterey Area, CA · Member since 2011 · 150 posts · 81 votes

10y

@Jeff Robert

Just last night, I asked my friend who is an agent on the SF Peninsula if he sees prices dropping and he said that he's still getting multiple offers and $300k over asking....

Personally, with my rentals, the property has to make sense the day I buy, and leave enough monthly cash flow to weather a down-turn.

2 Reply

Rebecca Virtue

Investor · Denver, CO · Member since 2012 · 15 posts · 10 votes

10y

That is why I buy rentals in Oklahoma...with over 20% ROI.

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

10y

Originally posted by @Marco G.:

Let's say the bubble deflates. For those that have experience when that happens, what happens to rents historically?

I don't think we will have the same massive mortgage defaults as mid last decade, but did people experienced declining rents then? When DO rents go down?

During the last great recession, we saw the quality of our applicant pool and rent rates soar. Nobody was building and previous homeowners (and their awesome mentality) became renters again. Rentals were in high demand!

We lost a few quality renters at first with the first time homebuyer credit of $8k that was offered, but that was short-lived. Multi-families, with their value based on income produced, weren't affected negatively at all. It pays to diversify over a couple asset classes. If we had a bunch of single-families and found ourselves needing to sell, we would have taken a beating like anyone else. Cheers!

2 Reply

Account Closed

Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes

10y

Real estate cycles usually come in 10 year increments. However, it does depend a lot on the local economy. All the economist are predicting that Grand Rapids will have continued real estate growth beyond the normal cycle due to all the great things happening here and the projected influx of new residents due to job growth.

Douglass Benson

Investor · Mason, MI · Member since 2014 · 151 posts · 152 votes

10y

Originally posted by @Marco G.:

Let's say the bubble deflates. For those that have experience when that happens, what happens to rents historically?

I don't think we will have the same massive mortgage defaults as mid last decade, but did people experienced declining rents then? When DO rents go down?

Our rents actually accelerated. The damaged housing market put so many new tenants into the field, that it was like a bidding war.

Marco G.

Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes

10y

Originally posted by @Douglass Benson:

Originally posted by @Marco G.:

Let's say the bubble deflates. For those that have experience when that happens, what happens to rents historically?

I don't think we will have the same massive mortgage defaults as mid last decade, but did people experienced declining rents then? When DO rents go down?

Our rents actually accelerated. The damaged housing market put so many new tenants into the field, that it was like a bidding war.

Helpful, thanks for sharing your experiences. I own duplexes exclusively, in B and C neighborhoods. Have had good success increasing rents past few years, no intent to sell in the near term. If/when mortgage rates drift up, I don't see it affecting my tenant pool in any way. Just gotta hope the neighborhood continues to be developed. We have a new mass transit stop within a few miles coming online within the next year that I'm hoping will lead to additional commercial development!

Amber Flores

Orange, CA · Member since 2015 · 9 posts · 1 vote

10y

Hello All,

I am a newbie investor who is following this topic very closely. I am working on financing for my first deal and getting very close to being able to make an offer. My concern is if we see a dip in the market this year, it won't be about the prices of rent so much as it will be about the possible deals we may see. I don't want to get in right before prices or values decrease. Many say this will be around the presidential election. Any thoughts??

Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes

10y

Here's a curve ball for everyone, and one that no one has ever experienced. A global deflation in currency.

A weak dollar, means prices and wages come down. Rents would follow, I imagine.

Cal C.

Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes

10y

Originally posted by @Marco G.:

Let's say the bubble deflates. For those that have experience when that happens, what happens to rents historically?

I don't think we will have the same massive mortgage defaults as mid last decade, but did people experienced declining rents then? When DO rents go down?

My rents went down 20% or more. For my office building rents are down 40% still.

James B.Pro Member

Investor · Monterey Area, CA · Member since 2011 · 150 posts · 81 votes

10y

@Brian Lacey

With deflation, interest rates, cap ex, and other costs should drop along with rents, no?

Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes

10y

Originally posted by @James B.:

@Brian Lacey

With deflation, interest rates, cap ex, and other costs should drop along with rents, no?

Expenses would drop along with income (rent), but that income would decrease. I would think everything would still be proportionate. All of a sudden, some properties may not be able to cash flow because of the decrease in rent, but there P&I would remain the same, but taxes who knows, & insurance would decrease as well.

Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes

10y

@James B. mind you, this has never happened so it's all heresay & theory.

In a negative rate interest environment, a 30 fixed year ought to be around 2-2.5 if not lower. The Fed was at 0-.25%, & interest was around 3-4%. But again, the US never has had NIRP, or a deflationary cycle/readjustment, so who knows all this will play out.

One thing is for certain don't underestimate the government's & Fed's ability to keep this nonsense going. They'll inject more money into the economy, no different than giving a dying drug addict more drugs to keep them alive.

3 Reply

James B.Pro Member

Investor · Monterey Area, CA · Member since 2011 · 150 posts · 81 votes

10y

Originally posted by @Brian Lacey:

@James B. mind you, this has never happened so it's all heresay & theory.

In a negative rate interest environment, a 30 fixed year ought to be around 2-2.5 if not lower. The Fed was at 0-.25%, & interest was around 3-4%. But again, the US never has had NIRP, or a deflationary cycle/readjustment, so who knows all this will play out.

One thing is for certain don't underestimate the government's & Fed's ability to keep this nonsense going. They'll inject more money into the economy, no different than giving a dying drug addict more drugs to keep them alive.

I agree, these are interesting times when it comes to monetary and fiscal policy, which affects us as investors. Really, it's is just a confidence game- I look at the US Dollar and it has serious flaws. Who knows how long the dollar will be the world reserve currency? Will there be a viable gold-backed cryptocurrency, a SDR (Special Drawing Right), "North American Currency" as the BRICS nations, Asians and Europeans have their own?

How will our properties be valued?

Too many possibilities to consider! Jim Rickards, and G. Edward Griffin are two great authors on these subjects.

Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes

10y

Originally posted by @James B.:

Originally posted by @Brian Lacey:

@James B. mind you, this has never happened so it's all heresay & theory.

In a negative rate interest environment, a 30 fixed year ought to be around 2-2.5 if not lower. The Fed was at 0-.25%, & interest was around 3-4%. But again, the US never has had NIRP, or a deflationary cycle/readjustment, so who knows all this will play out.

One thing is for certain don't underestimate the government's & Fed's ability to keep this nonsense going. They'll inject more money into the economy, no different than giving a dying drug addict more drugs to keep them alive.

I agree, these are interesting times when it comes to monetary and fiscal policy, which affects us as investors. Really, it's is just a confidence game- I look at the US Dollar and it has serious flaws. Who knows how long the dollar will be the world reserve currency? Will there be a viable gold-backed cryptocurrency, a SDR (Special Drawing Right), "North American Currency" as the BRICS nations, Asians and Europeans have their own?

How will our properties be valued?

Too many possibilities to consider! Jim Rickards, and G. Edward Griffin are two great authors on these subjects.

Fiat currency is here to stay. Countries have found that they are way too easy, and addictive. Just an instant boom to a country's economy.

I get my daily Rickards email haha. Peter Schiff is a good macro US guy as well. I'm a contrarian, so all this fits my own personal beliefs, which I have a feeling most of us on this thread are in line with those sentiments or have that gut feeling it's the case.

All fun to watch. Real Estate been around for quite some time, so it's not going anywhere.

Jeff Robert

OP

Real Estate Agent · Grand Rapids, MI · Member since 2016 · 127 posts · 56 votes

10y

in theory, yes, although those types of expenses tend to lag in adjustment.

Billy Smith

Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes

10y

The builders are not keeping pace for demand .Foreclosure were abundant in some areas but they are drying up. The builders need to start building again .The SPEC builders were rolled up and sent packing .

We all see the news SF have sky high prices but with silicon valley still cranking our high paying tech jobs that will keep prices firm .

I watch the financial news all the time ,I play metals small play , I am making money again ye haw!I like index funds Vanguard best way to play the market super cheap index beats all managed funds over a decade .

So there are national aspects to the housing and locale ones too.The madness of loaning money to any beating heart is not there this time.

I see the rest of the western world has negative rates ,with Japan .

All my rents are up sharply here doing very well wish I had more!