Is the real estate bubble burst soon?
Rental Property Investor · Boca Raton, FL · Member since 2020 · 25 posts · 17 votes
Is the real estate bubble burst soon?
Most Popular Reply
Property Manager · Member since 2018 · 174 posts · 185 votes
6yHi @Leatha this is a great question. And one that should be answered in a couple parts. Last year many were predicting some level of real estate shift. If you look at history trends we are overdo for a dip. In a buyers market you normally see more than 7 months of real estate inventory. For a Sellers Market you see less than 5 months of inventory. A neutral market is around 5-7 months of inventory. Currently, (at least in Maryland) our inventory is 1.9 months. This is an astounding number. There are more people looking to buy than there are houses for sale. If you look at these numbers alone, we are definitely in a sellers market. Houses are going for higher than list price and selling in record time.
However, to add in the factor of Covid, AND the fact that we are overdo for a housing dip, it will be interesting to see what happens in the next several months. This is the time that the lump payments will be due on mortgages that were paused during Covid. That means people will need to come up with the FULL amount due from the past 3-4 months of payments (unless they worked out a payment plan with their lender). If people haven't properly saved, this could cause a large number of properties to go into delinquency and possibly foreclosure.
The one thing I know for sure, is that when the housing market takes a dip, even during the recession of 2008, our property management/investment company did well. And the reason for that is people still need a place to live. So if properties are foreclosed, and those owners need to find somewhere to live, they will be looking at rentals. In my opinion, if you aren't on the high end or low end of the rental spectrum, you will fare well. On the high end, those tenants may choose to downsize, and on the low end, those tenants may move in with family/friends. In the middle is where you will pull the greatest target market for rental prospects.
If you properly plan for the next dip, you will be ready to invest in additional rental properties, and find amazing deals!
64 Replies
- Property Manager · Member since 2018 · 174 posts · 185 votes6y
Hi @Leatha this is a great question. And one that should be answered in a couple parts. Last year many were predicting some level of real estate shift. If you look at history trends we are overdo for a dip. In a buyers market you normally see more than 7 months of real estate inventory. For a Sellers Market you see less than 5 months of inventory. A neutral market is around 5-7 months of inventory. Currently, (at least in Maryland) our inventory is 1.9 months. This is an astounding number. There are more people looking to buy than there are houses for sale. If you look at these numbers alone, we are definitely in a sellers market. Houses are going for higher than list price and selling in record time.
However, to add in the factor of Covid, AND the fact that we are overdo for a housing dip, it will be interesting to see what happens in the next several months. This is the time that the lump payments will be due on mortgages that were paused during Covid. That means people will need to come up with the FULL amount due from the past 3-4 months of payments (unless they worked out a payment plan with their lender). If people haven't properly saved, this could cause a large number of properties to go into delinquency and possibly foreclosure.
The one thing I know for sure, is that when the housing market takes a dip, even during the recession of 2008, our property management/investment company did well. And the reason for that is people still need a place to live. So if properties are foreclosed, and those owners need to find somewhere to live, they will be looking at rentals. In my opinion, if you aren't on the high end or low end of the rental spectrum, you will fare well. On the high end, those tenants may choose to downsize, and on the low end, those tenants may move in with family/friends. In the middle is where you will pull the greatest target market for rental prospects.
If you properly plan for the next dip, you will be ready to invest in additional rental properties, and find amazing deals!
- Rental Property Investor · Boca Raton, FL · Member since 2020 · 25 posts · 17 votes6y
@Jenni Utz
Hello and thank you for the reply. You have actually given me answers to questions I hadn't had time to ask so thank you very much. I appreciate the wisdom. I currently only have one rental and its in that sweet spot I believe. I do very much want to purchase more.
I was a nurse until an auto accident in 2018 that destroyed any hopes of ever practicing again so I must find another avenue of income.
Thank you so very much.
- Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes6y
Originally posted by @Leatha L. Luttrell:
@Jenni Utz
Hello and thank you for the reply. You have actually given me answers to questions I hadn't had time to ask so thank you very much. I appreciate the wisdom. I currently only have one rental and its in that sweet spot I believe. I do very much want to purchase more.
I was a nurse until an auto accident in 2018 that destroyed any hopes of ever practicing again so I must find another avenue of income.
Thank you so very much.
If you're looking at long term investments for cashflow, which it sounds like you are, then I personally wouldn't worry to much about a market dip. While there have been some predictions of a correction, no one expects a repeat of the market crash from the early 2000's. If you have a long term outlook then don't concern yourself with shorter trends.
Good luck!
- Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes6y
Originally posted by @Leatha L. Luttrell:
So I am seeing and hearing a lot of chatter about the coming burst. Do you really think it’s coming soon? If so when? Do you see it affecting Florida terribly?
Are we overdue for a correction if you look at past economic expansion periods versus today....yes. But economies are extremely complex and its anyones guess as to what will happen and when it will happen. If you're plan is to buy and hold long-term, a deal is a deal, no matter what's going on in the background. Its okay to be more aggressive or conservative at times, but that should be part of a larger strategy/context that you can stick with through good and bad cycles.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes6y
It amazes me how much clickbait is out there - "housing crash" get's a lot more clicks than "home sales are 3% up".
I have been an investor for over ten years and work as a broker since 2016. We look at a lot of data at a regular basis and I see the causes and effects on the market, but I struggle with the concept that the real estate market is due or overdue for anything.
The RE market does not know or care how long it has been moving in a certain direction. The concept is from the stock market - after the market has gone up for a long time and shares are expensive compared to earnings it will only take a trigger and people will start selling. Real Estate does not follow the same mechanic. If everyone started selling where would they live?
2008 was a unique event and if you study the data 2000 to 2007 you can see the bubble building very clearly - an abunadance of cheap new construction led to oversupply fueled by extremely scetchy lending.
Even though we started new construction back up in 2017/18 we are still not at former production levels and it will take us about a decade to fill in the void we have from almost ten years of no new construction following the crash of 2008.
Also, real estate is relativley cheap, at least in Milwaukee. Median sales price for existing homes is currently $185,000 - median sales price for new construction is about $550,000. Historically that gap between existing homes and new homes has been about 25% (national average). In the years leading up to 2008 it was much less (new homes were so cheap, why would you buy a used one?) causing more new production and yes, oversupply.
Current situation: we have a supply shortage, intensified by Covid 19 and the lack of sellers, but fundamentally because there are not enough houses. It's like musical chairs - we have more players than chairs, so every month there are people who don't get a house. The 13% unemplyment were not able to supress demand enough to cause a shift - the market is more than hot and very competitive.
That's why I don't think the "market is due". We have seen strong appreciation in Milwaukee over the last years (+8% currently) and until something changes on the supply side we will continue to see prices go up.
- Investor · Gallatin, TN · Member since 2020 · 60 posts · 62 votes6y
I am expecting a rise in foreclosures as forbearing expires. There is about 4-5 months of foreclosures that have been kicked down the road like a tin can. The crap will soon hit the fan. DL an app like Auction.com and click on foreclosures in lower margin of app and then type in county that you are interested in.
- New to Real Estate · Member since 2018 · 38 posts · 23 votes6y
@Leatha L. Luttrell This is an interesting thread to read! Thank you for asking the question, following the discussion.
- New to Real Estate · Member since 2018 · 38 posts · 23 votes6y
@Leatha L. Luttrell This is an interesting thread to read! Thank you for asking the question, following the discussion.
- Member since 2019 · 33 posts · 28 votes6y
Presidential Candidate Biden is proposing eliminating most of the tax breaks for RE investors.
- Rental Property Investor · Boca Raton, FL · Member since 2020 · 25 posts · 17 votes6y
@Marcus Auerbach
Full of some insightful thoughts. Thank you for sharing.
- Rental Property Investor · Boca Raton, FL · Member since 2020 · 25 posts · 17 votes6y
@Esther Min
Thank you very much Esther! I’m always looking to improve my tomorrow’s! What better way than to improve my mind ;-)
- Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes6y
Where is this chatter coming from? RE investors who have been through a few cycles or people who read some clickbait on Yahoo?
I've been hearing predictions for this correction for about 6 years now. Imagine sitting on the sidelines for the last 6 years waiting for prices to drop. Anyone who needs a once in a lifetime 2009 housing crash to be successful in RE should keep their day job.
- New to Real Estate · Leavenworth, KS · Member since 2020 · 9 posts · 4 votes6y
@Marcus Auerbach I appreciate your clear cut response. I'm currently searching for my first house hack, and more than a few people have said that a crash is coming soon so wait to buy. So thank you for clearing that up!
- Real Estate Agent · Greater Tampa Bay · Member since 2017 · 392 posts · 290 votes6y
As Mark Twain said "Buy land — they’re not making any more!"
- Member since 2020 · 201 posts · 118 votes6y
Originally posted by @Leatha L. Luttrell:
So I am seeing and hearing a lot of chatter about the coming burst. Do you really think it’s coming soon? If so when? Do you see it affecting Florida terribly?
Last year I visited 7 different European countries and prices have gone up like crazy in the last few years. Properties cost twice what they did in 2015.
For prices, I had a look at Eurostat, and I think there is a bubble.
- Member since 2020 · 437 posts · 675 votes6y
Let’s see;
Market Headwinds :
1) High unemployment
2) Rising foreclosures
3) Tighter lending standards
4) Devastating impact on single economy cities (college towns, theme park towns, oil towns, resort towns etc)
Market Tailwinds :
1) Stable banking system
2) Functioning mortgage market
3) New household formations - Millennials
4) Strong lending standards practiced post 2008 crash
5) Liquidity Liquidity Liquidity - 6 Trillion printed! That’s a mountain of cash and a lot of that will chase RE.
6) Foreign buyers (mostly big cities)
Based on this I see a correction and not a crash like 2008.
- Specialist · Tulsa, OK · Member since 2014 · 25 posts · 11 votes6y
@Jenni Utz
You raise a valid point about pending foreclosures for people who are currently in forbearance / deferring their loan. However , the foreclosure process, at least in my state , is not a quick process and can easily take 18 months. I don’t see a rush of foreclosed homes coming into the market anytime in 2020, if anything I’d expect prices to settle mid 2021, but until then I’d continue to buy.
- Property Manager · Member since 2018 · 174 posts · 185 votes6y
Originally posted by @Frank S.:
@Jenni Utz
You raise a valid point about pending foreclosures for people who are currently in forbearance / deferring their loan. However , the foreclosure process, at least in my state , is not a quick process and can easily take 18 months. I don’t see a rush of foreclosed homes coming into the market anytime in 2020, if anything I’d expect prices to settle mid 2021, but until then I’d continue to buy.
I completely agree. That was only one of my points, but I definitely will continue to buy now and even during the potential downturn. That is the prime opportunity to pick up great deals.
- 6yKyle JohnsonPro MemberRental Property Investor · El Paso, TX · Member since 2020 · 11 posts · 5 votes
Lots of great information here. I'm very new to the RE Investing world too. I think as long as you use your network and the thousands of investors here willing to help its really fairly safe. Run conservative yet accurate numbers, seek outside perspective and dont be afraid to act. If something safely cash flows and the market turns your flip just became a hold property and build equity through someone paying down your mortgage. I have a LOT to learn but I think sometimes us newbies over analysis and panic at all the things that could go wrong. Look at the best case scenario, and the worst, then realize you will more than likely always come out somewhere in the middle. Good luck! looking forward to others perspectives on the matter.
- Rental Property Investor · Member since 2018 · 40 posts · 17 votes6y
Regarding foreclosures, I think we will see maybe a short term increased due to the foreclosure mortatorium ending and all the bottlenecked foreclosures coming through that were in trouble pre-pandemic. I don't foresee a lot of foreclosures in general though as a result of the forbearances. Once the forbearance has been completed, the delinquency is tacked to the end of the loan under some sort of a Payment Deferral plan (the different investors call them different things...same concept). Its essentially like getting a free loan. If there is an ongoing hardship, there are other options on top of the payment deferral such as deferring a portion and doing a loan mod. In summary, there are strong retention options for borrowers. The real question is if unemployment remains high and the investors don't extend the 12 month forbearance period. That is when we would see sustainable spikes in foreclosures.
- Nashua, NH · Member since 2017 · 66 posts · 58 votes6y
@Leatha L. Luttrell heck no. There are more people then ever interested in real estate. Prices in most markets will double before it bursts.
- 6yAndy EakesPro MemberProperty Manager · San Diego, CA · Member since 2020 · 205 posts · 162 votes
It seems like a lot of people have covered almost everything here, but I think that anytime you base your real estate investing career on things that you're banking on in the future, it is impossible to create a rock solid strategy. And with COVID, we are learning that we are unable to predict the future. I have met with very experienced agents and investors who are unable to predict what is going to happen in the future. The fact that people are missing their mortgages definitely gives investors an idea of what COULD happen, but is no solid indicator that the market will crash any time soon.
Your best bet is formulating a strategy that is going to help you win now and having the awareness to pivot in another direction should the market press for change. There are always going to be good deals in the world, but you may have to work harder to find them right now.
- Member since 2020 · 17 posts · 13 votes6yI think it is more likely that the dollar, banks and the whole economy will crash rather than the real estate market. Real estate will become even more valuable if that happens. huge business loan credit bubble from CLO's that is threatening the stability of the financial system. With more than 10,000 businesses closing and more on the way, the second covid shutdown coming, over 1 million unemployment claims per week with total claims in the last 17 weeks of 51.3 million, and an official unemployment rate of 11% and real unemployment rate somewhere between 20 and 30%, and 4.1 million loans in forbearance = 8.2% of all mortgages, output is 11% lower than December of 2019, plus pending social unrest from either way the election goes, the whole system is unstable. And what about all of the commercial real estate that is vacant, not being paid for, and being destroyed by protesters, and the business that cant operate due to protests. Or who is going to buy all of those bonds produced from all of that money printing. “We may be seeing significant pricing disconnects between the market and economic fundamentals, which could result in sudden and sharp repricing,” Federal Reserve Vice Chairman Randal Quarles. Such factors left central banks with no option other than intervening, he said, speaking in his capacity as chairman of the global Financial Stability Board.
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