HOUSING PRICES WILL SLIDE!

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https://apple.news/Aek6dXXKpQ8a1WPan_PB9Pg

I keep feeling there will be greater movement in housing pricing than previously thought. Blackstone has made the move to return to the SFR arena with its 300 million investment in Tricon, Invitation is in the hunt for GC's, and we are told that there will be buying from several other massive SFR groups. They have an immense amount of cash but have not been buying much over the last 2-3 years. It seems to me they are indicating that they see a shift that is substantial coming. The statistics of foreclosure activity are suppressed by two things, moratoriums and part time courthouses. Given this reality we have no clue what the true activity of evictions and foreclosures is supposed to be now or will be in the future. The extension of eviction moratoriums put a big squeeze on smaller landlords and thus far has provided no relief to them. This also seems to play into the hands of the larger landlords that can wait it out and could potentially absorb these smaller landlords at discounts. The news is still bullish on the SFR market which is fair longer term but I truly feel there will be pain in the near term.

That's nice.   In Feb 20, if I told you we'd have 25% unemployment and business shutdowns for six months - Would you've sold then?

Look at the price of SFRs now.

I'm not saying pricing's not going to get hit, but trying to be the Great Karnak and say this will happen and to what degree is a fool's errand.

Originally posted by @Brent Zande :

https://apple.news/Aek6dXXKpQ8a1WPan_PB9Pg

I keep feeling there will be greater movement in housing pricing than previously thought. Blackstone has made the move to return to the SFR arena with its 300 million investment in Tricon, Invitation is in the hunt for GC's, and we are told that there will be buying from several other massive SFR groups. They have an immense amount of cash but have not been buying much over the last 2-3 years. It seems to me they are indicating that they see a shift that is substantial coming. The statistics of foreclosure activity are suppressed by two things, moratoriums and part time courthouses. Given this reality we have no clue what the true activity of evictions and foreclosures is supposed to be now or will be in the future. The extension of eviction moratoriums put a big squeeze on smaller landlords and thus far has provided no relief to them. This also seems to play into the hands of the larger landlords that can wait it out and could potentially absorb these smaller landlords at discounts. The news is still bullish on the SFR market which is fair longer term but I truly feel there will be pain in the near term.

 Good to know. What month?

For what ever reason here on BP at least the landlords that will chime in..  I would say over 90% of them report better than normal collections.. or perfect collections..  It could be those that are not doing well just dont post..

from my perspective there will be niches that have a lot of stress.. small commerical if the stores that closed dont get filled right away with new folks opening a new business. And or New chef's take over Resturants that close

I hear you on all of the positive statistics but I still believe that following the big money movement is the smarter play.  I did unload everything I could in February and I still feel it was the right move.  Sitting on cash and looking for the opportunity to deploy feels right.

Originally posted by @Brent Zande :

I hear you on all of the positive statistics but I still believe that following the big money movement is the smarter play.  I did unload everything I could in February and I still feel it was the right move.  Sitting on cash and looking for the opportunity to deploy feels right.

I bet one of the plays for the big money is going to be buying the paper.. then doing their workouts..

for sure when foreclosures start since its been basically a one year moratorium on them.. there are going to be more than normal.

But as I have posted in other threads.. a Mortgage delinquency in May might not come to market Ever or could be at least 18 months to 2 years down the track.

By Law Lenders must give a 90 day notice before they even start foreclosure.. So when i look at from a lenders perspective it kind of goes like this.

missed payment and now the missed payments letters start to go out you know CALL us etc.. that usually will go on for 3 months to 6 months and some times longer.. then they have to give the 90 day notice then another month after that to get the law firm or trustee service engaged and file the default then you have the time it takes by law anywhere from 90 days in Say GA to 3 to 5 years in New York . So in my mind May 2020 new defaults if the borrowers do nothing might come to market in very end of 2021 or into 2022 or later.

In the meantime they are hounded by direct mail wholesalers we buy your house.. and of course those guys will pick off a few.. BK attorneys will be contacting them.. realtors  Mortgage lenders.. so at the end of the day what starts at the wide part of the funnel and actually goes to sale comes out a small hole at the bottom.. that's kind of my thought.  Where as I think the opp to buy the paper may be more attractive to the big money.

 

@Brent Zande

Kudos to you for taking some action on what you think.  I’m staying pat for now and have even looked at places to purchase.  I am very concerned about a big dip coming however I am always concerned about a dip.  When I find a deal I think is good I buy it so far so good I’d say.  But the guys were in position 8 years ago or so just killed it.  I’m just not smart enough to figure out when the market is going to drop.  

It's supply and demand. Prices aren't going to automatically drop. 

Sold my SFR yesterday which is located in Los Angeles and got stupid money for it. Interest rates are low and banks are lending so I don't see hot markets with low inventory changing.

Now... I can see MF dropping some because they've been selling for ridiculous amounts in a lot of markets - and on a broad US basis as a whole I feel the crazy MF sales have been more drastic than SF.

Our typical inventory of 8 flip houses is down to only 2 houses. One of the 2 is going on the MLS next week. The COVID has reduced our ability to buy to maintain inventory and therefore cut our business volume. However, the 9 houses we have sold had multiple offers in less than a week and sold for better than typical margins. So we have less exposure and a bunch of cash, but not by choice.

On the rental side I had 4 houses come available to either re-rent or sale.  I decided not to liquidate, but continue leasing them.  All leased with only 1 to 2 weeks vacancy.  I have not yet lost any rent to COVID.   So landlording has no yet collapsed yet.  

I may regret not selling the 4 rentals but replacing them would be very difficult and a lot of work, and the tax due is not attractive.

@Brent Zande

I am a loan servicer in this COVID pandemic issuing forbearances and I see the amount of distress many home owners are facing with keeping the house.

Forbearances right now are being extended til even may of next year. Within a year or so we should see many more foreclosures that are currently being prevented by the cares act forbearance program.

I little more thought than foreclosures=lower prices is needed. 

1. There is no such thing as a US using market, the largest chunks you can think of these in is the MSA level. San Francisco will have much different supply and demand characteristics than Des Monies. 

2. The foreclosures stem from people not being able to pay their mortgage, not being able to pay the mortgage comes from not having a steady source of income. That will impact the retail industry more than the financial services industry. Different areas have varying levels of susceptibility to COVID.

3. Combining 1 and 2 neck down where the foreclosures are most likely. Adding what @Jay Hinrichs said about the time line for these to hit the market, amount of capital chasing yield, and existing supply characteristic in the market will impact if the foreclosures even impact the market. 

@Bill F.  If we sector the US Housing market and say that it will not be equally affected by the coming events it is true as you say there is no US Housing market but I still think that, just as in the stock market, it will be subject to the tides.  Yes each market will be different and each sector  so lets look at what Blackstone did.  They did not bet on the company they started, Invitation, they bet on Tricon.  I think this is significant because Tricon is focused on a more workforce housing base in lieu of Invitation which is up about 2-3 notches.  The distress is likely to be in this workforce housing and the opportunity will be in this housing as well.  I also think @Jay Hinrichs could be right that they could buy the paper, but this is not their standard MO and they did not do this in the depths of the crash.  Third party entities generally bought these notes and attempted workouts then handed these groups the stuff they could not work out.  

In 55 days we will see change as we will early next year.

Have your G C  (General Contractor) in your hip pocket !!

Those who have a great relationship and pay him well will have a great advantage!

Always seem to fit those investors that treat me great in my schedule .

Wholesalers, its pretty tough right now, need to think of a different way.

Originally posted by @Brent Zande :

@Bill F.  If we sector the US Housing market and say that it will not be equally affected by the coming events it is true as you say there is no US Housing market but I still think that, just as in the stock market, it will be subject to the tides.  Yes each market will be different and each sector  so lets look at what Blackstone did.  They did not bet on the company they started, Invitation, they bet on Tricon.  I think this is significant because Tricon is focused on a more workforce housing base in lieu of Invitation which is up about 2-3 notches.  The distress is likely to be in this workforce housing and the opportunity will be in this housing as well.  I also think @Jay Hinrichs could be right that they could buy the paper, but this is not their standard MO and they did not do this in the depths of the crash.  Third party entities generally bought these notes and attempted workouts then handed these groups the stuff they could not work out.  

on the paper I could be wrong.. but I think the tranches at the beginning are so large in dollar amounts only the hedge funds or multi billion dollar investors get a swing at those.. then they peel off to the next level. and by the time it gets down to the smaller players who might buy at 1k to 20k tapes its gone through a few hands.. ???? I just kind of stay in my lane.. and my lane right now shows investors buying rental props that meet the BP 1% rule en mass record sales for many of those firms.. And out here on the west coast its very hot ( no pun intended) on new construction .. if you take the little suburb we have a community in that we just started ( 90 homes) its 20k people 20m minutes ( in good commute times) to down town Portlandia.. and 20 minutes to the state Capital and 40 minutes to all the major employers NIke Intel health field.. at anyone time there are less than 60 new homes on the market with 40 of those going pending within 10 days. So for those that are still working or retired to semi retired ( which seems to be our demographic in this community) sales are very brisk.. We are not getting bidding wars but we do get full price at what we list for .. and are selling the homes pre sale IE before they are even framed ( which can be tough in some market conditions).. Interest rates do play a large part but of the 8 sales we have made in our first 60 days I think 3 are cash or the folks could pay cash.. Price points 500k to 675k is our product starter housing is generally townhomes and under 400k. So thats just a snippet of what we are Actually experiencing at this time.

 

@Jay Hinrichs That is awesome!  I know I am a little bit of an alarmist, got caught in 2008 with my neck way out and do not want to repeat.  The economy is a big ship and it will turn slowly so we should all have time to make our plays if we keep watching it closely.

Originally posted by @Brent Zande :

@Jay Hinrichs That is awesome!  I know I am a little bit of an alarmist, got caught in 2008 with my neck way out and do not want to repeat.  The economy is a big ship and it will turn slowly so we should all have time to make our plays if we keep watching it closely.

I was right there with you in 08.. we got our clocks cleaned.. but as you know in our business of developing.. it takes so much time to buy then get entitlements and then build the infrastructure many times your 2 to 3 years in before you even go vertical.. I think how we are now mitigating our risks. is its not pre 08 were i would have started 5 specs a month and kept going.. with NO pre sales.. now we have pre sales buyers have large non refundable deposits once permits are issued and right now not doing more than 5 to 8 specs at one time.. So if I do have to hunker down I am not sitting on a ton of inventory.. And I have a bank that I have dealt with for 2 decades so unless something totally radical happened if I had to stop they would let me term these out and rent them until recovery.. plus we went cash heavy up front and have no debt on the dirt.. Which even 4 years ago I would have taken a 70% dirt advance and really juiced our return numbers kind of like syndicators do with debt on their projects as opposed to raising all cash to buy apartments.. I did learn something back in 08.. And it is a little wild right now with the new crop of investor who started in the last 10 years that have the refi till you die expand at all cost get more doors and max leverage mind set..

 

I always find it funny how people see what they want to see, or expect to see.

I read the article that you linked to, and what I saw was: 7% of all active mortgages are in a private sector or government forbearance program. That means that 93% of all active mortgages are not in any kind of government or private sector forbearance program. That likely means that pretty much all of those mortgages - 93% - are being paid on a regular basis, since otherwise they would likely take advantage of the same forbearance program. If we assumed the absolute worst - that half of the people in the forbearance programs would be foreclosed upon - that would still mean that 96-97% of all mortgages are perfectly solvent.

Real estate and finance is one of the few places that doom and gloom prognosticators can claim with a straight face that 3% waste and loss is the end of the world. Most businesses operate with 5% or more waste and loss just built straight into their model and love it if they get down to 3%.

To me: nothing to see here, folks. Move along. I would feel dumber telling someone to sit on a pile of cash being eaten by inflation than I would telling them to get a decent rental property and hold on to it. I'm not saying don't have any liquidity but I could send a list of books since the early 70's that have predicted the end of times for us, and we're still chugging along.

Fed Chairman is now ok with letting inflation rise while keeping interest rates low. To me, this will help housing prices as high inflation will allow house prices to rise while low interest rates will keep mortgage costs cheap. As a landlord, I loved reading this article.

https://www.cnbc.com/2020/08/27/powell-announces-new-fed-approach-to-inflation-that-could-keep-rates-lower-for-longer.html

Originally posted by @Brent Zande :

@Jay Hinrichs That is awesome!  I know I am a little bit of an alarmist, got caught in 2008 with my neck way out and do not want to repeat.  The economy is a big ship and it will turn slowly so we should all have time to make our plays if we keep watching it closely.

I think you are right, the real estate sector changes slowly, but will be affected by the economic crisis. I am very surprised that there are people purchasing property before the US election, that could mean changes to taxation for instance.