Upcoming Housing Crash?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
5y

2015 - Is this a bubble? https://www.biggerpockets.com/...

2016 - Thoughts on the next housing crash https://www.biggerpockets.com/...

2017 - Housing Bubble Crash https://www.biggerpockets.com/...

2018 - Housing Crash in 2018/2019 https://www.biggerpockets.com/...

2019 - Are we heading into the next real estate market housing crash https://www.biggerpockets.com/...

2020 - Housing Market Crash https://www.biggerpockets.com/...

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  • Elizabeth Cook
    Member since 2021 · 4 posts · 7 votes
    5y

    I agree with Ken about the fundamentals. He called the crash awhile ago, but didn't foresee the Fed intervention. Like you, I believe that intervention will extend this strange bubble for a longer time than logic suggests it could ever go on.

    However, I don’t see a crash as inevitable, depending on how the bailout is handled. What if the amounts overdue on mortgages were simply folded into the mortgages, and overdue rents were offset by grants? Legislature could intervene and give us a soft landing (which would result in massive inflation, but that’s a different issue.)

    5Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y
    Originally posted by @Angelique F.:
    Originally posted by @Taylor L.:
    Originally posted by @Angelique F.:

    Everything he said makes perfectly good sense to me and based on his predictions its probably best to wait until about 4th quarter of 2021 to buy anything?

    I promise you Ken McElroy is not sitting on the sidelines until the end of the year.

    But wont prices be elevated until then?

    I would not bank on a Great Recession style collapse and I doubt very, very, very highly that Ken is. Banks have better systems for dealing with foreclosures now than they did during the GR. The Federal Government and GSEs are going to do everything in their power to prevent a price crash due to a foreclosure wave.

    The GR was caused by the fall of real estate prices and the financial system's inability to deal with that, whereas this time around we are dealing with a worldwide pandemic that threw everything into a tailspin. 

    The reason it's important to push back on some of the doom and gloom is that too many people use the anticipation of a crash to justify sitting out. People have been waiting for the next crash since prices started to recover after the last one. Buy for cash flow, do not over leverage, and have adequate cash reserves.

    8Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    A few stats for people.

    80% of people who have filed for forebearance, are actually making their monthly payments.

    National Multifamily Housing Council just released data that by the 6th of the month in February (after the 5th is generally considered late) 79.2% of renters have paid their rent. This is only 1.9% lower than Feb 2020, prior to the start of covid. 

    Nearly every one that tracks this type of data......collections are only slightly below normal values. But that doesnt make a good headline "Rent Collections on Par with Normal Times." Instead they focus on the very few people impacted who make the situation seem dire. 

    Like Mark Twain said....there are lies, then there are damned lies, then there are statistics. 

    Digging deeper than just how many forebearances there are like how many continue to pay even inspite of forebearance, or digging deeperel than just rent collections, but comparing them to normalized numbers is important to understand the actual effect, and thus realistic likely outcomes is important. 

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  • Dan Rowley
    Investor · Cary, NC · Member since 2012 · 214 posts · 194 votes
    5y

    Ken McElroy is no dummy.  He's invested in thousands of units over many year AND he has been through up and down market cycles.   Who can really predict what's going to happen with accuracy as these are unprecedented times.  If you've been investing let's say just within the last 5-7 years and have only seen things going up, well.... that won't always happen.  Even if you are bullish, it can benefit you to pay attention to other voices and other ideas especially from folks with experience.

    2Reply
  • Lam N.
    Rental Property Investor · Troy · Member since 2017 · 175 posts · 271 votes
    5y

    This is what I have learned from my life experience:

    Experts are great at analyzing the past and evaluate the present.  They are lousy at predicting the future.  I wouldn't say they are always wrong about predicting the future, but they are damn near it.

    3Reply
  • Account Closed
    Rental Property Investor · San Antonio, TX · Member since 2021 · 15 posts · 7 votes
    5y

    As a newbie investor I’m putting effort into understanding near term (how do I finance this deal?) and now longer term like bubbles and busts. How do these trends affect your investment

    What strategy do you use in a seller’s market? Same question in a buyer’s market? Flip,rent, hold for equity?

    1Reply
  • Greg Jennings
    Member since 2021 · 5 posts · 3 votes
    5y

    I think what we are seeing is asset hyperinflation which is a symptom of our current financial system. RE is experiencing it but look outside of RE and it is happening (stocks/tech), things are just becoming overvalued. We are printing money like it’s nothing. In 2007/08 congress passed TARP and it was $700billion, and it was a huge deal. We are passing trillion dollar bills every other week now and nobody is thinking twice about it! I don’t see how there is specifically a real estate bubble or how this should change your investing strategies. It will be interesting to see what happens to the US dollar in the next 5-10years though. Anyone else have input on this idea?

    3Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    5y

    I am curious what people mean by "crash" - do you mean a full on tail spin like 2008 or just a correction? 

    Also, the govt is pumping a LOT of money into LLs hands by paying for back rent for small LLs....  those LLs will get apprx 80% of back rent  - now this wont help all LLs but it will help a portion of the worst hit.    Also, mortgage holders can just put the missed payments (if any are missed) at the back of the loan.  These two things will help stabilize the market IMO. 

    Also, just remember that people make money when you watch their youtube content....  so this guy is banking on people watching his vids so IMO will use dramatic language to help pull in viewers :) 

    3Reply
  • Jennie Berger
    Lender · Chicago IL · Member since 2020 · 357 posts · 229 votes
    5y

    @Taylor L. Agreed. 🎯

    1Reply
  • Brett Lee
    Flipper/Rehabber · Member since 2018 · 102 posts · 103 votes
    5y

    @Minna Reid

    The housing market will tank at some point. Its not if...its when.

    People have incorrectly predicted when it would go down in the past and as a result people think talk of a downturn will never happen.

    Invest in real estate but don't go crazy speculating. In my market homes have gone from 350k to over 500k in 2 years. That is crazy! Markets historically always go up and down...not just up up up...

    I am not an expert but my couple of simple thoughts are:

    1. Don't buy a home that couldn't rent for the mortgage payment (primary or rental).

    2. Don't overextend finances. Make sure you have an emergency fund just in case... If you don't need it during a national crisis use that money to buy for pennies on the dollar

    5Reply
  • Julie DeWolfe Arroyo
    Realtor · southern Idaho · Member since 2020 · 81 posts · 50 votes
    5y

    @Minna Reid specific markets may dip, some may crumble but others are growing at record rates. Diversify your investments to ride whatever wave you get. Commodities are always the better investment, housing being one of them. Alcohol, petrol, food, transportation... stuff you know that people will always need. Fear and panic will destabilize you, other investors will devour what fear sellers dump.

    2Reply
  • David Thomas
    Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
    5y

    @Jonathan Mueller exactly my thoughts on forbearance! Unemployment continues to decline although it’s not great, and everyone forecasting doom and gloom is assuming that everyone on forbearance can’t pay and will be foreclosed on. There’s no way - IMO.

    This reminds me of Harry Dent who’s been forecasting market crashes for the last 20 years and gets it right about once every 10, based on cycles LOL.

    A lot of it’s click bait on YouTube and opinions. No one knows what’s going to happen.., including all of us here.

    0Reply
  • Minna Reid
    OP
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    5y

    @Julie DeWolfe Arroyo Not sure what fear and panic you are referencing. A market correction and more inventory coming to market will be a good thing for everyone except those betting on endless appreciation. The writings been on the wall for awhile now.

    2Reply
  • David Thomas
    Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
    5y

    @Minna Reid we would have to essentially double the inventory in most markets to be just at a BALANCED market inventory level. Specifically most markets are 40 to 60% below inventory from prior year, so there’s certainly no oversupply. That means another 40 to 50% on top of that, to be a buyers market? I definitely believe we’re going to slow down significantly at some point due to the pure appreciation that’s pricing a lot of people out ...but not a crash.

    I’ll publicize my YouTube channel thumbnails with “market crash” all day if I can get tens of thousands of YouTube clicks. But I don’t do it because I don’t feel its honest or accurate based on the fundamentals of today Or this year

    1Reply
  • Minna Reid
    OP
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    5y

    @David Thomas I guess it depends on what your definition of crash is. I do believe some areas of the country will see buyers markets and value declines. Others will just soften. 

    1Reply
  • David Thomas
    Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
    5y

    For sure- I agree 100%

    0Reply
  • Minna Reid
    OP
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    5y

    @Russell Brazil 80% of the people in forbearance are actually making their payments on time? That doesn't sound right. Can you share the source for this info? 

    0Reply
  • Riley Schaefer
    Bismarck, ND · Member since 2017 · 56 posts · 201 votes
    5y

    Seems like I've seen this same question asked about every three months over the past 5 years...

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    5y

    Search the forums and you will likely find 10,000 posts predicting a crash over the past 7 years.  "Going to be a crash!"  "No, not going to be a crash!"  Nobody changes their minds and nothing is accomplished.  I only recall one post where a member walked the talk and sold their portfolio.  Zero posts where the members shorted the market.  Zero!

    The important question - what do we do to prepare our portfolios for all market conditions?  How do we make our portfolios anti-fragile?

    Pivot with conditions, sell the marginal properties, keep the good ones, diversify, stick to our criteria on new acquisitions, and sleep well at night.  And put lots of opportunities through the funnel.

    Life is played on the field, not on the sidelines.

    2Reply
  • Jonathan StonePro Member
    Rental Property Investor · Camas, WA · Member since 2020 · 284 posts · 202 votes
    5y

    @Minna Reid

    I have also watched this video. It discusses some of the metrics to point to a conclusion which is fine and that dude knows way more about real estate than I do, no doubt. But as others have pointed out none of us can predict the future.

    For my $0.02, I feel there is an increase in inflationary rates as others have pointed out. My belief is that upward pressure from inflation prevents anything more than a slight pullback in house prices and likely means no dip in rents. But again I don’t have a crystal ball either. So I go with my gut.

    1Reply
  • Justin Polston
    Property Manager · Shelbyville, IN · Member since 2014 · 303 posts · 161 votes
    5y

    @Minna Reid

    I'm not the brightest crayon in the box by any means, but I did pick up a minor in Econ from IUB, and I think about this stuff A LOT. I'm with all you guys but you have to think for yourselves.

    My suggestions/thoughts for those that truly are scared even though nobody asked:

    1. Pick up those homes under $200k. Not the $400k+. That'll hedge against your exposure IF something crashes tomorrow. In the great recession those borrowers that were extending themselves were the first to go.

    2. The stock market is way more volatile at a way faster clip. So when stocks correct (like they almost did this week but managed to avoid correction territory) keep your head on a swivel. Real estate is so slow though it's hard to notice until you have that "hindsight is 20/20" feeling.

    3. Think super simple here, like supply and demand simple. So we have pinched inventory for an extended period of time. Prices go up. Eventually they'll cap out like they have down south and out west. People only earn so much you know? So watch out for more inventory steadily rolling out onto the market, especially the markets you are most familiar with and from which you can draw conclusions for yourself. More inventory and options for buyers will depress the pressure on prices.

    4. What we are literally in the middle of is a leveling off of prices. Probably through May. So until wage inflation starts up this summer with everything opening back up, prices will hover where they are, then fire back up most likely I think. Probably specific markets will fare better than others, like NYC exodus.

    5. Inflation IS happening. Has been all 2020 even if the Fed didn't want to say so. More stimulus just passed, more liquid capital. What are you doing with yours? I'm dumping it into real estate, or stocks, some kind of investment because I don't want my cash a part of some vicious cycle of inflation.

    6.Borrower's rates are increasing, so people on the fence about buying because prices are "too high" will probably resort to consumerism and that immediate gratification of something new by making their next home purchase finally, or maybe beginning their a new build. Borrowing power is a huge deal.

    7. You'll be kicking yourself for nothing buying all the cheap debt you could get your hands on when interest rates are 6 and 8%. So buy now, knowing rent also is subject to inflation.

    8. Leading me to biggest thing here. TVM. If you can wrap your head around debt, inflation, and TVM, you'll realize that all you need to do is jump in (hard part), and manage your assets wisely and critically, which is the easy part.

    Idk why I'm stopping at 8 but I think that's enough for now? Again just my opinion not backing it with anything really except my perception and being able to calculate risk.

    3Reply
  • David Thomas
    Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
    5y

    Another thing that I haven’t seen mentioned here. Back in 2004-2006 lenders were practically throwing money at anyone who wanted it. I can’t tell you how many advertisements I saw daily - many 1/2 or full pages ads in local papers - touting 100% and up to 110% loans with no doc/no income verification. Practically Anyone could buy a home then. When you can’t afford it because you weren’t qualified, it comes back to bite you. This among other factors lead to speculation and over purchasing, hence the bust.

    We are not seeing that today.

    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y
    Originally posted by @Minna Reid:

    @Russell Brazil 80% of the people in forbearance are actually making their payments on time? That doesn't sound right. Can you share the source for this info? 

    It came up in a Zoom meeting I was on recently, Ive been in 3 similar meetings over the past week, I cant recall which one it was with, but it was either with NAR's Conventional Financing Policy Committee, a call with the Mortgage Bankers Association, or a call with Maryland Legislatures.

    Only about 6% of mortgages are even in forebearances, and roughly 4 out of 5 of those people are paying, and took forebearance as a precautionary measure.  This is pretty evident in the mortgage bond market, as those bonds have gained in value with almost none of them being affected by non-payment. 

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    0Reply
  • Brett Hennessy
    Huntsville, AL · Member since 2015 · 34 posts · 27 votes
    5y

    @Greg Jennings

    Check out the book ‘The Creature From Jekyll Island’ everything you never knew you never knew about the dollar.

    1Reply
  • Ben McMahonPro Member
    Investor · San Diego CA · Member since 2014 · 341 posts · 139 votes
    5y

    Just watched the video.  Agree with a lot of sentiments about every year a crash is predicted.  

    I think a good portion of those in forbearance chose to enter into it as a precautionary measure.  People were scared in 2020 and decided it was safer to hold back paying their mortgages.  No affect on your credit, and its cheaper than a credit card that you don't have to pay back until the end of your mortgage loan. 

    I do think listings and home sales will increase this spring and summer simply because of the increased price points.  Problem is that they have nowhere to go.  Which is why a lot of people haven't sold their homes yet.  

    Building material is way way way up.  That supply at some point comes back to earth with the price of lumber and building materials being reduced.

    It does seem plausible that we have a longer term change in demand simply because people can work from home.  The exodus from the big city apartments to the suburbs makes a lot of sense.  Theres been a lag in that jump for millennials to be home owners for a variety of reasons, but now seems like a good time for them all to make the move.  Making that leap at the same time is people paranoid of big city crowds.  So the shift makes sense to me, not the crash.

    But I also have no idea what I'm talking about.  I suppose if any of us knew we would have given a years worth of  Hand Sanitizer and toilet paper as Christmas gifts in 2019.  

    1Reply
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