Reasons against waiting for home prices to fall
Member since 2022 · 4 posts · 10 votes
Reasons against waiting for home prices to fall
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Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
4yYou do what you want to do. We are always a buyer. We bought property in 1981. We bought property in 2008. For the last 35 years we have averaged buying more than 1 property every month. We don't care if interst rates are low, high, stable or fluctuating. We don't care if if a buyer's market or a seller's market. We are ALWAYS buying. Don't wait to buy real estate; buy real estate and wait.
David Krulac
Bigger Pockets Podcast #82 Guest
28 Replies
People have been sitting on the sidelines waiting for that all the years I've been an investor. Maybe they're right this time, maybe not. I prefer to focus on the business plans of our individual deals rather than try to predict the impact of Fed policies.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes4y
You do what you want to do. We are always a buyer. We bought property in 1981. We bought property in 2008. For the last 35 years we have averaged buying more than 1 property every month. We don't care if interst rates are low, high, stable or fluctuating. We don't care if if a buyer's market or a seller's market. We are ALWAYS buying. Don't wait to buy real estate; buy real estate and wait.
David Krulac
Bigger Pockets Podcast #82 Guest
- 4yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Find a place that works for you and don't look back. Interest rates have been so low for so long that people forget what 'normal' is. Be realistic and base your decisions on facts, not what social media says.
- Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes4y
Im not hopeful on 10-20% appreciation like weve had the last couple of years. And Ive been a little hesitant over the past 3 months, being way more conservative when I analyze something. I believe we will see more of a pullback, were already seeing it a little bit.
I will buy when the deal makes sense, and there isnt a whole lot of sense in my market right now. I cant speak for other areas besides the one I know best, which is about a 30 mile radius from where I live.
Am I waiting for a market crash? No. Im just waiting for a deal that cashflows that I can afford without taking on too much risk. I bought back in May with a 5% rate.
I just posted a thread on this subject. And I have been leaning in the opposite direction lately, I dont know why, just a feeling I guess. I used to be really optimistic and would give people crap for mentioning a pull back, but im honestly leaning in that direction. Everything goes in cycles, I dont care what anyone says.
- Member since 2022 · 1k+ posts · 1k+ votes4y
Aside from interest rates, I'm not sure what other "fundamentals" you are speaking of? Inventory is still low, new building has slowed, lots of investor activity in hot markets, rents going up. I do agree that with the rising rates plus the recent news we should see some cooling off, especially as we go into the fall/winter, but I wouldn't wait too long.
- 4yJames DainardPro MemberReal Estate Broker · Bellevue, WA · Member since 2015 · 415 posts · 1k+ votes
Quote from @Armand Dufrane:
Hi all, after chairman Powells speech yesterday, it is clear that the fed is committed to fighting inflation by raising interest rates and selling bonds. This will have a negative effect on the housing market due to less demand from buyers. We have already seen price declines in many markets all over the country.
Now, I know that the real estate pros say to never try to time the market, however, the fundamentals don't look too great right now and there is a good probability that buyers will be able to buy at lower prices if they wait a bit. I would love to hear from all of you on this forum your arguments for why it is a good or bad idea to wait for home prices to fall.
Thank you!
This is a different question based on if you're renting of if you're an owner already.
If you're renting you should look at the cost of your rent payments combined with whatever you're able to save towards a down payment in addition to that to compare that number to what the asset performance would be if you were to be spending that on a house. Typically, the principal contribution on a loan is greater than what people can save while renting. In this case, it makes sense to buy a house regardless of the interest rates because your real savings rate increase.
If you currently own your home you should weigh your options of getting into another primary. Low-down options are always attractive, especially if you're at an equity position that allows you to cash flow on your current property.
If you're looking for a pure investment property you just need to make sure you have multiple exit strategies with a large enough margin built in to give yourself confidence that you'll be able to get through the deal.
As interest rates rise, less and less investors and buyers are priced out of the market. If you can afford to buy a deal with the current market conditions you'll be competing against a much smaller buying pool than you will if you wait for affordability to increase again. Less competition means more time and access to deals/underwriting and typically leads to being able to snag a better return. Manage your risk, execute on a plan, trust your comps and you'll be ok.
- Member since 2022 · 1k+ posts · 1k+ votes4y
Like everything it depends on your market. If you are still seeing homes go pending quickly, then it's probably for a reason.
- Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes4y
I somewhat agree with the whole "buy real estate and wait" mantra, but I do think right now is a good time to sharpen your underwriting skills and really go in depth on a potential project. For example we have been running our numbers based on market rents staying flat, going down by 5%, going down by 10%,or going down by 15%. Then we are also running numbers at interest rates of 6%, 7%, 8%. Finally we are seeing what the deal looks like if we have 0% appreciation, 5% depreciation, or 10% depreciation. Now this makes it really hard for a deal to pencil out, but when one does we know we are excellent shape for whatever may come.
Hope this helps!
- 4yJohn WilliamsBusiness MemberProperty Manager · Clarksville, TN · Member since 2018 · 443 posts · 210 votes
Be careful when looking at "the market" as a whole. I think the next few years, even if there is a recession, will look a lot different than the last housing crisis. Certain markets may see steep declines, some markets may see slight declines, and others may continue to appreciate! Regardless, there are opportunities in any market cycle if you are savvy and innovate with your investment strategy.
Rent My Home - Property Management4.8217 Reviews - Appraiser · Rosemary Beach, FL · Member since 2009 · 30 posts · 28 votes4y
The market has to come down. The writing is on the wall. By the time most figure out it is declining it's to late to get out in some market, specifically second homes. We are in a recession with high inflation with more coming. They giving out half to a trillion dollars in loan repayment. This will push inflation higher. Look at the 70-90's it is a repeat for the most part. Powell has commited to continued increases in rates. Saw a graph yesterday showing rates going from 5 to 18% in little over a year. Buyers in the second home market in NW Fl have left and gone home. No buyers inventory has tripled in past 90 days. In a recession the last thing you need is a second home. Second car for the kid turning 16 more so. Business has cycles and you need to learn to see them and the indications. Also many say follow your gut. Well my gut said sell the house, buy a rv and travel the country for the next 2 years. Took all my money and putting in short term treasures. I bought a house for 500k and sold 4 years later for 1.5 mil. That opportunity does not hit but a few times in life. Seize the day doesn't means always buy. Most people on here are so leveraged that there is no equity. And that is where the problem lies. Many are not but they have been doing this for many years and can hold out. The ones that can't will collapse like a deck of cards. Big investors have stopped buying with many selling portfolios currently. The housing down turn wills first hit 2nd homes, then as prices decline along with the coming REO's due to high credit cost, ie credit cards, car loans, on the common man. Then banks discount typically 15 to 20% for a quick sale and bam you have a full blown crisis. NON QM loans are drying up. How are you going to refi if interest goes to 9% and you can't find a lender? REO's There was no repercussions from the short sells and reo's in last down turn. So what will stop the guy from paying a mtg on a 500k house when it is worth only 400k and going down. They walked last time and I believe they will run this time sooner. I was shocked went to a little birthday party in 2010 for my granddaughter in Orlando. Variety of neighbors and relatives. Many were talking about the housing along with my son about just giving there 500k houses back to the bank because they were down to 250k. These people made 150to 250k a year in salary's. They could walk across the street and rent a house for less than there pymts. I was saying it will ruin your credit. Over half walked from those houses. I convinced my son to hold on to his house, rent it, and go buy a much bigger house for a bargin. 6 years later he sold both and made a handsome return. Prices are going down in most major markets now. We are at the peak. IF YOU WANT OUT AT THE TOP OF THE MARKET YESTERDAY WAS THE DAY. It is either going up or down and never stays the same for long. It went up, has leveled off and now starting to go down. Housing has become the stock market now. It used to be a investment for the rich, but now everybody sees it as a investment. If you are a investor you need to be following the feds, stock market, bond market and all the financial news you can swallow. Typical middle class neighborhoods hold up the best in downturns. Low end will really crash as well as 2nd homes. My 67 years of age and life experience tells me now is the time to sale not buy.
- Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes4y
Quote from @Armand Dufrane:
Hi all, after chairman Powells speech yesterday, it is clear that the fed is committed to fighting inflation by raising interest rates and selling bonds. This will have a negative effect on the housing market due to less demand from buyers. We have already seen price declines in many markets all over the country.
Now, I know that the real estate pros say to never try to time the market, however, the fundamentals don't look too great right now and there is a good probability that buyers will be able to buy at lower prices if they wait a bit. I would love to hear from all of you on this forum your arguments for why it is a good or bad idea to wait for home prices to fall.
Thank you!
There's a good chance that interest rates will rise and home prices won't drop enough to offset so you could be paying a higher monthly payment in a year than you would be today.
All these people selling their houses sounds like a great time to be a landlord.
If prices drop 25% your payment will be the same at 5% as it would have been at 2.5%.
If you believe the fed when they say they’re going to raise rates or you believe anyone that says we’re living in a time of inflation it’s a better time to be an owner than a renter. Is the plan to wait 2 years and pay $60k in rent, hoping that prices drop more than $60k so you break even, and interest rates go down? What if they don’t?
- Why would the RE vertical in the bigger category of investing be one in which we shouldn't try to time the market? Whether someone is investing in RE, stocks, bonds, fine art, collectables, etc., it seems illogical not to try to time your moves. Of course none of us have a magic 8 ball, but does that mean we shouldn't attempt to look at the economical markers/ conditions? I personally don't listen to anyone who claims that it's always a good time to buy. I highly recommend you continue to look at the economical markers and use common sense. What J Pow said is pretty clear and I think your interpretation is accurate.
Quote from @Armand Dufrane:
Now, I know that the real estate pros say to never try to time the market, however, the fundamentals don't look too great right now and there is a good probability that buyers will be able to buy at lower prices if they wait a bit. I would love to hear from all of you on this forum your arguments for why it is a good or bad idea to wait for home prices to fall.Thank you!
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes4y
There's only a few logical reasons to ever sell an investment:
1. You need the money for something more important (paying your mortgage, hospital bills, etc).
2. You are about to die and want to liquidate holdings for your final expenses or ease of inheritance.
3. You found an investment that you think will provide a better return, more safety, less hassle, or some combo.
4. You believe your investment has reached its financial peak and everyone after you is the next sucker.
As far as investments go, I believe it's always a good time to buy some type of investment. People bandy about RE here as if it's some monolith. It might be a bad time to buy in San Francisco but a good time to buy in Peoria. It might be a bad time to buy multi-family buildings but a good time to buy trailer parks. No different from stocks - when the market is getting beat to death, it's not as if *all* stocks sink - some do quite well in tough market years.
There's too many people that get caught up on assumptions. If the market is saturated where they live and they see days on market increasing or pricing starting to fall, and they hear the same thing is happening in Phoenix and Dallas and Milwaukee, suddenly it's "Look out! the sky is falling!" When "the crash" came in 2007, I lived in one market and worked in another not quite an hour away in a different state. The market I worked in took a beating for a couple of years. The market I lived in didn't even know there had been "a crash".
All real estate is local. When I was in Ohio, our local town market was terribly depressed. 10 miles away a town the same size, same housing stock, was thriving. Why? They had no factories, we had no factories. They had good town leadership and were investing in streets, sidewalks, and housing facade improvements. We were doing nothing. Buyers noticed.
Skyline Properties - Real Estate Investor · Chico, CA · Member since 2016 · 248 posts · 105 votes4yI live in LA and our rent is less than the interest on the loan for our place would be. Landlord has owned it since the 80s and raises it 4% yearly. Neighboring house is for sale $1.25M 😬
Quote from @James Dainard:
Quote from @Armand Dufrane:
Hi all, after chairman Powells speech yesterday, it is clear that the fed is committed to fighting inflation by raising interest rates and selling bonds. This will have a negative effect on the housing market due to less demand from buyers. We have already seen price declines in many markets all over the country.
Now, I know that the real estate pros say to never try to time the market, however, the fundamentals don't look too great right now and there is a good probability that buyers will be able to buy at lower prices if they wait a bit. I would love to hear from all of you on this forum your arguments for why it is a good or bad idea to wait for home prices to fall.
Thank you!
This is a different question based on if you're renting of if you're an owner already.
If you're renting you should look at the cost of your rent payments combined with whatever you're able to save towards a down payment in addition to that to compare that number to what the asset performance would be if you were to be spending that on a house. Typically, the principal contribution on a loan is greater than what people can save while renting. In this case, it makes sense to buy a house regardless of the interest rates because your real savings rate increase.
If you currently own your home you should weigh your options of getting into another primary. Low-down options are always attractive, especially if you're at an equity position that allows you to cash flow on your current property.
If you're looking for a pure investment property you just need to make sure you have multiple exit strategies with a large enough margin built in to give yourself confidence that you'll be able to get through the deal.
As interest rates rise, less and less investors and buyers are priced out of the market. If you can afford to buy a deal with the current market conditions you'll be competing against a much smaller buying pool than you will if you wait for affordability to increase again. Less competition means more time and access to deals/underwriting and typically leads to being able to snag a better return. Manage your risk, execute on a plan, trust your comps and you'll be ok.
We pay $2200
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes4y
As an investor you always buy. As a renter you should buy as soon as you can - wasting another 12x2000 in rent in hoping that you can buy a house cheaper in the future is a bold bet. You might find yourself paying 50k more for the same house next year.
The biggest reason why I think home prices will be higher in 2023 than 2022 is inflation. Real estate has always been a very good hedge against inflation and as the currency is loosing value - even if the asset is flatlining - it goes up measured in currency.
Inventory is the second reason. We are short about 5 million homes, it will take a while to build. We need about 1 million per year to stay even, so we need to produce twice as many for 5 years to get caught up. At the moment inventory is so low that you could literally throw a million homes (magically willed into existence) on the market and we would still be in a sellers market. Back in 2008 we had 3 years of foreclosure inventory hitting the market to the tune of almost 3 million a year - 3 times more than average new home construction. Of course this was catastrophic! Foreclosures today: 160,000 this year.
And home prices are downward sticky: sellers don't sell if they don't get the price they want, they just wait - unless they are forced to sell. For example if mass layoffs where to happen - but instead we have record low un employment rates.
Here is my only caveat: record boom markets like TX and FL could see some sort of a technical correction and prices could soften there after exploding - correcting an exuberance. My home market Milwaukee is still reasonably priced, appreciation has been a lot more modest to the tune of 8-12% p.a. What I do see in my biz is a lot of remote working people discovering the Midwest and the lower cost of living - and the cooler temperatures. 85F is a hot day here in summer.
- Specialist · Member since 2021 · 322 posts · 273 votes4y
Quote from @Armand Dufrane:
Hi all, after chairman Powells speech yesterday, it is clear that the fed is committed to fighting inflation by raising interest rates and selling bonds. This will have a negative effect on the housing market due to less demand from buyers. We have already seen price declines in many markets all over the country.
Now, I know that the real estate pros say to never try to time the market, however, the fundamentals don't look too great right now and there is a good probability that buyers will be able to buy at lower prices if they wait a bit. I would love to hear from all of you on this forum your arguments for why it is a good or bad idea to wait for home prices to fall.
Thank you!
Best way to miss out on gains is to keep your money on the sidelines. There are deals in ALL phases of the business cycle :)
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes4y
I'm thinking you are in Dallas.
Are you looking for investment properties or a place to live?
Do you think home prices will be higher or lower in 5 years?
Do you think rent will be higher or lower in 5 years?
Do you think interest rates will be higher or lower in 1 year?
400 people a day moving to the Metroplex. Apartments are something like 97% occupancy. Figure out that math.
How much would prices have to drop to make up for another 1-2% increase in interest rates?
@Armand Dufrane The key thing is to find deals that WORK for you. Things are going to get tougher, tenants are going to have a tougher time so you need to be choosy and find a place that can stay rented, will not kill you with maintenance, and has enough cashflow to support things if you have to reduce rent for a while.
That said we put on hold any plans to buy several months ago. Then we saw deals that were worth buying. A probate sale that will close (eventually), and and defaulted mortgage that looks like we can buy the note with some equity. So now we are buyers again. Choosy buyers, but buyers.
- Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes4y
Sound Familiar....
Not calling for a crash but a definite slow down.
Australia’s house prices take biggest dive in 40 years (msn.com)
From Article:
CoreLogic’s research director Tim Lawless noted home prices were still comfortably above pre-pandemic levels, but that this equity buffer looked likely to be squeezed further. “It’s hard to see housing prices stabilizing until interest rates find a ceiling and consumer sentiment starts to improve,” said Lawless. “From current levels, interest rates are likely to increase by at least another 75 basis points and there is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values.” The Reserve Bank of Australia (RBA) has already lifted rates by 175 basis points since May and is considered certain to hike again next week in an effort to contain surging inflation. - Member since 2022 · 14 posts · 4 votes4y
Quote from @J. Mitchell Bernier:
I somewhat agree with the whole "buy real estate and wait" mantra, but I do think right now is a good time to sharpen your underwriting skills and really go in depth on a potential project. For example we have been running our numbers based on market rents staying flat, going down by 5%, going down by 10%,or going down by 15%. Then we are also running numbers at interest rates of 6%, 7%, 8%. Finally we are seeing what the deal looks like if we have 0% appreciation, 5% depreciation, or 10% depreciation. Now this makes it really hard for a deal to pencil out, but when one does we know we are excellent shape for whatever may come.
Hope this helps!
This is very interesting way to create a margin of safety. How do you decide the passing line, are you looking for a deals that can still perform in the worst of all metrics?
- Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes4y
@Daniel Qin So we came up with this by estimating likely scenarios and OMFG scenarios on prices, rates, and rents. What we want to see is does the deal meet our metrics from day one at current situations and how does look if these things happen. What we really want to see is that even in the worst case we are still in above water on a equity position and we are at least breaking even on our cashflow. If we are underwater on equity and our cash flow is negative after running these scenarios, we pass on the deal.
Just how we look at it for our market, but makes me sleep good at night.
Hope this helps!
- Member since 2022 · 14 posts · 4 votes4y
Quote from @J. Mitchell Bernier:
@Daniel Qin So we came up with this by estimating likely scenarios and OMFG scenarios on prices, rates, and rents. What we want to see is does the deal meet our metrics from day one at current situations and how does look if these things happen. What we really want to see is that even in the worst case we are still in above water on a equity position and we are at least breaking even on our cashflow. If we are underwater on equity and our cash flow is negative after running these scenarios, we pass on the deal.
Just how we look at it for our market, but makes me sleep good at night.
Hope this helps!
That's awesome. The appreciation/depreciation part is very easy to overlook, and it becomes very dangerous if the deal is over-leveraged from the beginning. Thanks for sharing!
- Appraiser · Rosemary Beach, FL · Member since 2009 · 30 posts · 28 votes4y
I told people in 2006 the market was turning and would crash. The realtors laughed at me. The housing market has collapsed multiple times in my life time. It is not just the interest rates the feds are raising. The real rate to mortgages is decided by the bond market. And there they are doing Quantitative Tightening which is driving up the interest rate. This they are just started last month with liquidating 45 million of bonds and going to 90 this month to reach a goal of taking around a trillion out of the economy by 2023. This is how they put 6 tril in the market issuing the bonds. Now they are taking that money back. This is what propelled the high stock prices, bit coin, and real estate. Now they want the money back. What will 9% interest rate do to the economy you think. I am not saying don't ever buy RE what I am saying is now is not the day to buy. If you are patient and only buy good deals then you are letting money sit on the sideline until the right deal. You need sit longer now due to inordinate amount of downward risk on prices.
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