Housing Bubble? Hard Finding Deals? What's Your Market Like?

88 Replies

Marcus, I tend to agree. Some of the market indicators I'm currently looking at that i think will indirectly affect residential housing are the rising subprime auto loan delinquencies, subprime commercial loan delinquencies, HELOC loan delinquencies an oil industry salivating at the chance to make more money, downgraded ratings on Wall street, interest rate hikes and home values outpacing wage growth. None of these are indicating imminent correction but are on the rise/fall making it currently a cautiously optimistic opportunity for us investors to capitalize.

@Ryan Kraft the question is which of these concerns have the potential to pull the rug out from underneeth Joe and Jill homebuyer? When I read through the Florida posts here I find it a little concerning that builders have ramped up so much that it's hard to sell a 5 year old home - that sounds like they are headed for oversupply. But that would be a local and not a national issue. Wage growth is the biggest concern I think. But I hear from friends in my previous industry that it has become very hard to hire and they are offering higher salaries and sign on bonuses on a middle mangement level. Let's hope this is going to become a trend, because higher wages across all income brackets will not only provide fuel for the builders, but also reset the rent to income ratios, cause some healthy inflation and errode mortgage balances (on my rental properties) and after all national debt. I am spending a lot of time rethinking and adjusting my strategy these days - what I have been doing very successfull for the last 8 years is comming to an end it's time to adjust to a new normal.

@Ryan Kraft all the signs are here that we are running towards the top. In my city, inventory is at an all time low. We are seeing low end house prices sky rocket. We are seeing higher price range properties selling faster. This means people are moving up to nicer houses, but there are only so many people that can move up. Over the last couple months, I have started getting more post cards and letters from realtors offering to help me sell. Last night I got a phone call from a realtor that I have never met. It is clear that realtors are getting desperate. As the market tightens, more flippers and builders will enter the market and home supply will increase. It is not the housing shortage you should be afraid of, it is when the shortage is followed by a surplus that we have a problem. 

Hopefully all the realtors that had record sales the last couple years put money in the bank, understanding it would not last forever. Those who didn't will find new jobs with regular paychecks.

Originally posted by @Jay Hinrichs :

@Ryan Kraft   could you identify this development or send me a link.. I would like to check it out.

I have a 4 acre property in Rohnert Park CA I have owned for going on 25 years.. it just got brought into the city as a mixed use resi project and I am trying to figure out what to do with it..

CA is super expensive as you know.. but maybe something like this could work.

problem is not with developers and affordable housing.. it rest squarely on regulators and city officials and environmentalist.

building materials have risen a little but not much.. labor is up... whats up is development standards that the cities want and all the fee's that cities want that is not directly related to housing.. Like here in Portlandia we have to pay almost 5k a house for a park fee..  In a state that is half owned by Federal 'Government  State government... why are we paying for parks.. :)  and especially one's that are used by so few people.. its that kind of thing...

 I lived in Rohnert Park when I was a student 20 years ago. Unless alot has changed, I think you would do well with a student housing model. There was an Apt Building there named "Yung Haus" that was dorm style. Each unit had 4 BR and 1 BR. It was always filled with students and I don't recall any vacancies over a few months.

Here in the Bay Area, prices are around the highs. Much of it is fueled by Tech money and foreign investors. Areas that have traditionally been undesirable are transitioning. That said, funding for Tech has been drying up a bit and i'm very cautious of the coming years.

Regarding coal, my brother is an accountant in the industry in Gillette, WY and he's looking to get out. Natural gas prices are killing coal on a simple supply/demand basis, and Trump won't change that. The only meaningful coal demand is from China, which consumes tons of it, but US left coast states hates coal so much that they ban shipping it through them, so domestic production is trapped here, where the market is terrible.

It's a dead-end industry, and until coal country has a replacement economy, it's not a place to invest.

Originally posted by @Luc Boiron :

I would add that Canada isn't currently facing a downturn, Vancouver was hit a little by a tax on foreign buyers last year but news is its getting hot again, Toronto is insanely hot with prices up more than 25% year over year. There's no inventory and people are afraid to sell because they won't be able to buy their next place.

I see prices in some areas more than 20% higher than in the fall. It is absolutely crazy. I saw a house for sale for $1.2 million that sold for $2.3 million. I offered $1.15million on a place listed for $799k, and it sold for $1.38 - there were 32 offers.

I'm still buying, but it really is a full time job here to find anything at a decent price.

@Ryan Kraft

Sadly, Luc is correct ... your statement should probably be altered to "Canada {desperately} needs a downturn"

Omaha, Nebraska is a hot market. Just keep following the mantra prepare for the worst hope for the best. Always be prepared for a bubble collapse but when everyone else is pulling out, work your plan like it isn't the end of the world.

Ryan, here is central Florida, the smaller size homes have gone up a LOT in the past year.  Prices were about $80 sq. ft., but now are in the $120 range.  These older houses need work and are not worth it to us as investors.   My wife and I think that the area wages cannot support a much higher price than we have now.  So, we don't want to get burnt when the next crash happens.  The increase in interest rates will help that, I hope.  We will stay on the sidelines for now, but keep looking, and are ready to pounce when the prices drop.  We see new homes that are 1400 sq. ft, listed for $170,000.  That's crazy for this area.  But, rents have risen a lot too, which helps us with what we already own.

     

William Wiebolt


@Francisco Garcia Jr Interested in your thoughts. I have opportunity to pick up 4 houses in Ancala, but they would need about $100-150k each in my opinion to get them presentable. My gut has been telling me we need to get into the higher end market a little more than we are right now, I would think it should follow eventually here. Are you talking the new builds in PV where they are knocking houses down and rebuilding? Or what developments in Scottsdale are you talking?

Our rentals are almost all in queen creek. We're flipping all over the valley, but primarily in the Chandler, Gilbert, Mesa, area. 

      I would get into the higher end market, you may have to wait a little longer but the returns you are seeking are there. New builds in PV have been going on since I moved here in 2001, the only thing that changed is the crazy prices on the land where they are going to be built. I meant apartment complexes that the developers have sprung up all over Scottsdale, they are like Starbucks chains down here on every corner, with the market in a upturn here in Arizona, they must have forecasted that some buyers would rent due to being squeezed out the market.  Those are good areas to flip and you should be seeing some good returns especially in this market here.

As several others have mentioned, there is a lot of new construction here in phx. Many new mega apartment buildings including near the heart of downtown. However there are also many new SFRs being built as fast as they can throw them together in any of the housing communities that have vacant lots. My community has had at least 15 new homes in a four block radius put up last year alone. The appreciation over the past few years has been great, but I feel that is beginning to slow down as well.

I am probably done buying local for the time being.  Rents have not gone up anywhere fast enough to make most properties profitable.  Any starter home in the 150-200k price range seems to get bought near instantly as an all cash purchase so there is limited options when it comes to haggling the price lower.  The high prices and low rents cause most properties to be roughly break even at best once all expenses are factored in.  I'm sure you could find deals here if you bought in some of the more ghetto areas, but I'm not about to go down that road.

Roy N. Could you elaborate on your thoughts about the housing market in Canada. I've only read bits and pieces and I'm under the impression foriegn investors have pushed up the higher-end market which is now on the downswing because of a new tax which has brought more foreign investors to America.

James Barnhart that sounds like a wise strategy in the localized super hot markets. I tend to agree. Interestingly though I just spoke to a more experienced (than me) investor today  who said to not miss out on short term opportunity in fear of long term planning. I thought that was a pretty good statement. I feel it's important for investors to have discussions such as these so we can all be on top of Market changes I hope this discussion goes on and on and on

Francisco   not sure what the problem is. sorry to hear you are having difficulty. 

It's definitely hot right now and much harder to find deals than it was a few years back. Whenever the market is hot and given the Fed has raised rates twice in the last 6 months and is likely to raise them again this year, I do expect the market to soften. But I don't think it will crash, they aren't doing the teaser rates like they were back in the day nor as much 100% or closet to it financing. That being said, you always need to be careful with predictions.

@Allie Reeves  hard to Answer what else would you buy?

how stable are your current tenants.. its it live well sleep well no issues.

I do think we are at about the end of this bull run for appreciation..

but its been a nice ride last 5 years.. however we are just at 07 highs so maybe they move up again who knows.

The market here in Grand Rapids, Michigan is crazy. Inventory has been trending down the last few years like with many real estate markets around the country (3 months a couple years ago, 2 months last year, now closing in on 30 days of inventory this year!). Prices are starting to reflect this extreme shortage in inventory this year in particular as pricing is really starting to jump.  In Grand Rapids I think it's a combination of the general strength in the real estate markets around the country, as well as the growing popularity of Grand Rapids. Forbes and all sorts of publications have been giving it top 20 rankings (economic growth, best place to raise a family, etc.).  The rental market here is really strong too. Trulia ranked us #1 in lowest vacancy rates in their last rankings. One thing I've been noticing alot recently and have been thinking alot about is that while the median home market for listings here is crazy (20+ offers on a $170k sfr on day 1 of listing), the luxury listings are surprisingly soft ($1M homes sit on the market for months).  I'm not sure exactly what it means (although I have several guesses), it's just something unexpected I've been noticing. I obviously understand that the median market homes ($170k here) are always going to be WAY hotter than ultra-luxury homes ($1M+ here), but it's just to been to a higher extent than I would expect.  

Markets in Bay Area is cooling down quickly in the last 3 months... I just looked, out of 44 listings in Sunnyvale in the $1.5m price range, only 2 pending.... That is extremely cold...

I am definitely keeping my powder dry... 

I think CA is a very unique market. Prices are unreasonably high, I just don't understand how people afford buying as everything in near the unaffordability-level. Deja vu 2003-2005. Everyone was desperate to get in the market in a very similar, crazy market. And then came the bust...I know the cause of the bust was different back then than it might be this time around (if it happens). However, people are emotional beings and the fear of loss is the biggest driver of this craziness. Everyone is getting into the retail RE market in the fear of losing future equity. Very dangerous game in my opinion. 

I have been looking at property prices both NorCal and SoCal and pretty much all of them at the all-time peak again. CA has been predictable in terms of cycles and I think we will soon the downfall. Get ready!

Phoenix is a Seller's market; I am told. But, somehow I keep coming up with No $ Down and Low Down deals using "Subject To" and Wraps. I guess that, since that is all I have ever done, (literally) I don't know any better. But, my Joint Investors seem to like that they aren't subject to the vagaries of the marketplace. No tenants, no toilets, no fighting the MLS for buyers, and I don't have to wade through contractors and rehabs. Recently bought a 4 bed 2 bath in a reasonably nice Mesa AZ neighborhood for $100 down and took over the mortgage. Got $25,000 down a month later when I sold it with owner financing. I clear $750 a month. My Joint Investor and I split the proceeds. I've got a pocketful more looking for the right Joint Investor. Yep, the Phoenix market is HOT!

To me it seems, and I could be wrong, but it seems regardless of what the market is doing there is room for investors to make moves. upward markets build equity that can be borrowed to multiply number of boxes/doors. Downward markets. less equity, but if you have lots of cash flow you can buy up empty boxes on the cheap. for buy hold investors it would seem if you are not selling, a crash would be a great opportunity to scale if you are well balanced with great cash flow.  I guess I will find out when it comes. 

Originally posted by @Francisco Garcia Jr :

"The typical starter home which is selling for $180-220k in AZ right now" That's not in Scottsdale, where the builders have taking over, the market is screwy here at the moment.

Yep I saw this as well, but I don't know of any SFR's in Scottsdale for sub $250k unless they are 2BD. Tempe appears to be another developer take over with the buy (2bd), rehab/expand(to 3bd) sell model. Making it tougher to get ahold of private flip-able assets down here.