Is the real estate market about to crash?

82 Replies

Hi, 

My name is Cécile. I live in one of the most expensive cities in the world, San Francisco (sighs). However, after joining the Bigger Pockets community, I believe I can reach my dream of financial freedom through carefully planned investments. Here are my initial questions:

- Is the real estate market about to crash? I found a lot of articles with concerns about the overall economy, including the real estate market e.g.https://seekingalpha.com/article/4240746-concerns-...

- Is now an average, better or worst time to invest than others? 

Thanks in advance for your contributions and for sharing your experience. 

Cécile

@Cecile Poyet @JScott has a new book out regarding this topic. Go to the following thread: https://www.biggerpockets.com/forums/25/topics/660....

Several investors have been discussing the same thing. I believe we will have a downturn, but shouldn't be as bad as 2008  (in my opinion). The book is called:  "Recession Proof Real Estate Investing, How to Survive (and Thrive!) During Any Phase of the Economic Cycle"

Yes it is about to crash.....but dont worry if you own property. I will purchase all your properties at a 20% discount to help you avoid the 50% crash. 

The bears always say some asset clash is doomed for a crash. They look like geniuses when they are right.....but fools the 99% of the time when they are wrong.

Real eatate crashes on a large scale are incredibly rare. The great depression then the housing collapse from a decade ago. 

You know what you do if prices crash...buy more property. No one can predict prices softening. Those people who claim to time the market are categorically wrong, and have convinced themselves they are geniuses because of 1 lucky guess.  I bought in the depths of the collapse...that didnt make me right or smart, I was an oppurtunist. What opportunity will tomorrow bring? Who knows, but Ill try to take advantage of what money I can make on any given day given the market conditions of that day.

A lot of speculation on this, however a lot of trends we see are market specific.

A lot of people believe we are in turn for a correction, some others may believe we are expected to have a very long-run up.

Thanks for sharing the article! I think as usual invest, but carefully so you are protected against what may happen.

Oddly enough , current downturn is artificially created. First, by a media hype of impeding "slow down". People read news, get scared and stop buying. Second, by Feds who are too afraid of inflation , therefore  must stop or slow down the economy by increasing the interest rate. These two things combined have slowed down housing market lately. 

Originally posted by @Eric N. :

Oddly enough , current downturn is artificially created. First, by a media hype of impeding "slow down". People read news, get scared and stop buying. Second, by Feds who are too afraid of inflation , therefore  must stop or slow down the economy by increasing the interest rate. These two things combined have slowed down housing market lately. 

YUP  consumer confidence  fake news and rates 1% higher than the all time low have caused sales to slow down.

but baby making machine goes on.. still need homes for peeps to live in

Originally posted by @Scott Scheel :

@Cecile Poyet @JScott has a new book out regarding this topic. Go to the following thread: https://www.biggerpockets.com/forums/25/topics/660....

Several investors have been discussing the same thing. I believe we will have a downturn, but shouldn't be as bad as 2008  (in my opinion). The book is called:  "Recession Proof Real Estate Investing, How to Survive (and Thrive!) During Any Phase of the Economic Cycle"

 No slow down in Phoenix. Things are HOT HOT HOT! and . . . it's 70 degrees.

Well... I reckon the higher a market goes the more likely it will drop from that level. When and to what degree are the million-dollar questions. 

I keep hearing (from a few realtors, the news, investors) 2020 is when we'll see a drop. 

Is it true? 

Heck if I know.

We'll see! 

Only buy good deals. I see so many foolish deals now - especially in Los Angeles. Crazy deals that not only negative cash flow but seem to be a hope of continued appreciation. 

My dad has around a dozen commercial properties of varying sizes for sale on the East Coast. For 2+ years we really didn't have any legitimate buyers - mainly people who didn't know what they were doing or people who couldn't find financing. Now since roughly October we've been approached by buyers and almost half of the properties are closing in the coming months.

It's like money is coming out of the woodwork. 

Again... just buy good deals. Ignore the market talk because it's very hard to correctly target.

Yours? Probably.

Disclaimer: I have no knowledge of SF or any of CA just keep hearing people talk about it.

Thank you for your comments. Looking at this house, for instance, whoever bought it in 2004 must not have been a happy camper (bought it for $395K in 2004 and sold it for $190K in 2012). That truly sucks!

https://www.zillow.com/homes/for_sale/CA/pmf,pf_pt...

It definitely makes me wonder what the "right" price for it is today. BP's analysis here enclosed for the record:

@Cecile Poyet you only lose money when you sell. If you hold in perpetuity, it doesnt matter what the vale of the asset is, as the loan will eventually be paid off.

@Cecile Poyet yes that still holds true. You only realize a loss when an asset is sold.

@Cecile Poyet the fundamentals of the housing market in 2006-2007 were a mess which lead to the housing collapse, however, today the fundamentals and mechanics of the market are good so while there may be a slow down in housing there will not be a collapse.

As other experts @Russell Brazil  @Caleb Heimsoth  and @Jay Hinrichs mentioned if you hold for the long term it doesn't matter the value of the asset.

You buy low sell high.  If the asset is low in value just hold on to it until it appreciates.

@Cecile Poyet And seconding @Michael Tripp , that's why the cash flow is so important. It buys you the ability to hold on all the way through a recession cycle. That is the biggest reason seeing negative cash flow rentals bought on hopes of "appreciation" in some of the hot markets is some scary stuff. 

Originally posted by @Cecile Poyet :

Thank you for your comments. Looking at this house, for instance, whoever bought it in 2004 must not have been a happy camper (bought it for $395K in 2004 and sold it for $190K in 2012). That truly sucks!

https://www.zillow.com/homes/for_sale/CA/pmf,pf_pt...

It definitely makes me wonder what the "right" price for it is today. BP's analysis here enclosed for the record:

 Closing costs seem a bit high for the buyer side on a cash deal.

Originally posted by @Michael Tripp :

@Cecile Poyet the fundamentals of the housing market in 2006-2007 were a mess which lead to the housing collapse, however, today the fundamentals and mechanics of the market are good so while there may be a slow down in housing there will not be a collapse.

As other experts @Russell Brazil  @Caleb Heimsoth  and @Jay Hinrichs mentioned if you hold for the long term it doesn't matter the value of the asset.

You buy low sell high.  If the asset is low in value just hold on to it until it appreciates.

 after living and working my career through the mid late 70s bad economy.. the uber interest rates of the 80s along with the S and L crisis.

the recession/depression of 89 to 92 in CA  the dot com burst of 2000  the mother of all the great GFC what I see is real estate resilience and ability to come roaring back..  This is highly regional though and rents in many markets dictate values.  scarcity in land to build on or very difficult permitting process's determine values in Owner occ areas.. and of course without Jobs any real estate or town / city can wither and die.  I drove once from Dallas to ALB new Mexico not on the freeway but over a two lane highway that went through one little West Texas town after another and all those little towns were basically dead.. you had main street boarded up.. at the edge of town a Walmart and maybe 2 or 3 fast foods and that was it..  anyone who owns rentals or commercial in those towns is sitting on No value real estate.  

@Cecile Poyet If its not one thing, its another...the world is always going to hell in a handbasket. The alpha article forgot student loans and subprime auto loans...total amount as well as delinquincies...and also forgot that in addition to up and down there is also the possibility of a plateauing. It makes sense to be cautious when committing to a big ticket, illiquid investment in any market environment. The thing about high priced markets is the prospect of a 10-20% correction on 1m is so much more money than on 250k...but in any market or sector, you only lose if forced to sell (cybercurrency excepted).

@Cecile Poyet our market is steady here, I think we are going to slow down but not go into a recession. Interest rates are up and housing prices are up, people will not be buying/selling as often as before because their equity will not increase as dramatically as the last few years but I don’t see some major correction. With the Job market strong and conservative mortgage lending practices, I don’t see how the housing market could possibly drop as much as it did in 2007/2008. Buy smart, don’t over extend yourself and have cash on hand just in case...

IMO buying and renting for appreciation is nuts, buy for cash flow. If there’s a recession at least you can net out and not have to subsidize someone else’s rental payment because you’re losing money to rent them a home.

One factor that I look at is an uptick in mortgage defaults and foreclosures as a sign of a coming crash.  Right now, looks pretty healthy,  so banks  will  continue to lend.

In many expensive markets, the real estate market is already "soft."  So this is a correction and perhaps a transition to a buyer's market.  

Focusing on California - there are unique issues.  California's coastal real estate is higher than what middle class people can afford.  This is resulting in some people leaving the state.  California got itself into this mess by having the most restrictive barriers to add new housing developments in the country.  The solution simply is to build more density housing.  Despite a few negatives, San Francisco has excellent real estate.  It's the place where people want to be, there are wealthy and educated people there and your investment is protected because of the barriers discussed.  

A crash is a powerful word and I automatically associate that with the 07-09 market.  I think people need to realize that markets go Up, Down, and Sideways.  Markets will regress in price it has done that for 100 years. It's mathematically impossible for prices to go up every year.  The softening in my market for the last 8 months has actually been very healthy.  It has reminded people that nothing goes up forever and to manage their risk.  Houses are still selling and people are buying.

If you are a buy and hold investor real estate is a long term game, you scale into properties and you scale out.  No one knows what the market will do.  Proper leverage and cash on the side will allow you to hold properties and not sell at a loss.  I think we are in a transitional period where buyers and sellers are finding a new base on prices.   I am open to any possibilities and anything can happen.

Originally posted by @William C. :
Originally posted by @Cecile Poyet:

Thank you for your comments. Looking at this house, for instance, whoever bought it in 2004 must not have been a happy camper (bought it for $395K in 2004 and sold it for $190K in 2012). That truly sucks!

https://www.zillow.com/homes/for_sale/CA/pmf,pf_pt...

It definitely makes me wonder what the "right" price for it is today. BP's analysis here enclosed for the record:

 Closing costs seem a bit high for the buyer side on a cash deal.

 Would you say 2 to 5 percent of the purchase price should be set aside for closing fees William?

@Cecile Poyet The real estate market is currently at a very high point in many places around the country and is predicted to fall within the next 2 years. However these dips in the market mainly affect bigger cities, which I understand you are in but san fransisco has a very high barrier. It depends on what you are looking for, but if you look at more rural areas, I not talking about 50k homes fixed up in the middle of nowhere, but you can but a house in fort worth Texas for 100k in the current market. You should consider out of state investing if you are in San Francisco, there are many podcasts on the topic and I beleive David Greene has a book on long distance investing.

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