Anyone have an idea where the market is headed?
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesAnyone have an idea where the market is headed?
Most Popular Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesThe first high level point, for me, is that I think that the housing market is about to see a huge regional variance. Over the next few years, some markets will see appreciation and rent growth, and others will see severe corrections. If I had to guess, on a national basis, I'd expect to see deep correction/crash declines in multifamily real estate (5+ units) and more muted declines or close to flat prices in single family housing in 2024 and beyond, with 2-4 unit properties somewhere in between.
The second high level point is that I personally do not believe interest rates are coming down. I think we are nearing the top in terms of raises from the Fed, but I expect the federal funds rate to remain north of 5% for the next several years, and personally believe that the yield curve will uninvert, seeing mortgage rates and interest rates on commercial real estate investments continue to increase from here. I understand the counterpoints here, but feel that the bet on rates coming down is a bet on the Fed suddenly and dramatically reversing course - something I think unlikely until Jay Powell's term expires and a new chairman is installed.
Diving a bit deeper:
5+ unit multifamily: I'm deeply, deeply bearish. Cap rates are already rising nationwide, and we have 700K+ units currently under construction (multifamily alone) nationwide. Mostly concentrated in the South and West. I think it's really hard to believe in interest rates saving the space from general cap rate expansion, and the glut of supply coming online in the next 16 months is going to continue to crank the vise on operators already struggling by and large to achieve their NOI targets. I think this is going to get worse before it gets better, and 2024 is going to be a part of the "getting worse" phase. I'll be really surprised if any major market in this country sees Cap Rates decline or even stay totally flat in the next 2-3 years. Thus, I believe that only the true value-add plays are viable at this time, and investors need to have a really long time horizon.
Fundamentally, investors have to believe in interest rates coming down, or believe rents will rise rapidly in the commercial space to justify buying property at cap rates below interest rates. I don't believe either, and I bet the market will be painfully forced to agree in a process that will get more excruciating with each passing month for the next 18.
Now, sometime in 2025 and beyond, the bottom hits, and a new dawn will emerge for the multifamily space. All that new construction will cease coming online, and there will be very few new projects hitting the market, and a lot of painful exits may mean less competition for entrants.
In the residential space, I'm cautiously optimistic that a "Crash" (nationwide) will be avoided. however, note that supply is even bigger here with some 900,000 single family units under construction (also concentrated in the south and west). Some markets, like Florida and big chunks of Texas, unfortunately, are unlikely to be spared. These markets, and their neighbors, have a ton working against them. Huge supply growth, huge anticipation of inbound migration that I think, frankly, is overly optimistic), and rising costs, due in part to climate change, do not bode well for these areas. I'd lump cities like Phoenix, Denver, Boise, and Nashville into this category as well, but I'd bet that they will feel a "secondary pain" to many Texas and Florida markets.
Markets that have already taken hits in 2022 and didn't see a big run up in the aftermath of COVID, like California, might actually not see the same pain. I'm not bullish on California, I'm just less bearish on big parts of the state, including Southern California, than the South and other parts of the West.
Markets that didn't change or have been steady for years are likely to be the best friend for investors over the next few years. Upstate New York, big chunks of the midwest, and less urban parts of the West and NorthEast are likely to do great. Chunks of the South as well, but in places that didn't see the big booms of the last few years.
I think that vacation rental operators will feel a ton of pain, relatively speaking, over the next 2-3 years. Prices in these markets can swing by 50-100% in a matter of a few short years, and the party's over in terms of "moderately wealthy" Americans being able to afford vacation homes for the forseeable future. I'll be surprised, frankly, if we do not see a couple of notable vacation rental markets decline precipitously from a pricing standpoint in the next few years. Further, even though demand for buying these properties puts downward pressure on rates, even the well-off investors and homeowners are likely to try to find extra ways of generating cash, and a personal home or vacation home in a vacation rental market, even at lower Average Daily Rates, generates cash for the owner. Expect to see even more competition in markets that allow short term rentals over the next few years, even as the profitability in the sector per unit declines. I think this is going to be really hard.
I think that by end 2026, investors will be feeling very differently about real estate depending on their strategy and market, but very few will have created massive amounts of wealth through market forces.
Investors with a long-term, traditional outlook on investing will see their properties slowly amortize and rents go up over the next 5-10 years, and are still likely to do better than alternatives like the stock market or a conservative bond portfolio. I personally have this viewpoint, and even though I am in Denver with my portfolio (a market I expect to underperform the nation over the next few years), I am holding and will continue to buy (1-2 in the next 2 years).
But, investors chasing great returns in a 2-3 year timeframe may be disappointed in some of the recently hot markets, and those depending on big rent growth and appreciation in any form may be devastated.
As usual, the well-capitalized, long-term investors will soak up inventory, buy when their financial positions are ready, and do so on solid properties that they can and intend to hold for decades. A few will place bets and try to time it, and inevitably, there will be some really smart but unlucky losers, and the same in reverse on the upswing.
Lastly, some real estate entrepreneurs (I use this term to describe wholesalers, flippers, large-scale operators, turnkey providers, etc.) will likely be "business as usual". The spread on deals, flips, etc. is likely to normalize quickly, and these activities will likely be as profitable as ever for the select few who perform them professionally, quickly, and at reasonable scale.
83 Replies
- 3yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
First thank you to my high school
Speech teacher Mrs Farquhar. She gave us some very Controversial topics and I had to argue for one of them. Taught me to see the other side of the discussion.
I think when approaching something you don’t believe or disagree with, you have to get past the point and say I accept your position now what is a workable solution.
.
Doesn’t matter the topic: Global warming, defund police, racism, save nature, ESG ranking, etc.Identify a viable solution, then since this is an REI forum figure out how to make money off it.
Keep in mind most people don’t really want to fix what they consider the problem. So even if you come up with a solution they won’t want to do it.Global warming for example. We, the world could fix that in 2 years. If “their” premise is too much carbon in the air then break it down. You can either reduce the amount of carbon emissions or “sequester” more carbon out of the air.
1. Less carbon emissions. Easy. Less people. Go have permanent birth control procedure done for yourself and your 3 and 5 year old kids. REI- Make housing communities just for these people. Just like the Shakers. Sell at a premium.
2. Less carbon emissions. Move to mass transport policy. Annual bidding process for the right to a license plate just like in Singapore. $50,000 for an annual license for an Accord for example. REI- start accumulating property near mass transit routes.
3. Less carbon emission. Thru zoning no more city expansion to suburbs. Must go upwards. REI- buy up suburb and countryside homes. They will sell at a premium.
4. Less carbon Emission- no more grapes or bananas in the middle of the winter. What is the carbon footprint for a pound of grapes in February from Chile? REI- develop hydroponic and geothermal fruit farms for sale.
4. Carbon sequestration. In five years cover the entire US carbon footprint by planting bamboo and switching to it and outlawing SPF harvesting from Arboreal forests (Cananda). REI- develop Bamboo forests in zones 8 thru 10 in the US and overseas.
5. Carbon sequestration. Really water sequestration. In one year reverse the US temperature change by cooling our portion of earth. REI- Put in zoning for water permaculture diversions. Also plug all agricultural drain tiles in the US. Sell these properties as Carbon offset properties at a premium.
6. Less carbon emissions-move to a non oil based farming system. 1/3 of the world would die within 2 years. REI- develop and sell permaculture communities with the cheap land left behind.
Not to rain on the above, but even if all 1st world countries went to carbon neutral now, the world within 20 years would be back at the same levels.
Racism- first you will never get rid of isms and ists. Everyone reading this has ists or isms.A. The "N" word. Probably said or heard 50,000,000 times a day in the US. Draft a law and enforce against it. REI- sell at a premium ist and ism allowed neighborhoods. Do this by zoning. Not talking about exclusive gated communities, talking at the other end of the scale where these ists and isms are allowed and a daily occurrence.
B. I can't watch TV anymore without seeing Racism every 5 minutes. Grew up in Louisiana and I appreciate in the open Racism. If someone didn't like me they told me to my face. On TV it's positioned as good and acceptable. REI- thru zoning allow ist and ism programming in zoned communities.
Same approaches for energy, defund police, etc. I think REI has a solution for all of these issues. You have to take it tons viable solution. Then the market gets to pick.
Yes these topics are political, because they are good political topics for and against. But I think there is good money to be made.
- Rental Property Investor · Clayton, GA · Member since 2020 · 186 posts · 152 votes3y
@Henry Clark The World Economic forum appreciates your support. The only part you missed was the part where i could maybe eat bugs but it's unclear of I'm on a quota with those? I assume throughout all this i will own nothing, but yet I'll be exceeding happy right?
- 3yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Quote from @Mike Anderson:
@Henry Clark The World Economic forum appreciates your support. The only part you missed was the part where i could maybe eat bugs but it's unclear of I'm on a quota with those? I assume throughout all this i will own nothing, but yet I'll be exceeding happy right?
Read my post. It's about "You" REI investor making money off people even if you disagree with them.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Mike Anderson:
@Henry Clark The World Economic forum appreciates your support. The only part you missed was the part where i could maybe eat bugs but it's unclear of I'm on a quota with those? I assume throughout all this i will own nothing, but yet I'll be exceeding happy right?
When you buy a property, with a mortgage, are you happy?
Do you "own" that home? If the answer is "yes", re-read and try again.
When you buy an auto, with financing, are you happy?
Do you "own" that auto? If the answer is "yes", re-read and try again.
When you buy a ____, with financing, are you happy?
Do you "own" that ____? If the answer is "yes", re-read and try again.
Quote from @Bruce Woodruff:
I'm just curious what y'all think about the general market? Good time to buy or sell? Buyer's market/Seller's market/neither?
I had a discussion today with a Realtor who expects a rough time ahead....what with the election year coming up and the current state of the Economy/Feds/Rates/Etc. I don't necessarily agree, but I'm thinking status quo is maintained. I am selling a big property and buying a couple of LTRs so I would prefer that.
But what the heck do I know?
Bruce,
As always, I think we will continue to get a variety of answers and opinions based on each individual's experience and time in REI. Those that have seen a few cycles will likely remain more calm. This is the same with those who have created a solid income foundation to weather storms. Those who are newer to the game and believe all the headlines/hype may hyper react to one direction or the other, based on who they believe.I have had discussions with a few realtors, both residential and commercial, and it seems that the tenured ones are more calm about it, but still baffled as to how the market has not taken a larger beating. They feel that the cycle is off and there is an impending implosion coming. To a degree, they are correct... maybe...
MY THOUGHTS, after cleaning my garage all morning:
I feel that the recent outside factors have really altered the course of natural events in REI. COVID, whether you believe it or not, sparked an unusual infusion of government money and a drop in lending rates to stabilize that emergency. Then as the extra money supply started to cause predictable economic outcomes and inflation, the Fed's intervention was to squeeze investment. The issue lies in all the other details that are too long to list. From BLM to CRT to school reforms to cancel culture. It all plays a role in where we are now. Many people refinanced and had a chance to stabilize their assets, both Primary and Investments. Many newer investors, like myself, were able to jump the line quickly due to those factors.
With the aging out of Boomers and the upcoming retirements of Gen X, the culture of our country has shifted quite a bit due mainly to technology and the social media accessibility it created. Because supply became so constricted and material prices skyrocketed, along with all that quiet quitting, in addition to higher lending rates, it put a major strain on builders to create profits for investors. Thus new supply of homes is slower than it could be and prices need to remain high. At the same time, so much equity was created in the recent run-up that those who are already in the market can continue to compete for the higher prices and everyone just moves up a step or two in their ownership ladder since they are already on it. This creates the feeling that it is impossible to get in and confusion as to why people can still afford to make money at these levels. Add to that, the popularity of BP and related REI media, and more investors are savvy to the game as well.
What I see is a continuation of the status quo. I do not see much change in the near future. I see people still investing for both cash flow and/or appreciation, or whatever floats their boat. I see people still pay high and higher prices for their first homes, driving the valuations higher. As long as employers continue to increase wages, people will continue to afford more. As financing gets stretched to 40-year terms, that will only cause prices to climb.
Although I have not been an active investor for decades like many on this forum, I have been exposed to real estate for many years. I bought my first house while in high school in the 90s. I continued to buy homes every few years as I moved around. But I dove hard into actual investing only about 3 years ago. In that time span, I have put all my focus into making REI my primary source of income and generational wealth-building platform. It is not a hobby for me, it's a lifestyle to sustain the lifestyle I want for me and my family. That was how I created 8 figures quickly. Thus, I am still buying. I closed on 14 mid-September. Then a week later, got into escrow on 9 more and closed that last week, with a 7-day escrow. In fact, I was on a cruise ship and had just enough reception on Wednesday to call the bank to send a wire and close the deal on Thursday before I got back into town.
These are just my opinions. I try my best to leave the politics out of it, but it does sometimes feel that politics impacts the REI space.
- Member since 2019 · 7k+ posts · 4k+ votes3y
thats your market projection @Bruce Woodruff from ZHI, basically flat Q4 and mild uptrend from Q1 following traditional seasonality.
Kinda agree with that.
In Q1/Q2 I would guess fixed rate gonna easing a bit and market is just resume its seasonality. - Member since 2019 · 7k+ posts · 4k+ votes3ylook how rate above 5% is becoming the new normal with rate below 4% has declined from the book by 2/3 only right now.
Quote from @Sam Yin:
Quote from @Bruce Woodruff:
I'm just curious what y'all think about the general market? Good time to buy or sell? Buyer's market/Seller's market/neither?
I had a discussion today with a Realtor who expects a rough time ahead....what with the election year coming up and the current state of the Economy/Feds/Rates/Etc. I don't necessarily agree, but I'm thinking status quo is maintained. I am selling a big property and buying a couple of LTRs so I would prefer that.
But what the heck do I know?
Bruce,
As always, I think we will continue to get a variety of answers and opinions based on each individual's experience and time in REI. Those that have seen a few cycles will likely remain more calm. This is the same with those who have created a solid income foundation to weather storms. Those who are newer to the game and believe all the headlines/hype may hyper react to one direction or the other, based on who they believe.I have had discussions with a few realtors, both residential and commercial, and it seems that the tenured ones are more calm about it, but still baffled as to how the market has not taken a larger beating. They feel that the cycle is off and there is an impending implosion coming. To a degree, they are correct... maybe...
MY THOUGHTS, after cleaning my garage all morning:
I feel that the recent outside factors have really altered the course of natural events in REI. COVID, whether you believe it or not, sparked an unusual infusion of government money and a drop in lending rates to stabilize that emergency. Then as the extra money supply started to cause predictable economic outcomes and inflation, the Fed's intervention was to squeeze investment. The issue lies in all the other details that are too long to list. From BLM to CRT to school reforms to cancel culture. It all plays a role in where we are now. Many people refinanced and had a chance to stabilize their assets, both Primary and Investments. Many newer investors, like myself, were able to jump the line quickly due to those factors.
With the aging out of Boomers and the upcoming retirements of Gen X, the culture of our country has shifted quite a bit due mainly to technology and the social media accessibility it created. Because supply became so constricted and material prices skyrocketed, along with all that quiet quitting, in addition to higher lending rates, it put a major strain on builders to create profits for investors. Thus new supply of homes is slower than it could be and prices need to remain high. At the same time, so much equity was created in the recent run-up that those who are already in the market can continue to compete for the higher prices and everyone just moves up a step or two in their ownership ladder since they are already on it. This creates the feeling that it is impossible to get in and confusion as to why people can still afford to make money at these levels. Add to that, the popularity of BP and related REI media, and more investors are savvy to the game as well.
What I see is a continuation of the status quo. I do not see much change in the near future. I see people still investing for both cash flow and/or appreciation, or whatever floats their boat. I see people still pay high and higher prices for their first homes, driving the valuations higher. As long as employers continue to increase wages, people will continue to afford more. As financing gets stretched to 40-year terms, that will only cause prices to climb.
Although I have not been an active investor for decades like many on this forum, I have been exposed to real estate for many years. I bought my first house while in high school in the 90s. I continued to buy homes every few years as I moved around. But I dove hard into actual investing only about 3 years ago. In that time span, I have put all my focus into making REI my primary source of income and generational wealth-building platform. It is not a hobby for me, it's a lifestyle to sustain the lifestyle I want for me and my family. That was how I created 8 figures quickly. Thus, I am still buying. I closed on 14 mid-September. Then a week later, got into escrow on 9 more and closed that last week, with a 7-day escrow. In fact, I was on a cruise ship and had just enough reception on Wednesday to call the bank to send a wire and close the deal on Thursday before I got back into town.
These are just my opinions. I try my best to leave the politics out of it, but it does sometimes feel that politics impacts the REI space.
I was not expecting this one year ago, with this outstanding rate balance , 5% above rate has been accepted by the market pretty fast.
Many market is reaching all time DOM's while sustaining high rate environment is just beyond many prediction a year ago.
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