If you are buying when unemployment is 4%, you are buying trouble

[Diane G.]

I googled the unemployment history of US, and here is the chart... Out of the past 65 years, maybe 10 saw unemployment at around 4%....All other 55 years were higher.... If you are buying RE in today's enviroment when unemployment is 4% and interest rate is 4%, you are buying yourself trouble, in my opinion....

As a matter of fact, RE in the Bay Area is slowing down already, in my observation... My favorite example - Redwood City listing prices is now 15% ish lower than what properties have been selling at in the last 6 months... Big signal to me...

[Jennifer Preddy Egbert]

@Diane G. You're in an area that's going nuts. I'm in Boulder. We are at a high appreciation rate consistently. I love studying stats and am guessing that you do too. This is my favorite housing index reports of all time. Enjoy :) 

[Philip Hy]

I agree with Scott Trench that you have to take a common sense approach. You just can’t time the market, so don’t try. Stick to the fundamentals, and you can find a good deal in any market...it just comes down to time and effort.

You don’t hear people recommend pausing 401k contributions when markets are hot and to buy more when markets are crashing.

[Diane G.]

This is NOT timing the market.. Instead, this is knowing when investing in a certain asset class does not make sense anymore.... and go to the sideline to wait for the next opportunity...

Again, my observation and analysis is that we will get better buying opportunity before we get our next president... it could even  be as early as 2018

[Chris Purcell]

@Diane G.

It’s interesting all these fear-mongering topics are coming from the state of CA.  I wonder the correlation??

[Diane G.]

@ chris purcell - i convenienced myself that your question is a sincere one and not just being sacastic....And here is my answer....

If you see your house price jumped 120% when real income is stagnant, if you see friends all taking out $1.8M in mortgage loans and pay $9K a month and have to think twice just to buy a Starbucks, if you see your company struggling to meet wall street expectation quarter after quarter when stock price jumped 50%... you are fearful....

[Phil Mcnally]

http://www.nreionline.com/multifamily/15-top-marke...

"Developers will bring 371,000 units to the multifamily market in 2017, according to data from commercial real estate services firm Marcus & Millichap’s 2017 National Multifamily Investment Outlook. If that figure hits, it means apartment construction this year will reach a record high – its highest level in 30 years. The firm predicts that national apartment vacancy will reach 4.0 percent at the end of 2017, based on the expectation that unemployment should hold at 5.0 percent and hiring will remain “sound,” prompting the millennial generation to bolster new household formation."

It is a new permanent high :-)

[Phil Mcnally]

Being on the sidelines may be the wrong way to state the fact that deals ar not fitting a reasonable investment criteria.

If investing is like a big fishing net being trawled around the property ocean, your criterial, 1% rule etc would be the size of the holes in your net. Small or zero profit deals just pass through the net. Nothing is caught. Nothing spent. Nothing to worry about.

As deals improve and 'grow' in profits the net will start catching again. You are only on the sidelines if you are in the harbor sleeping...like me in 2011 :-)

The point of this thread is a good reminder not to change your 'net' criteria for something finer just because you want to catch something. You might get a baby sea monster :-)

phil

[Sam Shueh]

That may be true in most expensive neighborhoods. Those are moving to less expensive neighborhood like San Jose, south San Jose, Gilroy, and Hollister etc. I see investor flock to Morgan Hill and are shocked how expensive homes are there also.

 When the outer neighborhoods have +30% appreciation yearly it is the end of boom cycle. For 45 years people say California home prices can not go up anymore. Guess what these people are wrong.

[Bill F.]

@Diane G. is the Real Incoming in the zip code/MSA where you see the 120% appreciation not growing or are you referring to nationwide wage growth (or lack thereof)? 

You do have a great point about the stock markets, particularly in the tech sector.  Share prices today do have a lot of optimism built in and that optimism could disappear soon.

[Diane G.]

I am getting more pessimistic by the day, to be honest, looking at Bay Area RE and Stock market and US political landscape...I am sitting on the sideline waiting for stock market to crash to make a quick buck, and then put those money to good use in RE... At least that is the plan...and Here is my reason for being pessimistic...

[Diane G.]

Rob the poor to give to the wealthy never works, no matter how you sugarcoat it.... Reason?  Because giving to wealthy does NOT increase their spending as they were never contrainted by what they have in their pocket to spend in the first place...

Robbing the poor, however, will kill spend... and that will in turn hurt the economy.... If this tax plan goes thru, and it looks like it will, economy will slow down... 

[Avi Garg]

@Diane G. Your doomsday clock has been on high alert since the last few months you have been posting (or atleast since I noticed). You pull up statistics off thin air. The prices have been increasing in peninsula and no house goes for list price, it always goes 50-130k higher. How do I know? I live in the peninsula and monitor it on and off. The condo I sold last year is now selling for 100k higher (in the same complex they sold for 80-90k higher). 

So if you would have bought something last year instead of waiting for the impending doom, you would have been 100k richer. 

[Mark Radford]

I'm in a market if you buy right you can cash flow and if you get there early enough maybe even make a few bucks. If we have nothing else we will have renters in this town. But with respect to the economy... Yes, something's amiss. I'm from restaurants and that segment is soft and has been for a while. Many operators are discounting (which I always disdain) and coming up with gimmicks and gadgets to lure and keep butts in seats. They're packing the house but at a price. I always look at middle class discretionary spending. There's alot of unabsorbed street level retail in many of these new apartment buildings too. Folks are being cautious. Plenty of warehouse, call center and foodservice work available though so if you rent to folks bringing home 2500 - 3500 a month you are good. Because those are the jobs now.

[Diane G.]

@ Mark radford - look, i understand whenever it gets into economic outlook and political landscape, everyone has a different view, and I am NOT looking to convenience anyone....

For me, I have some cash from my severance package when I got laid off in 2015 when Abbvie bought the company i was at... I am going to hold onto it, waiting a better opportunity in stock and RE markets... I feel pretty sure stock will clapse soon enough, in 2018 or 2019 or could be 2017....

[Diane G.]

I feel both RE markets and Stock market are NOT reflecting the true picture of the economy and unemployment.. So reality will hit sooner or later...

I am currently hiring a part time junior level financial analyst until end of year, and let me tell you, I got over 20 resumes ranging from new college grad to senior level people with 20+ experience... Pretty scary to me....and sad

[Joseph M.]

@Diane G. , you mentioned you are sitting on the sidelines, so did you sell your SF area properties already? Or do you just mean you aren't buying any new property? 

Also you mentioned robbing the poor to give to the wealthy never works...just wondering what you mean in regards to that? 

In CA at least I'm not seeing that. It seems more like they are taking more and more from the middle class if anything. New gas tax, more car registration fees, etc etc. In L.A county sales tax just went up too.

I don't think CA politicians have seen a tax they don't like. 

[Joseph M.]

@Diane G. what's the salary for a part time junior level financial analyst per hour?

[Diane G.]

Not buying... Holding cash....

$25/hour...

[Joseph M.]

@Diane G. , i'm guessing some of them have some other type of job or income or they have a spouse that makes a high income? I'm sure it would be a struggle to live on $25 hr part time in the bay area.

If they are new college grads seems likely they would be living at home maybe with zero housing expenses. 

When min wage in CA is $15..it kind of makes me wonder what will happen with jobs in the $25 range. 

They are already $15 hr jobs that they expect people to have a degree and experience for...nuts! 

In L.A McDonald's now pays $12 hr since that is the min wage if you have over 26 employees. 

Speaking of unemployment . I believe we could see higher unemployment when min wage is $15hr. Many businesses already saying they plan to cut down on staff/hours. I could see more an incentive to develop restaurant space into housing. This $15 hr wage experiment should be ..interesting to say the least. 

[Diane G.]

@ Joseph M. - Disclaimer - I have never ever vote in any presidential election, so that is just how much I dont care about politics...

That said, I definitely feel our country is heading down the wrong direction, which led me to be pessimistic about investing in RE now...

I am going to be patient....the wait wont be very long, that is pretty clear to me

[Mike Dymski]

Originally posted by @Diane G.:

I am getting more pessimistic by the day, to be honest, looking at Bay Area RE and Stock market and US political landscape...I am sitting on the sideline waiting for stock market to crash to make a quick buck, and then put those money to good use in RE... At least that is the plan...and Here is my reason for being pessimistic...

You don't have to sit on the sidelines if you feel the stock market is going to crash...you just short the market.  It's a lot more passive than real estate investing too.

[Anthony Aviles]

The labor participation rate is around 62%, the lowest since the early 1970's. That makes the low unemployment rate misleading because if you include those folks able but not willing to work, unemployment is actually higher.

Either way, Grant Cardone says "You must buy in all markets", and I agree with him. Can't sit around waiting for the market to tank when that could be years away.

To successfully and comfortably buy today and in the future:

- Run the numbers conservatively

- Buy in areas with strong rental demand

- Don't over-leverage

If the numbers work at acquisition, the property should perform through fluctuations in the market.

[Diane G.]

@ Mike Dymaki - most shorting has a huge "time value of money", meaning you have to be right one with timing... if you hold and market does not claspe right away, you lose money...You really have to do it right..,

Key to shorting is to NOT to try to predict a claspe, but just wait for the clapse to actually happen to jump in... Hence i am just sitting... if the market drops by 2%, i will jump in....

[Phil Mcnally]

I was going to say the same thing. If you feel strongly about a direction you can speculate on that direction and win big or lose big.

Or you can invest for the long duration and somewhat avoid the speculation part and just be patient to get a few ups and downs out of the way.

This would be an argument where 30y fixed rate loans are good if you don't know what the near future holds but you are confident about 20 years from now. I see myself in that camp. I know I am going to be wrong in the short term so make a long term plan where I know I am going to be right.

What did Benjamin Graham

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

[Diane G.]

@ phil mcnally - I dont disagree with you, but I see quicker money to be made in stock market in the next 6-18 months....and I see lower RE price in Bay Area in the next 1-3 years... So will see...