It's Feeling a Lot Like 2007

[Dylan Mathias]

Hi All, 

Wanted to start a discussion on peoples outlook on the real estate market and the economy in general. I know it is a controversial topic but I have not seen many discussions on BiggerPocket on this topic and I believe they are important conversations to have. 

Here are my general thoughts on the topic. 

Economies always go through cycles and we are coming up on the longest bull market era in history. If history is any indication of the future their have always been corrections or crashes every 8-10 years. 

Data

1. Interest rates are rising and the yield curve is flattening a tell tale sign of future growth expectations are declining

2. Corporations are turning to stock buybacks because they cannot find internal or M&A returns that can get a high enough return. Once buybacks are done will corporations begin to "restructure" or contract leading to layoffs and the downward spiral of layoff, people not buying as many goods and services leading to more layoffs. 

3. Inflation is another worry when prices begin to increase at a higher rate after almost a century of 2% inflation people are going to be inclined to buy less leading to the ugly spiral as well. 

4. In the stock market is extremely over prices with PE ratios being the highest they have ever been.

5. Housing prices especially in California have increase much more rapidly then wage increases and I do not see this as a sustainable recipe.

There are many other factors and coming from an analytical background i know there are ways to spin the numbers to make it look any way you want. 

I cannot time the market and nor do I think anyone can but I am writing this post to get others perspectives about where we are and what they think of the future outlook of the economy. With the ways things are, my guess is there will be at least a big correction in 2019 or 2020 but I could be way off as well. 

I would like to get peoples opinions on both sides. I am not someone stuck in my ways and truly believe that debating with someone that has complete opposite views is the best way to learn in life. 

[Jay Hinrichs]

Originally posted by @JD Martin:

Originally posted by @Jay Hinrichs:

nice post.... and I high light APPRECIATING markets  and LONG TERM  … if its the rental game I like that and pay down your debt.. you retire when your rentals are paid for .. you get a huge increase in income and off into the sunset you go.. without having to own so many units that is a J O B unless you want it to be.. some people are very pleased to live the life of a landlord.. I see many hubby and wife teams in the mid west do this..  Wife is the leasing agent and hubby is the handy man .. they pay cash for low value assets they know they are not really going to go up much.. but they have no debt and they collect a few a year end of a 20 year run they own 30 to 40 free and clear making a nice living especially if they are in a small rural mid western town..  

 Hey! You're giving away my retirement secrets :D  . Seriously, that's more or less my situation. We bought a bunch of old homes, where we live (a growing population area in a college town) for cash, rehabbed them, and rented them out. It's not the 100 doors model I see people raving about but it's manageable and you barely notice you have them. It's a fairly simple existence but coupled with some other streams of income a pretty good one, and stable at that - when you own a house outright you don't worry too much about having to pay the mortgage on that house. 

give me 10 paid for houses over 50 leveraged to the eye balls everytime.. same cash flow much less work and stress..  

[JD Martin]

Originally posted by @Jay Hinrichs:

Originally posted by @JD Martin:

Originally posted by @Jay Hinrichs:

nice post.... and I high light APPRECIATING markets  and LONG TERM  … if its the rental game I like that and pay down your debt.. you retire when your rentals are paid for .. you get a huge increase in income and off into the sunset you go.. without having to own so many units that is a J O B unless you want it to be.. some people are very pleased to live the life of a landlord.. I see many hubby and wife teams in the mid west do this..  Wife is the leasing agent and hubby is the handy man .. they pay cash for low value assets they know they are not really going to go up much.. but they have no debt and they collect a few a year end of a 20 year run they own 30 to 40 free and clear making a nice living especially if they are in a small rural mid western town..  

 Hey! You're giving away my retirement secrets :D  . Seriously, that's more or less my situation. We bought a bunch of old homes, where we live (a growing population area in a college town) for cash, rehabbed them, and rented them out. It's not the 100 doors model I see people raving about but it's manageable and you barely notice you have them. It's a fairly simple existence but coupled with some other streams of income a pretty good one, and stable at that - when you own a house outright you don't worry too much about having to pay the mortgage on that house. 

give me 10 paid for houses over 50 leveraged to the eye balls everytime.. same cash flow much less work and stress..  

 Agreed. I never really get the "buying cash-flow" argument. Any time you invest money into something you're 'buying' cash flow. If I put $10,000 into a mutual fund at 8% interest, by that logic I bought the $800 because I didn't immediately find someone who would loan me $10k at 5%. Sometimes I think people think that just because RE offers something virtually no other investment does (the ability to permanently borrow against the investment), it should always be treated differently than any other investment. I get that leverage can get you faster growth, and by definition more money, but everything is a trade off and just as you said, more work and more risk. My cash flow on my relatively small portfolio is better than a lot of people I see posting on here with dozens more doors, and I'm not going to lose my properties if there is a downturn. 

[Mario Alberto]

I wonder what impact this is going to have on wholesaler's...

[Caroline Widjaja]

Hum...I just need to pile up some cash from now on and get ready when the time is right, don't want to miss a boat LOL

[Joe Splitrock]

@JD Martin you are spot on. More doors is more tenants and more tenants it more headaches. I can get $10K monthly passive income from 10 paid for houses in my local market. Why do I need 50 doors or worse why would I syndicate hundreds of doors. Sound like lots of work. Scale brings headaches. No disrespect to those who desire more, but it is just not for me.

As far as whether it is 2007 all over again, it sure feels different. But ultimately it doesn't matter to anyone with strong equity position and located in a stable market. My rentals stayed 100% occupied from 2008-2012 and I was able to raise rents and acquire more properties during that time. So if by chance it turns out to be 2007 all over again, that will be just fine.

[Jay Hinrichs]

Originally posted by @JD Martin:

Originally posted by @Jay Hinrichs:

Originally posted by @JD Martin:

Originally posted by @Jay Hinrichs:

nice post.... and I high light APPRECIATING markets  and LONG TERM  … if its the rental game I like that and pay down your debt.. you retire when your rentals are paid for .. you get a huge increase in income and off into the sunset you go.. without having to own so many units that is a J O B unless you want it to be.. some people are very pleased to live the life of a landlord.. I see many hubby and wife teams in the mid west do this..  Wife is the leasing agent and hubby is the handy man .. they pay cash for low value assets they know they are not really going to go up much.. but they have no debt and they collect a few a year end of a 20 year run they own 30 to 40 free and clear making a nice living especially if they are in a small rural mid western town..  

 Hey! You're giving away my retirement secrets :D  . Seriously, that's more or less my situation. We bought a bunch of old homes, where we live (a growing population area in a college town) for cash, rehabbed them, and rented them out. It's not the 100 doors model I see people raving about but it's manageable and you barely notice you have them. It's a fairly simple existence but coupled with some other streams of income a pretty good one, and stable at that - when you own a house outright you don't worry too much about having to pay the mortgage on that house. 

give me 10 paid for houses over 50 leveraged to the eye balls everytime.. same cash flow much less work and stress..  

 Agreed. I never really get the "buying cash-flow" argument. Any time you invest money into something you're 'buying' cash flow. If I put $10,000 into a mutual fund at 8% interest, by that logic I bought the $800 because I didn't immediately find someone who would loan me $10k at 5%. Sometimes I think people think that just because RE offers something virtually no other investment does (the ability to permanently borrow against the investment), it should always be treated differently than any other investment. I get that leverage can get you faster growth, and by definition more money, but everything is a trade off and just as you said, more work and more risk. My cash flow on my relatively small portfolio is better than a lot of people I see posting on here with dozens more doors, and I'm not going to lose my properties if there is a downturn. 

Yup leverage is a necessary evil for most starting and as you mature and get cash not bad to retire it.. @Steve Vaughan has been talking about how he is re balancing his portfolio and going over to the dark side  IE pay stuff off live with the extra cash flow and get rid of those pesky loans that have burdensome loan covenants. 

[Andrew Syrios]

I've been feeling a little like that for 2-3 years now. I think it will dip soon, but I doubt it will crash.

[Ted Hebert]

The biggest danger sign out there is banks offering "non prime" loans. This is just a repeat of the sub prime mortgage debacle that crashed the real estate market in 2007-2008. Because the economy is booming, and many people are fat and happy, banks are taking risks again. I see ads on IG, Facebook, etc offering 100% financing. What? I have a relative that is 21 years old, makes $33,000 per year, and he was just approved for a $200,000 mortgage with ZERO down. This after he just bought a brand new $30000 car with nothing down. I make six figures (not including rental income), and I could not get approved for zero down if I tried. He is buying a duplex, so maybe the mortgage company believes he will generate income from one unit. Still, that is crazy to me. I'm sure they will sell the note as quick as possible, so what do they care? Dangerous.

[Michael Krupp]

Great topic folks, I will chime in with some thoughts from the Baltimore, MD area. I have been thinking about all this for the last 2 years, kind of waiting to see if a shoe will drop.  Regardless, it is not as bad in my opinion as it was in 2008 with all the banking and corporate collapses and more.  Yes, real estate prices have been high, the stock market is overvalued, and interest rates are on the rise.  Who knows what economic or political issues will arise.  These must all be taken into consideration for a conservative or possibly different approach in your investing.  There are always opportunities, they just seem to change I believe.  One strategy may just be to take some money off the table.

I have been rehabbing and hard money lending the past 9-10 years on my own pretty strongly. The best opportunities were surely after the crash in 2008-09 for a few years. There has still be opportunities since then. I have seen the past 1-2 years, a lot of inexperienced investors entering the market, and overpaying for properties. Whether it be on MLS, auction, or wholesale, I won't pay what they will, so it has been harder to find properties, but they are still out there. You just have to look harder and differently. It is also about relationships.

The market today has obviously changed.  Buy prices higher, sales prices high, though starting to see some come down.  Days on market is definitely going up, though it depends on the area.  In parts of Baltimore City, the higher end and more competitive areas, like Canton, Fells, Point, Federal HIll, Locust Point, are getting hit pretty hard it looks like.  In the county, depending on where you are, housing are still selling fairly quickly provided you have a good product at a fair price.

The first time home buyers market $250k or less, used to be a great market, and this might be changing.  I am going a little higher end in good county areas with good schools.  I have also started doing new construction under $500k and those are typically under contract before they are completed.  I think if you are savvy, patient, conservative, there is still opportunity in my opinion.

I also own rentals and will be looking for more of them and have not had much trouble getting things rented in better areas, in the $100-150k range for rowhomes, and no board ups.  I do not do lower end housing.   

On the lending side, the first 6 month had been very very busy. The past 2 months, much slower.  There are more novice investors in the local market now though, the past few years, some have been put out of the market due to mistakes on lending, and just not having the experience.  There has also been some larger regional or national companies that have entered the local market offering enticing rates.  Most of them cannot offer the local knowledge and insight, and cannot move as quickly as us local hard money lenders.  Even though we might be more expense, we surely can better help our local clientele and can respond much faster to their needs.  I will starting a topic shortly on a recent loan experience and how hard money lenders can be a new investors best friend.

Open to thoughts.

Regards,

Michael Krupp

[Lucia Rushton]

While studying for my RE license right now, I came across this:

Real estate prices, as with most financial markets, tend to follow a pattern. For real estate it is "The Real Estate Cycle." There are many theories out there about The Real Estate Cycle, but the one that is most favored is called "The Great 18-Year Real Estate Cycle." Back in the 30's a real estate economist named Homer Hoyt discovered that real estate prices seemed to ebb and flow on an almost perfect 18 year schedule. Hoyt's theory was later used and refined by now famed economist Fred E. Foldvary to predict the real estate crash of 2008. Because of this data, economists understand that real estate market operates in a fairly predictable cycle that can be seen and taken advantage of by smart consumers. 

Fred E. Foldvary - The Depression of 2008

Fred E. Foldvary produced a now famous report to predict the recession of 2008. In his report, Foldvary even explains why Hoyt's 18-year cycle theory diverged so drastically between 1925 and 1973. Foldvary points out that the cycle does not always function on a precise 18 year schedule, but - baring catastrophic events like a world war - for the most part the cycle should be right around 18 years.

If you look strictly at the 18 year pattern, the next peak will happen sometime in the mid 2020's - so we still have a few years. Rather than focusing on the date, though, students should look at the fundamentals. 

[Krissy Key]

Instead of speculating or timing the market, I believe in having your own systems in place that tell you whether to buy or save. If home prices start shooting up out of my budget, I plan to save my cash flow. When they come back down, I’ll be ready to buy because I saved for a period of time.

[Jay Hinrichs]

Originally posted by @Michael Krupp:

Great topic folks, I will chime in with some thoughts from the Baltimore, MD area. I have been thinking about all this for the last 2 years, kind of waiting to see if a shoe will drop.  Regardless, it is not as bad in my opinion as it was in 2008 with all the banking and corporate collapses and more.  Yes, real estate prices have been high, the stock market is overvalued, and interest rates are on the rise.  Who knows what economic or political issues will arise.  These must all be taken into consideration for a conservative or possibly different approach in your investing.  There are always opportunities, they just seem to change I believe.  One strategy may just be to take some money off the table.

I have been rehabbing and hard money lending the past 9-10 years on my own pretty strongly. The best opportunities were surely after the crash in 2008-09 for a few years. There has still be opportunities since then. I have seen the past 1-2 years, a lot of inexperienced investors entering the market, and overpaying for properties. Whether it be on MLS, auction, or wholesale, I won't pay what they will, so it has been harder to find properties, but they are still out there. You just have to look harder and differently. It is also about relationships.

The market today has obviously changed.  Buy prices higher, sales prices high, though starting to see some come down.  Days on market is definitely going up, though it depends on the area.  In parts of Baltimore City, the higher end and more competitive areas, like Canton, Fells, Point, Federal HIll, Locust Point, are getting hit pretty hard it looks like.  In the county, depending on where you are, housing are still selling fairly quickly provided you have a good product at a fair price.

The first time home buyers market $250k or less, used to be a great market, and this might be changing.  I am going a little higher end in good county areas with good schools.  I have also started doing new construction under $500k and those are typically under contract before they are completed.  I think if you are savvy, patient, conservative, there is still opportunity in my opinion.

I also own rentals and will be looking for more of them and have not had much trouble getting things rented in better areas, in the $100-150k range for rowhomes, and no board ups.  I do not do lower end housing.   

On the lending side, the first 6 month had been very very busy. The past 2 months, much slower.  There are more novice investors in the local market now though, the past few years, some have been put out of the market due to mistakes on lending, and just not having the experience.  There has also been some larger regional or national companies that have entered the local market offering enticing rates.  Most of them cannot offer the local knowledge and insight, and cannot move as quickly as us local hard money lenders.  Even though we might be more expense, we surely can better help our local clientele and can respond much faster to their needs.  I will starting a topic shortly on a recent loan experience and how hard money lenders can be a new investors best friend.

Open to thoughts.

Regards,

Michael Krupp

I am with you new construction infill is much better your creating value .. rehabbing these old dogs is just not anything I  personally want to do anymore.. each city has its honey hole for edgey new construction.... I just sold one last week in Charleston for 2.2 million and it never hit the market and all cash.. fingers crossed we get that baby closed..  in Portlandia we saw slowing sales over the summer but winter spring were nuts.. we sold 21 of 23 homes in one community we built in 4 months all in framing stages..

[Leland S.]

I don't think interest rates rising from next to zero are a recipe for a declining economy. When is the last time they were ever that low? Our parents are used to 8% rates. Realtors are arguing that prices will not decline because inventories are still low whereas in 2007 they had been building up. Not to mention the banks have mostly fixed the shady low lending practices which should prevent a large downturn to the epic scale of 2007. What I'm hearing is this is a strong economy that should see continued growth over the next few years. The psychology of fear is big though and any kinds of large market corrections could propel a small scale correction.

Question is, what is your exposure? Did you just buy 10 houses to hold or are you sitting with 50% equity growth on 10 houses? Are you renting with cash flow in a stable market location with job and population growth? If you're flipping, then you have margins built in and intend to sell quickly anyway. All of the standard safety practices of RE should prevent you from losing money and worrying about a down turn. As investors are, we are salivating over the potential. 

[Joel S.]

@Nicole Heasley So what are you suggesting? That the fear is overstated? Also interesting your saying about the area your from which didnt yet recover. I this the civeted cleavelend ohio market? And why hasnt it recovered? What is the driving force of the conomy in the area?

[Christian Hutchinson]

I always like to watch Median Household Incomes vs Median Sales Price...I'm seeing lots of places with Median HH income at like $77K and the homes are sold at $400K.  If your mortgage balance is more than 3 times your annual income unless you just have tons of cash, this is a financial disaster in the making.

Another thing I feel like I'm seeing because Construction is back fired up again I'm seeing lots of frivolous purchases.  Seeing lots of new RVs around town, $90K loaded pickup trucks, when I need to get a massage its a 3 day wait, versus same day 3-4 years ago. By some of my rentals I see lots of new TV boxes, xBoxes, etc packages on garbage day. IDK, if the Median HH Income for your Census tract is $47K I would think if you make extra money you should pay down debt, save, or invest.

I get guys in their mid-20 to early 30s bragging basically they can afford a $1500/mo apartment because they make $32/hr.  When you do some digging they are on a 1099.

I get consumer spending drives our economy...But I forever have this statement burned into my brain.  When my oldest son was born I told people in my unit in the USAF that the money made while we were deployed I was setting up a college fund for my son. I did this versus buying a new motorcycle, buying firearms we were selling (I don't know how that was legal), or special order a car (cause nothing is better than doing 7 months in the desert and coming home to a Chrysler 300 or a Camaro). The response over and over again was "Why he may not even go to college, and thats like 18 years away he is like 5 months old".

With attitudes like this so rampant in our Country, I feel another debt crisis is always just one or two economic shocks away.

[Nicole Heasley Beitenman]

@Joel S. I don't think the fear is overstated, but I think it's perpetuated and accelerated by speculation. I also believe that the foremost drivers of the "coming" recession are the student loan crisis and the current federal administration's pursuance of trickle-down economic policies. 

I'm sorry, but I can't understand your sentence regarding Cleveland.

Cleveland, Youngstown, and the rest of the rust belt all declined for similar reasons--the loss of manufacturing jobs, which were the driving forces of the economies in this area. Youngstown's economy centered around steel production. After WWII, steel production was outsourced overseas. The economy tanked, the population tanked, and no one did anything about it. There was no movement to educate workers so they could move into other fields of work. There was no movement to replace steel manufacturing with other kinds of manufacturing. The area floundered for 30 years.

Note that I said the area hasn't fully recovered. GM and Youngstown State University are both large employers. The downtown area has seen an uptick in construction and new business, especially since the Covelli Center was built, which has led to a large new Hilton that just opened this year. They've also broken ground on an outdoor amphitheater. 

That being said, I'm nervous. Not only do I agree that a recession is coming, but the GM plant has been wobbling on its last leg for 10 years, and I project college enrollment to decline in the coming years. 

[Mario Alberto]

@Caroline Widjaja same here, ps. don't yell it out, lets keep it a secret.

[Patrick Hall]

Ok, having read and understanding for the most part many many of the posts herein, the rookie questions that develop in ones mind are as follows:

1.  So is real estate investing a current play for a new investor or are we better off to lay low and wait?/play somewhere else?  I personally believe (and this comes with several years experience glancing at the Google stock ticker and walking by the Cramer show occasionally on in the bedroom) the market wont be spectacular over the next couple years, sub 8% at least, where does a guy put his money? 

2.  If not lower end props (say 50k-100k) then what?

3. Are lower end investments naturally a bad deal even if a thorough, conservative analysis shows a decent ROI and you don't have to leverage to the hilt? I do wonder how a bank lends on a 25k house that would cost 100k to rebuild. Strange.

 4.  If lower end investments are a bad idea, how does someone without a huge nut begin?   

I am sure these questions have been asked already somewhere within this forum but I just had to throw them out.  

Patrick. 

[Mary Love]

If I just base my assumption on the normal RE cycle, then yes an adjustment will be coming in the next 24 months.  I think how much depends on where you live.  My area is centered around several counties in Western North Carolina.  Asheville NC is super hot and for our wage standards very expensive. Yet, new construction continues because there is big housing shortage.  Go into one of the surrounding counties that is about 1 hour from Asheville and everything is much slower and less expensive.  I'm a big fan of staying within a 20-30 minute drive of Asheville.  I can find better deals and still get good tenants, good rents and help with the affordability of living in our beautiful mountains. 

[Andrey Y.]

Originally posted by @Danny Webber:

We are due for a correction based on the values that are not sustainable/interest rate hikes. The danger is a worldwide correction (Australia, China, Japan, US +).

This could trigger a plethora of negative things including currency devaluations, bank runs, more trade wars, more populism, etc

Peter Schiff- You cannot argue with the logic or facts he presents unless you can. If so, I would love to see them. What you can argue with is his timing. The govt has been artificially stimulating the economy through QE for a long time. Eventually our treasuries and bonds will not be able to be sold to central banks. Pity the day the central banks stop buying our paper....

Russia and Turkey both just sold a lot of their US debt. We all need to pray other countries do not follow suit or that could lead to a devaluation of the debt at current value which leads to other things we dare not talk about.....(scary)

I am not a contrarian or alarmist but the facts are the facts.... The US is on a ride that will end some day in a major way.

We cannot keep printing money to pay for the costs of the money already printed and sold via bonds/treasuries if the value of our currency moves down without printing tons more money which in itself will devalue the currency... Circular logic... I am too uneducated to side with Monetarist, Keynesian or laissez-faire theorist. My gut tells me to let things develop how they develop without the govt interfering so that makes me more of a LF Theorist i suppose.

Slippery slope... we are unfortunately already on.

My opinion. FYI- i love intelligent debate on economics

EXCUSE TYPOS/GRAMMAR

Danny

 Sounds like you have been watching at least two 'doom and gloom' channels on YouTube. Life is meant to be enjoyed, in a happy and carefree state. You cannot do this if you are fearing apocalypses and believing conspiracies.

[Andrey Y.]

Originally posted by @Patrick Hall:

Ok, having read and understanding for the most part many many of the posts herein, the rookie questions that develop in ones mind are as follows:

1.  So is real estate investing a current play for a new investor or are we better off to lay low and wait?/play somewhere else?  I personally believe (and this comes with several years experience glancing at the Google stock ticker and walking by the Cramer show occasionally on in the bedroom) the market wont be spectacular over the next couple years, sub 8% at least, where does a guy put his money? 

2.  If not lower end props (say 50k-100k) then what?

3. Are lower end investments naturally a bad deal even if a thorough, conservative analysis shows a decent ROI and you don't have to leverage to the hilt? I do wonder how a bank lends on a 25k house that would cost 100k to rebuild. Strange.

 4.  If lower end investments are a bad idea, how does someone without a huge nut begin?   

I am sure these questions have been asked already somewhere within this forum but I just had to throw them out.  

Patrick. 

 1. Invest in yourself. If you have robust human capital, you will be able to make a living in almost any situation.

2. Put money into travel. You will see the world in a different light.

3. Learn another language. You will think differently.

You don't always have to invest in stocks or real estate.

[Patrick Hall]

@Andrey Y. - That sounds really wonderful....if I was still that carefree bachelor that waited until 39 to get married and start a family...…...but alas I have 3 kids, and unfortunately and fortunately a much younger wife that I am responsible for...….damned women and children!!!  Now that college is 4,700,000 per kid and the fact that I will need to keep my wife in the green 15 years after I die, I need to ramp up my retirement portfolio.  Love the attitude though!  Right there with you...in spirit!!!!  

[Gayle Quinlan]

I am dying to buy another rental, I have 3 currently. But something tells me to wait a bit longer.

[Igor A.]

I think there are always two kinds of people on this debate every time: The first group believes people forgot the mistakes of the past and are committing them again, the second group believes everyone is too afraid with what happened 10 years ago so everyone is on risk aversion mode. 

In my opinion, the housing market will naturally see a downturn but it will a soft/mild one. Nothing like the housing bubble of the mid 2000s, the conditions just aren't there. (On this point, we are indeed committing the same mistake in another industry: Subprime car loans. But that's a discussing for another forum and for another day)

The housing market is seeing inflated prices not due to a demand-side issue but rather due to a supply-side one. Three important factors come to mind:

1. Self-inflected injuries at the local level: Read this as zoning, rent control, etc. Places such as SF have laws in place that encourage people to hold onto their property for as long as possible while simultaneously discouraging developers from "densifying" an area. That will undoubtedly reduce supply and, with an increment in demand, raise prices.  

2. Constructions jobs are not sexy: Among the younger generations you see an unwillingness to join the workforce as a construction worker. According to data, the median age of construction workers has gone up and currently there are about 200k openings nation-wide. All of this together means that the labor cost is becoming too expensive.

3. Construction materials are more expensive now than before, adjusting for inflation: This one is self-explanatory but with the added increasing labor costs overall, potential projects are basically outpriced and become unattainable.

These are basically the 3 main reasons major developers cite when explaining why there's not enough housing units being added nation-wide. As a result, many of them can barely break even when developing lower- and middle-class housing and instead opt for luxury housing development - where they can still get a healthy profit (think Hudson Yards). 

On top of this one must highlight another factor: Babyboomers are not as willing to "move out" as preceding generations. Nation-wide you see that in general retirees are not willing to let go of their homes and prefer to live there. Nothing wrong with that, but it creates a market inefficiency: When their kids go away, retired couples refuse to move out into smaller units and instead let 2, 3 or even 4 rooms be empty. This generates upward pressure on the prices as there's unused capacity. When you check other past generations, you saw a much higher incidence for retires to move out into smaller units allowing young families to move in to the house. 

As mentioned above, one should see a soft/mild downturn in the housing market as more and more people are priced out and demand goes down. The market should correct itself eventually but it will not be a violent correction a la 2008 Housing Crisis as many want/expect.

[Victor S.]

Originally posted by @Andrey Y.:

Originally posted by @Patrick Hall:

Ok, having read and understanding for the most part many many of the posts herein, the rookie questions that develop in ones mind are as follows:

1.  So is real estate investing a current play for a new investor or are we better off to lay low and wait?/play somewhere else?  I personally believe (and this comes with several years experience glancing at the Google stock ticker and walking by the Cramer show occasionally on in the bedroom) the market wont be spectacular over the next couple years, sub 8% at least, where does a guy put his money? 

2.  If not lower end props (say 50k-100k) then what?

3. Are lower end investments naturally a bad deal even if a thorough, conservative analysis shows a decent ROI and you don't have to leverage to the hilt? I do wonder how a bank lends on a 25k house that would cost 100k to rebuild. Strange.

 4.  If lower end investments are a bad idea, how does someone without a huge nut begin?   

I am sure these questions have been asked already somewhere within this forum but I just had to throw them out.  

Patrick. 

 1. Invest in yourself. If you have robust human capital, you will be able to make a living in almost any situation.

2. Put money into travel. You will see the world in a different light.

3. Learn another language. You will think differently.

You don't always have to invest in stocks or real estate.

4. turn Cramer off completely

https://www.kiplinger.com/article/investing/T052-C...