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Updated over 5 years ago, 09/03/2019
It's Feeling a Lot Like 2007
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.
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Originally posted by @William Huston:
I am confused what is going on in the market here in Tampa Bay area.. June we had 1.8 months of inventory, and july 1.71 months... then recently i have been getting bombarded by yellow letters at my personal home. I bought it less than a year ago, so they are getting pretty desperate on finding deals to pay cash for....
I got a yellow letter recently offering me 85% of the market value blindly, without ever seeing the inside of my house to know the shape its in.. just dont understand how these investors can get this desperate with all the signs of a downturn about to happen in the future.
maybe because in an area short of inventory there is no down turn around the corner....
- Jay Hinrichs
- Podcast Guest on Show #222
@Joseph M. I was thinking appreciation. This article is slightly out of date but if has some good information...
While there are many reasons why this is in no way like 2007 not the least of which is the trillions of dollars the Fed has injected into the economy that will take decades to get out of the system, certain trends are emerging that should be a signal to those of us that have been keeping our “powder dry” and those that are not overleveraged that opportunity may be emerging. According to the Florida Association of Realto:
ATTOM Data Solutions' July 2018 U.S. Foreclosure Market Report shows that foreclosure starts increased from a year ago in 96 of the 219 metropolitan statistical areas (44 percent) analyzed in the report.
Twenty-one states posted a year-over-year increase in foreclosure starts in July, including Florida (up 35 percent); California (up 3 percent); Texas (up 7 percent); Illinois (up 7 percent); and Ohio (up 2 percent).
Nationwide, 30,187 U.S. properties started the foreclosure process for the first time in July – a 1 percent increase over the previous month and less than 1 percent year-to-year. However, it's the first increase in foreclosures after 36 consecutive months of year-over-year decreases.
According to ATTOM's report, four Florida cities have seen a notable change in foreclosure starts over the past three months, including:
- MiamiMay: 4 percent increase
June: 35 percent increase
July: 29 percent increase - JacksonvilleMay: 22 percent increase
June: 22 percent increase
July: 81 percent increase - OrlandoMay: 12 percent increase
June: 22 percent increase
July: 41 percent increase - Cape Coral-Fort MyersMay: 11 percent increase
June: 64 percent increase
July: 59 percent increase
"The increase in foreclosure starts is not just a one-month anomaly in many local markets given that July represented the third consecutive month with a year-over-year increase in 33 metro areas, including Los Angeles, Miami, Houston, Detroit, San Diego and Austin," says Daren Blomquist, senior vice president with ATTOM Data Solutions.
Go to work Wholesalers !!! I don’t have time to knock on doors but the knocking here may just be opportunity.....
We are reaching another RE Bubble like 2007
Oh look, it’s this tired thread again. Doesn’t some chicken little post this once a month?
1. There isn’t a housing crash every 8-10 years. That’s just a ridiculous statement. What happened during the last recession was a once in a lifetime occurrence.
2. The economy shows no signs of slowing down. Turns out we have a roaring economy when we actually focus on America first.
3. Any slow downs in the housing market will be regional. Just because houses are overpriced in your market doesn’t mean the same elsewhere in faster growing cities. They can’t build fast enough where I am at.
But it’s been great stopping by. Can’t wait until next month when the next bigger pockets Nostradamus predicts a housing crash and Great Depression. Maybe one of you will be right in and decade or so. But I have all the faith in the world you “experts” will still be making these monthly prophesies until then.
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Lisa. Check your calendar and maybe you’ll figure out what’s special about September 3rd, you know, Labor Day? Everyone comes for Labor Day weekend, they don’t stay Labor Day night, they have to work Tuesday.
I know one night’s rates at hotels is what you probably use to determine home values in other cities, but don’t use it in Las Vegas. It’s a sheety metric.
We’re still bringing in 4x more people that houses being built. We still have less than a months supply of houses, prices are still below prices 10 years ago...
Tell you what. Buy 10 vegas homes today and I’ll promise, in writing to pay you that price in 10 years and you can keep all the rent in the meanwhile. I know I’ll be so screwed by how much lower vegas prices are but I just want you to be able to sleep at night.
Please never post crap like this unless you have 20+ units here in Vegas and you are selling them all. I will say again. Can you imagine how high vegas prices would be if everyone who didn’t own here ever stopped talking about the next vegas crash? I will repeat. ONCE, ONCE in the cities history, prices have dropped more than 4%. Pretty much means it should start happening every 10 - 15 years right?
Let’s start a new thread where everyone who has said the next crash is coming more than a year ago writes an apology to the group for every dollar they cost people who didn’t invest because they were wrong again. Hopefully we don’t have to search the forums and start listing them, hopefully they’ll just self identify.
Another way to hedge against a recession is to find and accept good Section 8 tenants. Since the government pays most of the rent we don't have to worry about the tenant losing a job. The rent shows up on-time every month, recession or not.
I think we are on the cusp of a different type of economic crisis, not like the recession we had in 2007. The recession from 11 years ago was caused by irresponsible lending and an overvaluation of real estate in many major markets, leading to mass foreclosures. New instability we haven't seen since the Great Depression can be set off if we face an economic downturn today. The fact of the matter is the majority of working Americans are living paycheck-to-paycheck at the moment and it will get really ugly if a wrench gets thrown at those that are most vulnerable.
The current trend now is an affordable housing shortage in the most popular metro areas across the country, and there doesn't seem to be any resolution in sight as new residential construction in this country is stagnant. In short, the majority of people will stay renting/super-commuting if they want to continue their careers and lives in cities like LA, NYC, SF.
Affordable units are not being built because they are not profitable for developers, who only profit from McMansions (which both aging Baby-Boomers and young people don't want now and especially not during a downturn) and luxury condos/apartments, so more and more Americans in HCOL cities continue to rent, many of which are already rent-burdened. I predict that as the renter pool continues to grow in the new few years, economic inequality will continue to grow exponentially, leading to social unrest as well as calls for economic reform, which could explain the growing appeal of Bernie Sanders back in 2016 to those that are most at-risk.
I predict America will become much more like Europe in the coming years; normalized social unrest/tensions, even more economic inequality and pushes for more social programs subsidized by higher taxes. Perhaps more crime and a bigger drug problem to those that are already living paycheck-to-paycheck today get a wrench thrown at them if the economy were to do poorly.
For those of us that are looking to invest in residential real estate today, we need to tread lightly and not depend on appreciation, but cash flow from properties near economic powerhouses, such as government jobs, hospitals and universities.
Originally posted by @Anthony L.:
I think we are on the cusp of a different type of economic crisis, not like the recession we had in 2007. The recession from 11 years ago was caused by irresponsible lending and an overvaluation of real estate in many major markets, leading to mass foreclosures. New instability we haven't seen since the Great Depression can be set off if we face an economic downturn today. The fact of the matter is the majority of working Americans are living paycheck-to-paycheck at the moment and it will get really ugly if a wrench gets thrown at those that are most vulnerable.
The current trend now is an affordable housing shortage in the most popular metro areas across the country, and there doesn't seem to be any resolution in sight as new residential construction in this country is stagnant. In short, the majority of people will stay renting/super-commuting if they want to continue their careers and lives in cities like LA, NYC, SF.
Affordable units are not being built because they are not profitable for developers, who only profit from McMansions (which both aging Baby-Boomers and young people don't want now and especially not during a downturn) and luxury condos/apartments, so more and more Americans in HCOL cities continue to rent, many of which are already rent-burdened. I predict that as the renter pool continues to grow in the new few years, economic inequality will continue to grow exponentially, leading to social unrest as well as calls for economic reform, which could explain the growing appeal of Bernie Sanders back in 2016 to those that are most at-risk.
I predict America will become much more like Europe in the coming years; normalized social unrest/tensions, even more economic inequality and pushes for more social programs subsidized by higher taxes. Perhaps more crime and a bigger drug problem to those that are already living paycheck-to-paycheck today get a wrench thrown at them if the economy were to do poorly.
For those of us that are looking to invest in residential real estate today, we need to tread lightly and not depend on appreciation, but cash flow from properties near economic powerhouses, such as government jobs, hospitals and universities.
Where did you buy your crystal ball?
I'm just messing :) I do plan on relocating overseas by 2023. I just don't know how having certain assets in the U.S. will affect this. It may come a point I will need to stop investing in U.S-based assets just to be sure. There is always some trepidation in investing overseas (esp. a non-Western or non-English speaking one). If I was actually present in that country, I would feel more comfortable pulling the trigger.
@Anthony L. , not too far from you in L.A , the housing issue really is a big thing here of course. I forget the specific percentage but many people are spending about 50% of their income on rent. That affects the local economy in general of course because then people have less and less to spend on local businesses and services. There have been studies that show homeowners have an average networth 44x that of renters.
https://www.keepingcurrentmatters.com/2017/10/12/n...
Having such a higher percentage of renters I don't view as a great thing. In L.A we are seeing 'rent strikes' recently of tenants not paying rent and protesting against landlords even at the landlords home. So we are seeing signs of 'civil unrest' . Local politicians now are talking about hiring attorneys for some tenants facing eviction.
https://la.curbed.com/2018/8/17/17720066/los-angel...
Definitely not a pro landlord move.
Originally posted by @Andrey Y.:
Originally posted by @Anthony L.:
I think we are on the cusp of a different type of economic crisis, not like the recession we had in 2007. The recession from 11 years ago was caused by irresponsible lending and an overvaluation of real estate in many major markets, leading to mass foreclosures. New instability we haven't seen since the Great Depression can be set off if we face an economic downturn today. The fact of the matter is the majority of working Americans are living paycheck-to-paycheck at the moment and it will get really ugly if a wrench gets thrown at those that are most vulnerable.
The current trend now is an affordable housing shortage in the most popular metro areas across the country, and there doesn't seem to be any resolution in sight as new residential construction in this country is stagnant. In short, the majority of people will stay renting/super-commuting if they want to continue their careers and lives in cities like LA, NYC, SF.
Affordable units are not being built because they are not profitable for developers, who only profit from McMansions (which both aging Baby-Boomers and young people don't want now and especially not during a downturn) and luxury condos/apartments, so more and more Americans in HCOL cities continue to rent, many of which are already rent-burdened. I predict that as the renter pool continues to grow in the new few years, economic inequality will continue to grow exponentially, leading to social unrest as well as calls for economic reform, which could explain the growing appeal of Bernie Sanders back in 2016 to those that are most at-risk.
I predict America will become much more like Europe in the coming years; normalized social unrest/tensions, even more economic inequality and pushes for more social programs subsidized by higher taxes. Perhaps more crime and a bigger drug problem to those that are already living paycheck-to-paycheck today get a wrench thrown at them if the economy were to do poorly.
For those of us that are looking to invest in residential real estate today, we need to tread lightly and not depend on appreciation, but cash flow from properties near economic powerhouses, such as government jobs, hospitals and universities.
Where did you buy your crystal ball?
I'm just messing :) I do plan on relocating overseas by 2023. I just don't know how having certain assets in the U.S. will affect this. It may come a point I will need to stop investing in U.S-based assets just to be sure. There is always some trepidation in investing overseas (esp. a non-Western or non-English speaking one). If I was actually present in that country, I would feel more comfortable pulling the trigger.
I'd be wary of buying property away from where you live unless you have family or really close friends to keep an eye on them. Even from LA County to Riverside County, my family friend had found out herself that her property management had leased a single family home to a family that later ballooned up to 11 people living in a 3 bedroom house. The property management agent she hired eventually disappeared with her rent money and left her the mess to clean up.
I don't know much about overseas investing, the United States is all I've ever known. I have faith that even if bad things were to happen to us, we can pull through it and reinvent ourselves like we have throughout the country's history. The best thing we can do now is be keen to what we put a lot of cash down for anything
Originally posted by @Joseph M.:
@Anthony L. , not too far from you in L.A , the housing issue really is a big thing here of course. I forget the specific percentage but many people are spending about 50% of their income on rent. That affects the local economy in general of course because then people have less and less to spend on local businesses and services. There have been studies that show homeowners have an average networth 44x that of renters.
https://www.keepingcurrentmatters.com/2017/10/12/n...
Having such a higher percentage of renters I don't view as a great thing. In L.A we are seeing 'rent strikes' recently of tenants not paying rent and protesting against landlords even at the landlords home. So we are seeing signs of 'civil unrest' . Local politicians now are talking about hiring attorneys for some tenants facing eviction.
https://la.curbed.com/2018/8/17/17720066/los-angel...
Definitely not a pro landlord move.
California is a pretty dysfunctional place, a place where you're either part of the haves or the have-nots. This year, California ranked as the state with the highest poverty rate in the country when factoring in cost of living. So many people are already stretched thin, which makes me think that it's only a matter of time before things start to go south here. I don't ever plan on buying property in this state, either for investment or myself.
There's prop 10 in this state's coming election which would allow local governments to decide on implementing rent controls, which can be really bad news for current landlords in the state.
Originally posted by @Account Closed:
Your 11 tenants from 3 is not that uncommon in low income housing. You think the Lady and her kid you intitially rent to is going to enjoy your home, just the 2 of them. Little unbeknowst to you her boyfriend and his 3 kids will also enojoy your low income rental. Then her sister who just broke up with her bf needs a place short time- which turns in forever. Then the new bf starts showing up.
Really happened. The owner tried so hard to do things right. He just said bleep, bleep n bleep.
That is one more reason why the lease must always be airtight and the tenants are screen thoroughly, so your single family home does not turn into a residential clown car
I found the 11 pages of posts to be very informative. Thanks everyone for posting. I’ve been a “passive” investor for almost 10 years and an observer for 15. I have my own views and I disagree with many of the views on the 11 pages of posts. My gut tells me that we’re not looking at 2007 again but we are looking at something different and I expect to see some price softening, especially at the “luxury” level that is overbuilt and in particular markets. Reading the posts, however, helps me try to stay humble that I should be deploying my resources in a way that considers multiple scenarios. As one of my mentors, Jeff Brown, would say, “my crystal ball is as cracked as anyone’s.”
My question to all of you is what are you doing now given your views?
Given rising property prices and reduced cap rates, I’ve shifted from real estate equity and have become a hard money lender and debt investor so that I make a good return off my cash while staying relatively liquid and while watching the market. I’m also adding value to my existing properties to increase cash flow and increase my war chest after refi’ing.
For whatever it's worth, Wells Fargo is laying off over 600 mortgage workers "as it grapples with a slowdown in its mortgage business, a bank spokesman said on Friday." (quote from Reuters)
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Originally posted by @Joseph M.:
@Jay Hinrichs , yeah I agree , low end rentals can be profitable but likely have to be local like you said. Things can look great on paper, but a lot can go wrong and often does. For many that grew up and lived more a middle class lifestyle they probably can't imagine some of the scenarios that often occur in low income areas.
I do have to hand it to brokers like James Wise that does show the ugly side of lower end rentals , trashed properties , evictions etc . I've seen some of his Youtube videos and they are pretty good . He's also in the management business of course so it's to his benefit to be upfront and set expectations versus painting a rosy picture like everything is going to be totally passive and turnkey ..just sit back and collect the check...and on the path to financial independence.
Thanks for watching!
I work in the mortgage industry, and that means that I get to see the rates every day when the GSE's send them in. About 2 years ago, or a little more, one single day the rates were so bad that we see the economy was practically about to crash. Luckily, the next day, the rates bounced back the very next day, and since then, they've been relatively steady.
I agree with the thesis that some sort of economic reckoning is inbound, but I am very unsure regarding what sort of impact that will have on the housing market.
Ray Dalio just released his new book A Template For Understanding Big Debt Crises, which you can download for free from his website. If you don't feel like reading his 450+ page book, look for recent videos online. Seems that Ray believes our debt crises is more closely aligned with that of 1935-1940 rather than 2008 (at least as I understood it).
@Karl B. SW PA is the same.... Are you up in Erie? I've seen some folks unloaded Meadville rentals after the college created the 4 year residency requirement. Worse I've seen people buy those because they think they will get the "college student" crowd. Lol
I'm getting letters for my duplex that I'm not even an absentee landlord for!!!!! I live in the place and get yellow letters.
- Anthony Angotti
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@Anthony Angotti Howdy. Yes - most of my investment properties are in Erie - I'm likely moving to SC or GA and so I'll be expanding to those areas which I'm super excited to do.
I'm not very familiar with the Meadville market but keep up with the Erie college market (Gannon, Behrend, Mercyhurst, LECOM, not so much on Edinboro).
The Pittsburgh market seems great. I bought my first coin-op washer and dryer from a guy in Pittsburgh and he told me about the Pittsburgh market - it appears to have very good returns like Erie with a better tenant pool than Erie.
Yellow letters drive me nuts. At my primary residence in L.A. I get a few per week. I keep one of each in the event I ever need to use them as templates if I decide to become one of those yellow letter sending jerks. :-)
