Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
BP contributors:
I for one believe we're not going to see a real estate crash anytime soon, and I firmly believe in the power of pessimistic thinking. But I'm also not wholly ignorant of all the aspects of this business, and I look at the fundamentals of what's going on, think about why the housing market is as it is, and I don't see fragility. The system is not about to fall apart. I'm obviously not alone here on Bigger Pockets.
But since at least 2015 when I started lurking in the forums here, there hasn't been a month that's gone by where some wannabe Cassandra or Chicken Little DIDN'T proclaim that a crash was coming. I have seen one mature-male-bovine-scatalogical reason after another why these people felt that way. Sure, there HAVE been commentators with what at least LOOK like well-formed reasons since the very beginning, but they were few and far between, peppered in among the many more wackadoodles proclaiming THE END IS NIGH.
So what I'd like to ask everyone with significant experience to comment on something else this thread: WHAT SHOULD WE BE LOOKING FOR? What WOULD signal the end of the road for you? What will be the warning signs we should be watching out for? None of us have a working crystal ball, but what are you waiting to see before you start to really worry? What, in the end, will signal the next collapse?
So what I'd like to ask everyone with significant experience to comment on something else this thread: WHAT SHOULD WE BE LOOKING FOR? What WOULD signal the end of the road for you?
Other than a confluence of corona, war and inflation risk in general, I'm not real sure what the one thing will be on a macro level. I just have a general feeling the market is unsustainable but I don't lose sleep or anything over it. I also have a little PTS from the GRC and 'remember when' RE was so much more affordable so there's that.
What should signal the end of the road (so dark!) for us is our personal goals more than macro factors. For me it was a text from a tenant that summed it up. After 19 years in the landlord trenches, residential rentals are no longer my fave. A personal decision.
A new strain and Ukraine are risk factors to me but I don't know how to forecast when the straw will fall.
I for one believe we're not going to see a real estate crash anytime soon, and I firmly believe in the power of pessimistic thinking. But I'm also not wholly ignorant of all the aspects of this business, and I look at the fundamentals of what's going on, think about why the housing market is as it is, and I don't see fragility. The system is not about to fall apart. I'm obviously not alone here on Bigger Pockets.
But since at least 2015 when I started lurking in the forums here, there hasn't been a month that's gone by where some wannabe Cassandra or Chicken Little DIDN'T proclaim that a crash was coming. I have seen one mature-male-bovine-scatalogical reason after another why these people felt that way. Sure, there HAVE been commentators with what at least LOOK like well-formed reasons since the very beginning, but they were few and far between, peppered in among the many more wackadoodles proclaiming THE END IS NIGH.
So what I'd like to ask everyone with significant experience to comment on something else this thread: WHAT SHOULD WE BE LOOKING FOR? What WOULD signal the end of the road for you? What will be the warning signs we should be watching out for? None of us have a working crystal ball, but what are you waiting to see before you start to really worry? What, in the end, will signal the next collapse?
The way it is portrayed on "The Big Short" is that even the big money guys didn't see it coming until it was upon us. A few casandras did very well, but they were waiting and spending a lot of money on their short positions for a long time. I don't think we're in that kind of a scenario at the moment.
It will be a black swan event.
I'm watching inflation, potential gas shortages, Evergrande in China play out, Russia demanding rubles instead of dollars, supply chains, Modern Monetary Theory, the yield curve inversion, pretty typical stuff. None of those are actual black swans since we know about them and can see the train wreck coming down the line.
I can think of a few events that would crash the housing market but they are very scary and unlikely right now.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
4y
@Account Closed
Did we watch the same movie and read the same book? In the Big Short, the guys who were directing the asset layering and issuing the tranches and all the rest of it, they all knew that what they were selling was junk. That it wasn't going to survive any sort of stress. But they all (very rightly) expected the government to bail them out, and (also very rightly) that nobody would be held accountable.
I agree we're not in the same position with the same kind of funny money floating around today. Not by a long shot.
My vote is for Big Rock Hits Earth or The Singularity Event.
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
4y
I think real estate investing right now is less about the value of real estate increasing and more about the devaluation of the dollar. It is very possible we will have less and less access to goods and services but prices are still climbing. I would guess if we didn't use dollars to measure economic growth but had a way to measure real production and consumption it would be much different story.
I agree with you, but I'll play along. Here's my scenario:
Rising interest rates make profits in real estate less lucrative than other equities for institutional investors. One starts selling, which leads to another, which leads to a flooded market of properties for sale.
I agree with you, but I'll play along. Here's my scenario:
Rising interest rates make profits in real estate less lucrative than other equities for institutional investors. One starts selling, which leads to another, which leads to a flooded market of properties for sale.
Not sure how well THAT will work. As interest rates rise, so does inflation. In an inflationary environment, institutional investors RUN to real estate to safeguard their money. It would have to be an extraordinary well-calibrated rise in rates, wouldn't it? Maybe a legislated one.
Investor · TX · Member since 2020 · 57 posts · 60 votes
4y
WHAT SHOULD WE BE LOOKING FOR? I look for already cash flowing assets (put 80% of capital) in locations that have limited supply, landlord friendly, growing population, growing jobs, can't keep up with housing or unit demands, low cost of living, etc... Texas, Arizona, Florida, Carolinas. I also am more critical in my analytics. I like syndicators to devalue the cap rate factoring in a slight downturn and interest rate hikes. If the deal still pencils out and cash flows through the leads value add proposals, Im in.
What WOULD signal the end of the road for you? Unless the world is coming to an end, I will never stop looking to put my money in hard assets that cash flow. I will adapt and move to markets that work, different MSAs, states, and even countries. I really focus on local market and MSAs that have have limited supply, landlord friendly, growing population, growing jobs, can't keep up with housing or unit demands, low cost of living, etc... Texas, Arizona, Florida, Georgia, Carolinas. I will invest in another market if deals don't pencil out anymore or any of the above changes. I pulled out of multiple markets last couple of years due to analytics not making sense anymore. For example in Texas, certain cities like Austin are getting a little tight due to yield, so I moved my money to Houston and Dallas.
What will be the warning signs we should be watching out for? Once again, I look at specific markets for warning signs. Move my money to areas with positive metrics.
What, in the end, will signal the next collapse? I don't have a crystal ball. However, throughout history, all the wars, collapses, crisis, there are always people that find a way to help others and succeed financially. Adapt, be flexible, invest in cash flowing assets versus speculative.
Rental Property Investor · Member since 2019 · 93 posts · 110 votes
4y
I think the much more like thing it a long term platuing of price with increased rate. The issue it that historically real estate was based on a true cost basis and later cap. But not the cost to build had raised so much it would be hard to buy the materials for what the asset values are. This is what is going to keep prices up. Because more homes must be built to solve housing issues both for the average person but especially at the lower income levels. So the result is that prices can’t drop because the parts to make the sum aren’t dropping in cost.
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
4y
@Jim K. great question. I'm watching the US's slowing population growth... and if this population growth continues to slow, and new housing starts pick up meaningfully, will this allow supply to catch up to demand? It seems like, even though I agree with the others that it will only be totally clear in hindsight, that these are such glacial factors that maybe we'll be able to see them converge in real time?
You and I were conversing on another thread about how Allegheny County's population grew from 2010 to 2020 for the first time in 50+ years... and then it immediately fell from 2020 to 2021. But... how much of that was due to the pandemic?
@Jim K. great question. I'm watching the US's slowing population growth... and if this population growth continues to slow, and new housing starts pick up meaningfully, will this allow supply to catch up to demand? It seems like, even though I agree with the others that it will only be totally clear in hindsight, that these are such glacial factors that maybe we'll be able to see them converge in real time?
You and I were conversing on another thread about how Allegheny County's population grew from 2010 to 2020 for the first time in 50+ years... and then it immediately fell from 2020 to 2021. But... how much of that was due to the pandemic?
New housing supply is probably never going to pick up dramatically without a major game change. There are multiple reasons why this is so. The only one I know something about is the presence of what's called "the skills gap." People are retiring out of the residential construction and maintenance workforce nationally far faster than they are being replaced. You need people who are actually WILLING to spend their time building houses, and young people are not exactly beating down the door of the union halls to join these days.
In contrast, if population growth does continue to slow significantly, there's a quick fix. All we have to do is open the immigration door. Is that likely? No, not so much given an aging population and the rising rates of xenophobia in this country, but the actual fix is simple, a change in the laws. An entire generation who have been brainwashed through childhood to believe that only stupid people do manual labor outside a gym doesn't have be convinced that they were lied to for so many years.
As far as your belief that the population of Allegheny County is going to start a sustained growth spurt...that's outside the scope of this thread. I very much don't care to repeat myself for the umpteenth time here on Bigger Pockets regarding this local matter. You can believe what you want to believe, and booster the area all you want. Enjoy.
I for one believe we're not going to see a real estate crash anytime soon, and I firmly believe in the power of pessimistic thinking. But I'm also not wholly ignorant of all the aspects of this business, and I look at the fundamentals of what's going on, think about why the housing market is as it is, and I don't see fragility. The system is not about to fall apart. I'm obviously not alone here on Bigger Pockets.
But since at least 2015 when I started lurking in the forums here, there hasn't been a month that's gone by where some wannabe Cassandra or Chicken Little DIDN'T proclaim that a crash was coming. I have seen one mature-male-bovine-scatalogical reason after another why these people felt that way. Sure, there HAVE been commentators with what at least LOOK like well-formed reasons since the very beginning, but they were few and far between, peppered in among the many more wackadoodles proclaiming THE END IS NIGH.
So what I'd like to ask everyone with significant experience to comment on something else this thread: WHAT SHOULD WE BE LOOKING FOR? What WOULD signal the end of the road for you? What will be the warning signs we should be watching out for? None of us have a working crystal ball, but what are you waiting to see before you start to really worry? What, in the end, will signal the next collapse?
Ah yes, a question we are all seeing and hearing regularly, now. Logic dictates we *should* have a crash sometime soon- whether we do or not. Sometimes our economy defies logic, as bandaids upon bandaids are applied to economic problems. However, along with my clients I am personally flipping and doing buy & hold STR's and LTR's more then EVER right now. Why? 3 main reasons: 1) Lending options are insane right now. Take advantage of them. 80% - 90% LTV investing options, some including rehab. If you are conventional loan maxed out, lots of great hard money and DSCR loan options to endlessly extend your portfolio or flip opportunities- just amazing. 2) We are seeing 20%-35% appreciation in our local markets, which makes flips so ridiculously easy and fast. STR's & LTR's are extremely lucrative as well. 3) A new client informed me that based on his research that in more recent crashes vacation and travel budgets actually increase, which spells amazing news for STR's. I wasn't aware of this. The more I think about it, the more it makes sense.
We cannot control the crash, but we can control our investing and how we approach it. In 2017/2018 a lot of naysayers grumbled about a likely market crash. I heard a lot of people saying they would wait for the crash and then buy. Meanwhile, my active clients have gained 130%-180% home value + an average of 30% cash on cash returns per year. Even if the market had crashed, those with STR's would likely have been in good shape on cash flow and by now they would have made out well on home value.
A market crash is a scary thing and will hurt those that do NOT actively invest the most- which is 95% of Americans. Those of us actively investing will likely be fine. Me personally, I am blending flips and STR holds, as I want to have cash to play with, about 6 months after the crash is official. But- I'm not waiting for it to make my money work for me. My only concern, is upon a crash LTR's will see a higher percentage of tenants not paying rent- hence my STR approach.
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
@Jim K. I love (and by "love" I mean HATE with a passion) the comments and statements that by __(insert snarky over-intellectualization blabble here)______ we "should" or "must" see a recession/ collapse "ANY DAY" because by some calendar we are over-due. Yes, because it's all just simply running on a schedule......
Ok, so first item which I love (see reference above) how persons state this, INFLATION. So, inflation will NOT end real estate, will NOT make a collapse, will not any of that. I do not understand how any equate inflation to such powers. Inflation makes things more expensive, via making our $ worth less. Inflation DOES NOT make people to not need a roof over there head. Inflation does NOT reduce population. We are in a housing SHORTAGE, nobody ever seems to explain how lower purchase price of dollar creates housing supply glut and there in lowers demand, price etc..
What Inflation DOES give birth too in a low supply economy is STAGFLATION. (see history of Japan for reference)
What Inflation will do is CHANGE how people seek and utilize housing, NOT the fact that they NEED housing. This is a big driver for so many institutional investors entering things today, they know what's coming.
NOW, what would cause a housing crash, yeah, let's play this out:
- Air-raid sirens going off as Russian subs and bombers drop nuke's on various cities. Yup, that'll do it, just check out the Ukrainian R.E. market.
- EBOLA. It would take an outbreak that has some serious killing power, because it would take about 30m deaths to have some sizable off-setting effect to housing demand.
As die from those 2, break out your magic wands because that's about what it would take as you'd have to LOWER the cost of labor and/or materials by about 30%, to get cost of replacement units down low enough to press pricing down. All of us actually in the Biz and with builder knowledge know builder margins are razor thin today with MAJOR supply impacts happening. Maybe manufacturers are having massive profits, builders % are not, healthy yes but not anything that has any sizable area to lower.
So, cost of inputs for new units, wave that magic wand and reduce those 20/30%, or mass death event, WWIII, those are the most plausible. Now think about that, these are the most plausible things for a R.E. collapse. Mass foreclosures is just a lie of the YT-Channels 4-profit, fact is we have record equity market wide so any drop would have to be big enough to first wipe out all that equity AND THEN dive deeper to put far enough under-water that walking away makes sense, AND THEN also have to have a mass lay-off event, all in the 1 same, so only about a 40%+ drop in per unit pricing WHICH WOULD ALSO MEAN all new construction would completely end over night, some way some how people no longer would need roofs over there heads so apparently tent sales would explode.....
Do you think there's a chance that we might see large-scale 3D printing and robotic building of residential housing taking place in the next fifty years? To my mind, abandoning platform framing is pretty much the only thing that I see could finally bring building costs down. Of course, I'm talking about speculative technology being developed primarily to erect structures on the Moon and Mars as our only reasonable exit from the tyranny of endlessly rising costs for homebuilding here, to put the crazy plainly.
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
4y
Col. Custer knew the Indians were out there in the forest. He could hear them chanting and playing war drums.
How many are there he asked his 2nd in command. The answer returning we won't know unit they attack.
When will they attack he asked. The answer returning we won't know unit they attack--but anytime you hear war drums it's a dangerous time to be in the forest.
Many decades later the Indian's built a casino and the President of the casino -- Chief Big Feathers--knew the economy was ready to top out and take dive, so he asked his 2nd in command...when will this happen...
The answer returning we won't know unit it happens--but anytime you hear war drums it's a dangerous time to be in the forest.
Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes
4y
watch mortgage payment as % of income as interest rise, housing supply increase now that many new constructions are going up, the bottom of the bell curves connecting the millennial and gen X (less demand for housing), and senior bell curve (more death, freeing up more existing homes for sale). I think we're good for another 4-5 years, then we'll get bumpy. The X-factor is immigration numbers, which is perhaps the #1 key driver of home appreciation.
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
4y
Nobody knows when the crash is coming. Everything is a guess. Some things seem to point more towards one side of the bell curve than the other, but the exact moment is not known. It would be logical that interest rates going up will cause a bear market but we really can't predict the next Covid, 9/11 , 2008, DotCom etc. Buy low regardless.
Is that actually true? I'm pretty sure it's the exact opposite. Don't you raise interest rates to counter inflation?
Yes. What I should have written is that as inflation rises, so do interest rates. Given what is obviously the Fed's overreliance on monetary policy to control inflation, however, sharply rising real inflation rates will only be countered by rising interests late in the game, as they are being now. The federal government, regardless of who's in charge, habitually underrepresents inflation and blatantly manipulates the consumer price index to make itself look better. By the time the Fed raises the rates high enough to do enough to slow down inflation, we will already be in a lot of hot water, and those institutional investors, more nimble than the Fed, will be running to real estate to safeguard their money as the Fed plays catch-up.
Col. Custer knew the Indians were out there in the forest. He could hear them chanting and playing war drums.
How many are there he asked his 2nd in command. The answer returning we won't know unit they attack.
When will they attack he asked. The answer returning we won't know unit they attack--but anytime you hear war drums it's a dangerous time to be in the forest.
Many decades later the Indian's built a casino and the President of the casino -- Chief Big Feathers--knew the economy was ready to top out and take dive, so he asked his 2nd in command...when will this happen...
The answer returning we won't know unit it happens--but anytime you hear war drums it's a dangerous time to be in the forest.
Just my 2 cents.
But the Indians also know now that for every Little Big Horn there's going to be a Wounded Knee.
watch mortgage payment as % of income as interest rise, housing supply increase now that many new constructions are going up, the bottom of the bell curves connecting the millennial and gen X (less demand for housing), and senior bell curve (more death, freeing up more existing homes for sale). I think we're good for another 4-5 years, then we'll get bumpy. The X-factor is immigration numbers, which is perhaps the #1 key driver of home appreciation.
The percentage of the foreign-born in this country has held steady at about 13% (it is currently 13.7%), since about 1900. I know this particular statistical fact because I am one of them.