Are we heading into the next Real Estate Market Crash?

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Are we heading into the next Real Estate Market Crash?

James Allen
Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes

Hi BP Members,

Thought I'd get everyone's thoughts on the current market. Are we heading into a real estate crash/correction? 

I've recently noticed that the amount of inventory is starting to pile up in my area and some of the areas I invest in along with reports of some areas experiencing a dip in sales volume last month. I understand that RE is local but this could also be the beginning of fear spreading throughout the country.

Couple things I found interesting:

1.I did a search for housing market (Neutral search) and all posts on the 1st page were negative about the housing market with all of them recent articles. Link: https://www.google.com/search?q=housing+market&sou...

2. Last thing I found interesting was the google trends results for "Housing Market" & "Housing Crash". I noticed we had a sudden major swing to the highest search volume in over 5 years. That change happened in one week! 

Link #1: https://trends.google.com/trends/explore?date=toda...  

and Link #2: https://trends.google.com/trends/explore?date=toda...

This isn't hardcore evidence to start freaking out about and this is all speculative but still interesting none the less. Just looking to get the communities thoughts on what's going on. Do we think this could the beginning stages of a correction or crash? 

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    I only have access to the stats for my region...but in the entire mid atlantic, there is only 3 months of housing supply.  An equilibrium between buyers and sellers is 6 months of supply.  In most major metro areas, there is close to only 1 month of supply of housing.  

    We have a huge national housing shortage.  With incredibly low supply, what possible indications are there of a housing crash?  Also with only a 1 single national housing crash in the last 80 years, why does every one seem to think all of a sudden that this a common occurrence that should happen every decade.

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y
    12Reply
  • Josue Velney
    Developer · Boston, MA · Member since 2016 · 175 posts · 155 votes
    8y

    I love this post. Everyone is going to stay on the sidelines. More deals for my company. If my numbers work then why would I not buy? If the crowd is doing one thing more reason to do the opposite. Buy smart, buy cash flow and sleep great at night.

    11Reply
  • James Allen
    OP
    Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
    8y

    @Russell Brazil - I hear you and again this could be really early signals or maybe nothing at all. Nothing to sound an alarm about at this point however regarding some stats I've noticed several suburbs in SoCal that were at 1-1.5 months of inventory for a while now are now at 3 months. I noticed one of the areas I've invested in that's been typically between 1-2 months of inventory is now at 4 months of inventory. I do understand that's still more of a sellers market than buyers with it being less than 6 months but none the less, it does seem like things are starting to slow down. Maybe it's just a plateau or maybe not or maybe it continues to climb slowly and more reasonably. I definitely don't have the answers but it is interesting to see things changing a little bit. 

    0Reply
  • James Allen
    OP
    Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
    8y

    @Josue Velney - Haha, I'm not by any means saying I'll be on the sidelines. I'm in the middle of a couple transactions as we speak. If the numbers still work, then I'm going to purchase it. Just interested to see how this continues to shape up. It appears things are changing and it may just be minor or maybe it's something more. 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    8y
    Originally posted by @Russell Brazil:

    I only have access to the stats for my region...but in the entire mid atlantic, there is only 3 months of housing supply.  An equilibrium between buyers and sellers is 6 months of supply.  In most major metro areas, there is close to only 1 month of supply of housing.  

    We have a huge national housing shortage.  With incredibly low supply, what possible indications are there of a housing crash?  Also with only a 1 single national housing crash in the last 80 years, why does every one seem to think all of a sudden that this a common occurrence that should happen every decade.

     Every year (month maybe), whenever things are going great, the "Chicken Littles" of the world can't wait to be able to say, "I told you so", and be declared the expert for predicting a downturn/crash...or whatever you want to call it.  Funny thing is, they are usually right, but in a lottery winning sort of way...if you don't count all the other years they predicted it...and nothing happened.

    4Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @James Allen:

    @Russell Brazil - I hear you and again this could be really early signals or maybe nothing at all. Nothing to sound an alarm about at this point however regarding some stats I've noticed several suburbs in SoCal that were at 1-1.5 months of inventory for a while now are now at 3 months. I noticed one of the areas I've invested in that's been typically between 1-2 months of inventory is now at 4 months of inventory. I do understand that's still more of a sellers market than buyers with it being less than 6 months but none the less, it does seem like things are starting to slow down. Maybe it's just a plateau or maybe not or maybe it continues to climb slowly and more reasonably. I definitely don't have the answers but it is interesting to see things changing a little bit. 

     I remember in the deep dark days of 2009  some markets like parts of FLA had 60 months or more of inventory.. 

    3 to 6 months is industry norm in most markets..  that all said we are seeing some price drops in our market but that's a symptom of trying to keep adding appreciation into the pricing every month.

    and there I no question we have all been spoiled by properties that sell in the matter of days or hours and we all tend to get worried when something has been on the market for 10 days.. :)

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  • Frankie Woods
    Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
    8y

    Buy with enough margin of safety and you'll be fine in any market...  Well, unless of course you are overleveraged and encounter some form of hardship (e.g., major repair, a need to refinance, etc.).  Great points made by all the greats before me!  Following this thread because it's a very interesting topic to me.

    5Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    8y

    If we are heading for a crash, Los Angeles, SF, and Seattle will be the first to know. These markets have appreciated about twice the rate as the rest of the nation. It stands to reason that those markets will at least have to slow before the rest of the country because wages are not keeping up with housing costs. LA housing costs are over 5 times the average annual income.

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    8y

    @James Allen yes we are racing headfirst into the next crash. It should happen within the next dozen years or so. 

    @Russell Brazil I wish I could give you a second vote for that. 

    @Joe Villeneuve i am sure you have hear the statistic that economists have been able to accurately predict ten of the last three recessions.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    8y
    Originally posted by @Ned Carey:

    @James Allen yes we are racing headfirst into the next crash. It should happen within the next dozen years or so. 

    @Russell Brazil I wish I could give you a second vote for that. 

    @Joe Villeneuve i am sure you have hear the statistic that economists have been able to accurately predict ten of the last three recessions.

     Of course.  How can they miss it?  They predict it every year.

    2Reply
  • Ryan Palczynski
    Notre Dame, IN · Member since 2018 · 13 posts · 2 votes
    8y

    It's always smart to remind yourself not to overleverage other people's money - definitely have to be aware of the risk in the case that a housing crash occurs. 

    If there's a positive side, a housing crash decreases homeownership, pushing people to turn to renting - increasing the supply of potential tenants. On that note, if you've paid off your mortgages and own your rental property, it isn't 100% bad. Just another way to look at it.

    0Reply
  • Amit Sharan
    Rental Property Investor · Atlanta, GA · Member since 2017 · 12 posts · 19 votes
    8y

    @James Allen

    There are no macro indicators that would lead us to believe that the US housing market overall is headed towards a crash or anything like 2007-8. At the same time, we all know that housing is very local , so it's quite possible that some local markets (not even cities but specific zip codes etc.) may show signs of some correction. 

    The latest gallup survey says that Americans are most bullish since 2005 about home prices rising  and hence indicates a strong market.

    https://news.gallup.com/poll/233639/highest-percen...

    So things look good overall. That doesn't mean things can't go wrong tomorrow. A lot of variables for anyone to be able to accurately predict the future of housing market (or stock market). I'd say be alert but not overtly worried :)

    0Reply
  • James Allen
    OP
    Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
    8y

    Oh ok, got it @Ned Carey , I'll mark my calendar. I'm sorry I wasn't able to articulate myself well enough to get my point across. 

    0Reply
  • James Allen
    OP
    Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
    8y

    Friends, maybe I can clarify my position a little. I'm by no means saying a crash is coming or correction. I'm just seeing a lot of negative news, seeing DOM go up, more price reductions, and more inventory on the markets I follow. Maybe it means absolutely nothing and we keep climbing and making money, maybe we reach a peak and just stay around these levels, or maybe it's the early stages of something negative. I'm not worried at all because like a few of you mentioned, as long as you buy right, you're going to be fine. I figured it could be an interesting talking point but I'm not super active on here and this could be perhaps the 100th time you've addressed the topic so I can understand some of the sarcasm. I'm still buying and selling real estate when the numbers make sense because a deal is a deal regardless although it is getting harder to find them. 

    0Reply
  • Ian Kee
    Investor · Milwaukee, WI · Member since 2015 · 130 posts · 60 votes
    8y

    Don't buy for appreciation and you'll take out a large part of your risk, unless of course you're talking forced, phased or found appreciation. But passive market appreciation should be your last reason to buy.

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    8y
    Originally posted by @James Allen:

    Friends, maybe I can clarify my position a little. I'm by no means saying a crash is coming or correction. I'm just seeing a lot of negative news, seeing DOM go up, more price reductions, and more inventory on the markets I follow. Maybe it means absolutely nothing and we keep climbing and making money, maybe we reach a peak and just stay around these levels, or maybe it's the early stages of something negative. I'm not worried at all because like a few of you mentioned, as long as you buy right, you're going to be fine. I figured it could be an interesting talking point but I'm not super active on here and this could be perhaps the 100th time you've addressed the topic so I can understand some of the sarcasm.

     James, My point is that a crash is coming, we just don't know when. The reason i wanted to vote for @Russell Brazil's post twice, was that he mentioned national real estate crashes are extremely rare. Not just here but all over the news people are acting like a national crash is coming

    DOM is an important metric, perhaps the best indicator of a change. However DOM is not climbing in all areas. Price reductions may only be reflective of people expecting too high a price to start with. 

    That is my belief as the way to handle the situation. You will naturally buy more in slow markets and less in hot  markets. That is dollar cost averaging at it's best. It is a great way to take advantage of market cycles.

    0Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    8y
    @Ned Carey nobody has a crystal ball, but it’s smart to pay attention to history. There are many good books out there on the subject, but a my personal favorite is one called “The Secret Life o Real Estate and Banking” by Phillip J Anderson. Probably the most comprehensive study of real estate cycles going back to the colonial days in America. You can pick it up on Amazon for $35
    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    8y

    @Jack Martin I'll check it out. I am a big believer in market cycles are what build real wealth. My guess before I read it, is that it will say real estate cycles are about 20 years + or -.  part of this has to do with the building cycle but I think part has to do with it takes a about a generation for people to forget the last crash.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    More likely we will see price stabilization in some markets. Other markets will keep seeing moderate growth. I don't really see a good argument for a crash. 

    1Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    8y

    No, we are not. This is just a slow down with a very minimal price correction if any. Basic economics are taught in college.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Ned Carey:
    Originally posted by @James Allen:

    Friends, maybe I can clarify my position a little. I'm by no means saying a crash is coming or correction. I'm just seeing a lot of negative news, seeing DOM go up, more price reductions, and more inventory on the markets I follow. Maybe it means absolutely nothing and we keep climbing and making money, maybe we reach a peak and just stay around these levels, or maybe it's the early stages of something negative. I'm not worried at all because like a few of you mentioned, as long as you buy right, you're going to be fine. I figured it could be an interesting talking point but I'm not super active on here and this could be perhaps the 100th time you've addressed the topic so I can understand some of the sarcasm.

     James, My point is that a crash is coming, we just don't know when. The reason i wanted to vote for @Russell Brazil's post twice, was that he mentioned national real estate crashes are extremely rare. Not just here but all over the news people are acting like a national crash is coming

    DOM is an important metric, perhaps the best indicator of a change. However DOM is not climbing in all areas. Price reductions may only be reflective of people expecting too high a price to start with. 

    That is my belief as the way to handle the situation. You will naturally buy more in slow markets and less in hot  markets. That is dollar cost averaging at it's best. It is a great way to take advantage of market cycles.

     EXACTLY  I know I have a very special new build in Charleston that  I am going to push the pricing on..  my realtors are saying 2 mil I am going to start at 2.2... so I am that guy  LOL.. if it does not sell in first 30 days there will be price reductions..   and on some of my new builds in ORegon I was 10k high and had to lower .. but still making  our margins.. but just pushed the envelope a little.

    when I think of drastic price reductions it was like what I experienced in say Atlanta.. were I made HML in 07 at 90k for a great house that appraised for 140k at the time.. and by the time I took it back in 09 the best offer I could get was 39k cash there was no financing.. now that is a melt down !!! and all because credit markets froze solid.. AS long as credit does not FREEZE we are good.. and unemployment does not sky rocket we are good interest rates can climb a tad.. but I think people will pay that extra 100 a month for a house and maybe buy a cheaper car or put off buying that RV or boat..

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  • Albert Ng
    Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    8y
    No crash, but I do notice some minor price correction in San Jose area.
    0Reply
  • Albert Ng
    Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    8y
    Actually, right now, it’s just a price softening in San Jose area.
    0Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    8y
    Could be stabilization, a pause, a correction or a crash. For sure the market is taking a breather after going beserk for the past 18 months. Prices have reached very high levels. Mortgage rates have risen by nearly 1% over the past 8 months. So for buyers it’s a double whammy of high prices and higher rates. Unfortunately none of us here know much about the financial situation of the whales who really move the market. By whales I mean big developers, hedge funds, banks etc.
    0Reply
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