When is the housing market going to correct?

Question

Hello all,

I have been sitting on the sidelines the past three years and have regrettably avoided pulling the trigger due to the assumption that prices are wildly inflated and not wanting to buy at the peak.  I am in southern Maine and watched my friend buy a home in 2018 at $280k, appraised again last Nov. at $380k, and then re-appraised since he refinanced at 2.59% at $490k.  He jokes, all he's one is clean his pool.  I am currently not laughing, as I am sitting on $300k cash and wishing I had bout a house.  My other friend who lives in Austin bought his home less than a year before COVID and has seen his home jump almost $300k in value.  Are these prices here to stay?

- every graph I look at (home medium prices, etc) is clearly on a run, and it seems impossible that can be sustained

- we are now borrowing more than our GPD

- Inflation seems to not be happening (10 year rates dropped 7% recently, and soon may very well go negative)

- the list of indicators goes on and on...

1) What does this mean to you all for the housing market?

2) If prices drop, do you anticipate rates to also spike?  Or will they stay near this historic low?

3) Those of you than owned rentals during 2008, how did you fare?  Did people loosing their homes seek you out in need of a rental?  Or were many of you left with tenants that were unbale to pay their rent?

4) Are the current evictions moratoriums effecting any of you?

5) Do any of you have an anticipated time frame for when you think this housing market will correct?

Thanks all!

Ryan Kelly · Answer

@Logan Jamieson there is a common saying in real estate "Time in the market is more important than timing the market." You make your money in real estate by the amount of time you own the property, not trying to "trade" the property like a stock. You still have to make sure the property makes financial sense, but every market is a good time to buy if it fits your goals. Another common quote "The best time to buy real estate was 20 years ago and the next best time is now." Best of luck and take action!

Joe Splitrock · Answer

- When it comes to investing, waiting is a fools game. I am not calling you a fool, it is just the reality that waiting and trying to time any market is near impossible. I thought prices were inflated in 2018, but I purchase anyways. Look at your friends example, paying $280K and now it is worth $490K. Lets say something horrible happens and we see a 20% drop in value on that house. Now his house is only worth $392K, but he still paid $280K. You may be looking at the graphs, but you are missing that point.

- What does borrowing more than our GDP have to due with housing prices?

- "Inflation seems to not be happening" can you explain what you mean by that? Have you been to the grocery store or a restaurant lately? I can't find much of anything that hasn't increased in price this year.1. I purchased a house six month ago that has gone up 14% in value. If prices flat line or drop 10% next year, I am still ahead. Even if the value drops, I don't care because I have monthly cash flow. Low interest loan, locked 30 year rate and $300 cash flow after expenses.

2. Interest rates are not based on housing prices. I should say, rates don't increase when prices decrease. Historically the FED uses interest rates to stimulate housing. If prices drop, they will look to keep rates low. They do this by buying mortgage backed securities. If prices keep rising, the FED may actually just let rates increase as a way to cool the market.

3. I saw increased rental rental demand in 2010 to 2012 as people lost houses.

4. Eviction moratorium is having no effect on me and large multifamily operators in my city report very little effect. It could be regional, but there is no crisis in my city. I think the "millions of people facing eviction" narrative is false reporting. There is literally no way to calculate how many people are late and facing eviction. The numbers come from tenant rights groups who have incentive to inflate the numbers. Making the problem seem worse than it is will be the best way to gain sympathy.

5. Nobody can tell you when a correction will occur. Anyone who tries to give you a date should not be trusted. I will tell you that a "crash" actually isn't a crash. It happens over a period of months or even years. The 2008 crash was actually the worse in 2010 to 2012. Inventory actually started to build in 2006. So in reality the "crash" of 2008 took 6 years from the time the first cracks appeared. Watch the movie, "The Big Short". He is the only one who predicted the housing crisis and his prediction was off by a year. The point is, even if you can identify a pattern that will lead to a crash, predicting the exact timing is impossible. It is just too complex to model.

Will Gaston · Answer

@Logan Jamieson

"Don't wait to buy real estate. Buy real estate and wait." - Michael Scott

Corby Goade · Answer

I should just have a reply to these threads that I copy and paste so that I don't have to keep repeating the same things. Lots of good info above. Timing the market is literally impossible- there's a great allegory about that in "Shift" by Gary Keller about how it's impossible to time the market and taking action is so much more valuable.

Here's the truth- everyone here is taking risk and making educated guesses, but we are all still guessing. No one knows what tomorrow holds. It's so much more important that you take action than wait for something outside of your control to happen. Talk to some successful business people in your circle- see how many of them sat back and waited for something to happen to them and found that to be a viable course of action. The whole reason you are here is because you want to take control of your future, no? You can't do that by waiting.

You said in your post that you've been "on the sidelines for three years." It's ironic, becuase your post answers it's own question. Don't you wish you had jumped in two or three years ago? Don't make the same mistake again.

I'm not saying to buy something that doesn't make sense, but don't lose sight of the fact that money is essentially free right now, on top of that, time is your friend. An okay deal today will be a killer deal in five years if you just sit on it.

Jump in, the water is fine. Happy investing!

Joe P. · Answer

Dude...when? No one knows. Everyone asks. Not a soul knows. Could be tomorrow. This could be the new normal. Could be something in between.

Identify an area or a set of areas where its a nice enough neighborhood and the prices of homes make it reasonable to invest (think 1% of the purchase price for rent, or better) and then start learning those neighborhoods. When the deal comes along, you'll know it. And then act. Don't spend the 300k in one spot.

All this market does is tell me I have to make sure I set and maintain my standards for purchase. Instead of buying 1 out of every 100 houses that come across my desk, I'm probably at 1 out of every 500. Last purchase was in June 2020. Nothing meets my criteria...yet...but there are things that are close.

The waiting game is a suckers game. The truth is you need to know what you'll be comfortable with on a purchase and operational level, and then dig for it. Maybe there are some properties on MLS sitting for 3+ months where an owner is like "why can't I get an offer?" so make that guy an offer.

Or, just take your 300k and give it to an investor or stock manager. They can probably do more for that money than you could, at this point.

Matt Groth · Answer

@Logan Jamieson  I'm not saying they won't correct some, but why would they drop? Rates are low, inventory is low, demand is high. Materials only get more expensive over time, the labor shortage is astronomical, and getting worse. If you had to guess, will housing be more or less expensive in 30 years? If less, fund another investment. If more, keep looking at the individual deal, rather than the market. The opportunity was March 2020 if you had been waiting. If you didn't pull the trigger then,  you likely won't in the next correction either.

Theresa Harris · Answer

No one knows, but as long as interest rates are low people will continue to buy.

Why are you sitting on $300K?  Run the numbers and if they work, buy a place.  Your friends were right to not sit on the sidelines.  Even if prices go down a bit in a few years, hold on to the place (remember you bought it because the rent covered all of the expenses).  Rent goes up over time and so do house prices (and yes taxes as well).  Look at the crash ~15 years ago in the US.  It took a bit for prices to increase, but they did.  As long as you don't sell when they are low, you are fine.

Cody Lewis · Answer

Glad to see everyone is mostly in the same camp of "no one knows", because no one does. If they say they do, it's speculation at this point. There might be signs saying it could change but, that does not mean it will. If interest rates start to creep up again, maybe just maybe there is some correction but again, no one knows. Underwrite conservatively and don't get over leveraged.

Logan Jamieson · Answer

Thank you all for your responses!  I really appreciate them and you have given me the courage to begin deal hunting again...

Russell Brazil · Answer

Well the last 2 corrections of 2008 and 1933 were about 75 years apart. That means our next one is due in roughly in the year 2083.

When is the housing market going to correct?

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