You have 6 months to liquidate your assets

[Thor Sveinbjoernsson]

I’ve been doing a lot of research lately and I wanted to share with you guys what I have found about the correlation between unemployment, delinquencies and housing prices. During the 2008 housing crisis the housing market bottomed about 2 years after the peak in delinquencies. Note that delinquencies are very much so correlated with unemployment rates (see graph on link below). Unemployment is already about twice the peak in 2008 so it is very likely that delinquencies will follow, which will lead to increased supply of housing.

See data here, gathered by stanford researches: https://web.stanford.edu/~pavelkr/jmp_slides.pdf

Conclusion: You have about 6 months to sell off your assets until the market will be flooded with fire sales and forclosures.

[Account Closed]

Originally posted by @James Hamling:

The #1 thing this posting thread has shown to me is just how pervasively people are operating and promoting their self-developed thoughts of how things are in markets, wind those up as a blanket belief of markets as a whole, decide beliefs = fact and promote as such. 

It has been eye-opening. 

Physician, heal thyself.

[Account Closed]

@Tony Blasioli I pray you will find help.

[Bill F.]

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Joseph Hennis:

Originally posted by @James Hamling:

@Thor Sveinbjoernsson what you have put out is the single worst, most incorrect over-simplification of the " 08/09 Housing Collapse", written with complete and total ignorance of every financial and investment market mechanism involved INCLUDING the actual housing market data and factors involved. And the fact that your calling yourself an accountant! I am totally blown away and terrified for business persons who may be looking to you for sound business advice that they would catalyze into actual actions. 

First off, the housing collapse was (in a simplified manner) 2 MAIN actions: a housing SURPLUS (and a massive one at that) AND a significant monetary contraction. Thats it, NOTHING like today, nothing at all. 

The monetary contraction was a ticking time bomb, it's was destined to happen by the sheer design of it and as you were oblivious to all of this I will not attempt to get into the finer detail of mortgage-backed securities and the layering of tranches. Short story, the securities were destined to fail AND those securities had factors of x20/x40.x50+ of funds gambled upon them so each security that went down took a grossly disproportionate amount of capital down with it. 

At this point you may be asking "this guy seems to know a bit more than average on this", yeah, because I was actually there, and I spent a time as a Mortgage Banker to boot. The housing collapse was a monster sized freight train that many fo us saw coming miles away, not to the full extent of what it was BUT many of us in the business knew a correction was coming, knew lending was hugely inflating the market, knew the math of over-supply and on and on all meant correction was coming, we just didn't know when and how bad. 

Today, we are in a housing SHORTAGE. We do NOT have the same crazy system on mortgage-backed securities we had in 08/09, or to be more accurate the Jenga stack of gambles is not built in a way as it was. 

There is so much distortion in your post and promotion that it verges on criminal. For example, saying everyone better hurry and sell in next 6 months "or else" there will be mass flooding of market with sales, your telling people to flood the market genius. Thats inciting a run on the market. Your inciting fear and panic. 

Your correlating unemployment with housing market collapse, well guess what, pre 08/09 collapse unemployment was under 4%. So by your logic low unemployment = housing collapse, because thats what it was. It was the housing collapse that made unemployment rise, not the other way around. 

i gotta stop, because I could literally write pages of false information and false premise in your doom pandering, with matching pages of actual economic and financial reality, basically all those things actual accountants learn in a university which is why I am confused by your stated position and statements, they don't match at all. 

Will unemployment effect mortgage defaults and the economy, absolutely, and not in the manner stated because we DON'T have a declining market we have a restricted market from regulation suspension. What the difference, well a declining market is one where the whole is reducing from fundamental factors, a restricted one, which we are in, is where desired economic activity is restricted and with that it builds tension, like a spring, and as restriction are removed that tension is expressed by massive economic boom. Don't believe me, just look everywhere that is opening and removing restrictions. 

Look, I'm not an economist, but I did study economics, and all this I am saying is a combination of life business experience and that economics study and basic principles, all of which are and have proved true over and over again. There is NO collapse coming like this ya-hoo is trying to incite. 

 So I already gave Thor a hard time about overfitting the data and assuming a collapse is coming... But you seem to be overfitting in the opposite direction and assuming there is no collapse coming.

Here's the fact of the matter: We DON'T KNOW if a collapse is coming... Unless maybe you are from the future... In that case please PM me, I want to know which stocks to pick.

All we know are the risks that are out there, and we should be prepared to weather whatever storm may come. Personally, I am sitting on a pile of cash, but I am not liquidating all my assets. If you are leveraged beyond your means already, then liquidating may be a good idea, even if a collapse doesn't come.

I have laid out a considerable list of facts, data, economic theory and mechanics, countless times spelling out in detail exactly how economics actually work especially as it pertains to the housing industry, which clearly is stating THERE IS NO COLLAPSE, NOT NOW, NOT SOON, NOT COMING, NOT AT ALL. Your argument is -ignorant of facts -unsupported, plain and simple. If you'd like to actually attempt to counter the facts I have laid out please, feel free, but I laid out the math and data and that is what I am reading which DOES tell the future. 

James, I appreciate the effort you've put into your posts. 

What would need to happen for you to change your mind and believe that a housing "collapse" is coming?  

Interesting question, very interesting..... You said "collapse", not a recession but a collapse. For a collapse to be possible there is a few things that have to happen; 

(A) supply has to exceed demand in a significant proportion. Short of a mass kill off of people I don't know how this could happen, you literally have to remove roughly 35million+ people from needing a home, specifically home owners. All I can think of is WWIII, how else do you make that first necessary ingredient happen? 08/09 housing collapse was result of more than a decade of overbuilding. 

(B) collapse of the mortgage mechanisms of economics; In theory "IF" China called the entirety of US Notes they are holding, all foreign nations call due US Notes, and all foreign nations stop acquiring US Notes. In addition this would also mean the entire planet universally stops using the "Dollar Standard", so they also all agree on a different standard, insert and distribute that world wide, and call all US Notes, that would collapse the US financial mechanisms and with that mortgage liquidity would all but completely end, indefinitely. Without leveraged capital for home purchasing, deflationary pressures come into action. Yes, the entire country would be "burning" and it would be apocalyptic chaos in the streets but yes, this would have deflationary effects on home prices. 

Again, your question specified "collapse" not recession and while there was the 08/09 collapse what too many are forgetting is name the last collapse before that, yeah, it was the Great Depression. And when looking back in history every collapse has come from the financial markets, or invasion, collapse has never come from the economic working sector ever in history go as far back as the Tulip Crash. So barring an invasion of US mainland, I can't find any plausible means other than the above 2. 

Thanks for the response James. 

I used the term collapse because a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.", which doesn't apply to residential RE. 

To your point A), how do you square your idea with the fact that some areas in of the US have a housing shortage, such as LA, NYC, Boston, Chicago, while other places such as Detroit, Indianapolis, Cleveland, have housing oversupplies? Treating the US housing market as a singular bloc causes a loss of fidelity in local MSAs data, which all have their own unique drivers. I also think you may want to go back and check your history of the GFC. We had a credit collapse centered around the housing industry. While over supply played a role, it was not the only or the main cause. 

On your second point, what would cause the US dollar to not be the world reserve currency? What would cause China to liquidate the 5%-7% of total US debt that they own? What makes you think that if China did face some liquidity crisis, say due to their massively over leveraged housing space, that we couldn't sell more debt to make up for it? What models have you seen/run that lead you to believe that there isn't an appetite for more US denominated debt? W have already issued around $3T in the last few months. In theory, China redeeming their debt would add anything to the Fed's balance sheet, just make pre-existing holders have a larger share. 

You don't lend any credence to the idea that due to Dodd/Frank, mortgage services have to forward payment to bond holders even if they don't receive payments could cause mortgage origination/ servicing to stop? Given that around 8% of loans are thought to be in forbearance, any increase could have disastrous effect on the mortgage industry's liquidity? 

I think you are reasoning from an intermediate shock, which obscures the reality of a situation and/or coming up with a strawman to protect your position. One man's opinion.

While I agree with you that there is a low chance of a housing collapse/crash, saying their is zero probability is laughable. In any simple dynamic system, the probability of an event occurring can't be zero or one. This also applies to the massively complex and interconnected system we call the global economy. 

[Thor Sveinbjoernsson]

Originally posted by @Kyle J.:

Originally posted by @Thor Sveinbjoernsson:

@James Hamling  See listings for houses for sale under water from 2008 in 300-400k range. 

https://www.zillow.com/homedetails/4051-Idlewood-Parc-Ct-Tucker-GA-30084/70836752_zpid/

https://www.zillow.com/homedetails/2454-Wynsley-Way-Tucker-GA-30084/79986135_zpid/

https://www.zillow.com/homedetails/6147-Queens-River-Dr-Mableton-GA-30126/87682054_zpid/

A few listings is not indicative of a market being “underwater”. However, even if it were, just looking at the first property you linked to, it appears to have sold back in 2006 for $332k and to be currently listed (not sold) for $369k.

How is that underwater? 

If you consider 4% return in 14 years not being underwater than I don't know what to tell you.  Meanwhile SP500 is up 300% 

[James Hamling]

Originally posted by @Jenning Y.:

Haha, still lots  of  US cities'  home prices are not fully recovered from the height of  the financial crisis.  For example, bunch of cities in Central Valley of California such as Stockton, CA; Los Vegas, NV;  Some Cities in New Jersey; and other midwest cities.  There are no doubt many US cities are still under water. 

 Again, as I have requested 3 times previously making this time #4, please provide median home sales values for that market for now and 08, this is readily available via every realty association, it is "the" measure. So far all that has happened is people saying things are under water but refuse to provide a shred of data to support. I trust data. 

[Kyle J.]

Originally posted by @Thor Sveinbjoernsson:

Originally posted by @Kyle J.:

Originally posted by @Thor Sveinbjoernsson:

@James Hamling  See listings for houses for sale under water from 2008 in 300-400k range. 

https://www.zillow.com/homedetails/4051-Idlewood-Parc-Ct-Tucker-GA-30084/70836752_zpid/

https://www.zillow.com/homedetails/2454-Wynsley-Way-Tucker-GA-30084/79986135_zpid/

https://www.zillow.com/homedetails/6147-Queens-River-Dr-Mableton-GA-30126/87682054_zpid/

A few listings is not indicative of a market being “underwater”. However, even if it were, just looking at the first property you linked to, it appears to have sold back in 2006 for $332k and to be currently listed (not sold) for $369k.

How is that underwater? 

If you consider 4% return in 14 years not being underwater than I don't know what to tell you.  Meanwhile SP500 is up 300% 

First, that's not at all what being underwater means. 

Second, you can't compare someone's primary home purchase to the SP500.  That's just ridiculous.  No one would (or should) buy a primary home as an investment.  After all, it's not like they would even have the option to just take the cost of that home (most of which was probably financed don't forget) and invest it in the stock market.  I mean, if they didn't buy that home, where would they even live?  In their car for those 14 years?

But now I see why some of the math was so odd in your other posts where you provided similar analysis.  (You did the same thing on your post about the multi-million dollar homes and that was a completely faulty argument and math.)  I think you just have a misunderstanding of how home buying and investing works.   You're not even comparing apples to oranges.  You're comparing apples to computer desks or something.

I don't want to get dragged into this argument though because it doesn't sound fun, so I'm just going to respectfully bow out. 

[James Hamling]

Originally posted by @Account Closed:

Originally posted by @James Hamling:

Originally posted by @Account Closed:

Originally posted by @James Hamling:

Originally posted by @Vince Ivanov:

People keep saying that this time it’s different because people have a lot more equity in their houses. This is not entirely true. Many people who bought in 2019 and early 2020 are potentially under water.

 We keep saying this is different from 08/09 crash because it IS different, in every conceivable way possible, every, nothing is the same. 

08/09 was a collapse of a financial system that effected the entire global economy due to the particulars of it, which created a recession. 

This is different, plain and simple. Economy was humming along like a jet plane. Think about it, the economy was performing awesome despite trade wars ongoing, despite political turmoil, thats a beast of a strong economy. 

Then covid, and government restrictions. There is literally nothing the same between these two incident, different catalyst, different mitigating factors, different starting, different players, different responses, different governmental level of primary response, just all around different. 

 It doesn't matter why prices tank to the people who lose equity, though, does it?  An economy crash is an economy crash.  A crash equals lower home prices and usually lower rent prices, tightening lending by banks.  It also doesn't matter at all what the economy was like prior to a crash.  It's just the crash that matters.

Arguing whether or not this crash is created in a different way than other crashes in history doesn't change the result.  If a fire is caused by an electrical malfunction or a propane tank or a forest fire, does the house burn differently?  Does it matter, if the result is ashes either way?

My point was to argue with your assumption that if someone has equity prior to a crash caused by a pandemic, that their equity won't be hurt.  That's simply not logical.  You're assuming that the value of their property won't go down.  I hope you're right, but in my opinion, that's just really simply not logical.

I'm old enough that I've witnessed several crashes.  The result on the real estate market was always the same.

 The following lesson is going to be summarized by if you don't have a clue of what you're talking about, please, don't try to fake it. 

Firstly and foremost, yet again, there is NO crash, none, zero, zip, nada, zilch. 

Secondly, when talking on economic theory yes, the catalyst does matter, greatly, to the extent that it's almost all that matters because it is the means as to how far-reaching a recession will be, how deep, durable, and the means to mitigate and alleviate. 

Next, median equity matters a LOT! pre 08/09 crash many had leveraged themselves into positions of near to no equity or negative equity. So in a economic downturn as we were, with mortgage resets that would place servicing beyond financial means of many, an exit strategy of selling or refinancing was not feasible for a significant ratio of mortgage holders, it was that combination of factors that carved out the depth of the the 08/09 collapse. NOW with policies and laws that redesigned a system to prevent such, the median equity position is a significant ratio AND the lurking mortgage servicing reset to a non-feasable amount has been in large part eliminated, so that means persons have a) a cushion to sell at net positive or net 0 if need be b) equity to tap for financial use c) consistency in expenses. 

So let's say your fantasy land happens, by some magic unicorns burst from the ground, leprechauns are real and drive uber, and some way or some how in a housing shortage home values drop 30%. guess how many people go into foreclosure because home values drop 30%, zero. This was actually an important economic study of the 08/09 collapse; how long until the housing market reaches full recovery, the general answer is 7 years. So all you have to do is NOT sell your property for 7 years, in general, and you will be back at the value it was before. 

And your flat wrong, economic "collapse" which I assume you mean recession, is a catalyst that INCREASES rents, not lowers my friend. Feel free to research the 08/09 recession, or any for that matter. In a recession consumer mobility is lesson, as is purchasing power, which is all drivers for more people to rent as less can buy. Then there is all those people your saying will loose there homes, are you saying Publishers CLearingHouse is going to hand out millions of homes? Maybe cardboard box's? No, they become renters. Supply & Demand my dear, recessions increase demand in a time frame supply can not keep up with, rents rise. Again, 08/09 recession was a case study in this. 

As I said, your arguing to things you yourself don't understand. I know diddly squat on auto repair, so I would never dare inject and argue with an auto repair pro, I would ask questions. The reason I take such ire with your words and those acting in like manner is because your inciting panic, fear, directing persons to make financially damaging actions. It's not ok, it's not the run of the mill conversation on here. If just 1 person get's all freaked out because your all saying "oh my God you MUST sell your properties NOW" that is 1 too many people, it's not ok. 

Frame things in accuracy, and if you must doom preach then do it accurately, say that it's how you feel, say it's what you think people should be doing, not this framing of things in means to incite panic and fear. It's running into a theatre and screaming "fire", that's what your doing. 

 There is absolutely no reason to be so rude.  Again, you have missed my point.  My point is that whether or not you had equity in your home and weren't heavily leveraged in the 2008, etc., years, if your home value went from a million dollars to $500,000 - you just lost a ton of equity.  

That happened to everyone, regardless of whether or not they still had a mortgage or had ever made a bad decision regarding their properties.

I'm not talking about foreclosures.  I'm just talking about how just because someone has equity in their home doesn't mean they won't lose it, or a lot of it, if the market crashes.

So, saying that if the market crashes now and someone has equity that they won't lose that equity no matter what happens, just doesn't make logical sense.

I don't believe we are going to find common ground for some reason, though.  Best of luck to you.  You might want to take up meditation, though.  I can feel your blood pressure from here.

Equity is just a number on a piece of paper, neither lost nor gained, until a property is sold. Only at the point of sales is an equity gain, or loss, realized. I have pointed out as data proved from 08/09 collapse that "on average" it is 7 years time elapse for such economic loss affecting depression of home values, to rebound to a net 0 pre-price depression. SO that dictates all a person need do is NOT sell at the loss, hold, for the elapsed time. 

[James Hamling]

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Joseph Hennis:

Originally posted by @James Hamling:

@Thor Sveinbjoernsson what you have put out is the single worst, most incorrect over-simplification of the " 08/09 Housing Collapse", written with complete and total ignorance of every financial and investment market mechanism involved INCLUDING the actual housing market data and factors involved. And the fact that your calling yourself an accountant! I am totally blown away and terrified for business persons who may be looking to you for sound business advice that they would catalyze into actual actions. 

First off, the housing collapse was (in a simplified manner) 2 MAIN actions: a housing SURPLUS (and a massive one at that) AND a significant monetary contraction. Thats it, NOTHING like today, nothing at all. 

The monetary contraction was a ticking time bomb, it's was destined to happen by the sheer design of it and as you were oblivious to all of this I will not attempt to get into the finer detail of mortgage-backed securities and the layering of tranches. Short story, the securities were destined to fail AND those securities had factors of x20/x40.x50+ of funds gambled upon them so each security that went down took a grossly disproportionate amount of capital down with it. 

At this point you may be asking "this guy seems to know a bit more than average on this", yeah, because I was actually there, and I spent a time as a Mortgage Banker to boot. The housing collapse was a monster sized freight train that many fo us saw coming miles away, not to the full extent of what it was BUT many of us in the business knew a correction was coming, knew lending was hugely inflating the market, knew the math of over-supply and on and on all meant correction was coming, we just didn't know when and how bad. 

Today, we are in a housing SHORTAGE. We do NOT have the same crazy system on mortgage-backed securities we had in 08/09, or to be more accurate the Jenga stack of gambles is not built in a way as it was. 

There is so much distortion in your post and promotion that it verges on criminal. For example, saying everyone better hurry and sell in next 6 months "or else" there will be mass flooding of market with sales, your telling people to flood the market genius. Thats inciting a run on the market. Your inciting fear and panic. 

Your correlating unemployment with housing market collapse, well guess what, pre 08/09 collapse unemployment was under 4%. So by your logic low unemployment = housing collapse, because thats what it was. It was the housing collapse that made unemployment rise, not the other way around. 

i gotta stop, because I could literally write pages of false information and false premise in your doom pandering, with matching pages of actual economic and financial reality, basically all those things actual accountants learn in a university which is why I am confused by your stated position and statements, they don't match at all. 

Will unemployment effect mortgage defaults and the economy, absolutely, and not in the manner stated because we DON'T have a declining market we have a restricted market from regulation suspension. What the difference, well a declining market is one where the whole is reducing from fundamental factors, a restricted one, which we are in, is where desired economic activity is restricted and with that it builds tension, like a spring, and as restriction are removed that tension is expressed by massive economic boom. Don't believe me, just look everywhere that is opening and removing restrictions. 

Look, I'm not an economist, but I did study economics, and all this I am saying is a combination of life business experience and that economics study and basic principles, all of which are and have proved true over and over again. There is NO collapse coming like this ya-hoo is trying to incite. 

 So I already gave Thor a hard time about overfitting the data and assuming a collapse is coming... But you seem to be overfitting in the opposite direction and assuming there is no collapse coming.

Here's the fact of the matter: We DON'T KNOW if a collapse is coming... Unless maybe you are from the future... In that case please PM me, I want to know which stocks to pick.

All we know are the risks that are out there, and we should be prepared to weather whatever storm may come. Personally, I am sitting on a pile of cash, but I am not liquidating all my assets. If you are leveraged beyond your means already, then liquidating may be a good idea, even if a collapse doesn't come.

I have laid out a considerable list of facts, data, economic theory and mechanics, countless times spelling out in detail exactly how economics actually work especially as it pertains to the housing industry, which clearly is stating THERE IS NO COLLAPSE, NOT NOW, NOT SOON, NOT COMING, NOT AT ALL. Your argument is -ignorant of facts -unsupported, plain and simple. If you'd like to actually attempt to counter the facts I have laid out please, feel free, but I laid out the math and data and that is what I am reading which DOES tell the future. 

James, I appreciate the effort you've put into your posts. 

What would need to happen for you to change your mind and believe that a housing "collapse" is coming?  

Interesting question, very interesting..... You said "collapse", not a recession but a collapse. For a collapse to be possible there is a few things that have to happen; 

(A) supply has to exceed demand in a significant proportion. Short of a mass kill off of people I don't know how this could happen, you literally have to remove roughly 35million+ people from needing a home, specifically home owners. All I can think of is WWIII, how else do you make that first necessary ingredient happen? 08/09 housing collapse was result of more than a decade of overbuilding. 

(B) collapse of the mortgage mechanisms of economics; In theory "IF" China called the entirety of US Notes they are holding, all foreign nations call due US Notes, and all foreign nations stop acquiring US Notes. In addition this would also mean the entire planet universally stops using the "Dollar Standard", so they also all agree on a different standard, insert and distribute that world wide, and call all US Notes, that would collapse the US financial mechanisms and with that mortgage liquidity would all but completely end, indefinitely. Without leveraged capital for home purchasing, deflationary pressures come into action. Yes, the entire country would be "burning" and it would be apocalyptic chaos in the streets but yes, this would have deflationary effects on home prices. 

Again, your question specified "collapse" not recession and while there was the 08/09 collapse what too many are forgetting is name the last collapse before that, yeah, it was the Great Depression. And when looking back in history every collapse has come from the financial markets, or invasion, collapse has never come from the economic working sector ever in history go as far back as the Tulip Crash. So barring an invasion of US mainland, I can't find any plausible means other than the above 2. 

Thanks for the response James. 

I used the term collapse because a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.", which doesn't apply to residential RE. 

To your point A), how do you square your idea with the fact that some areas in of the US have a housing shortage, such as LA, NYC, Boston, Chicago, while other places such as Detroit, Indianapolis, Cleveland, have housing oversupplies? Treating the US housing market as a singular bloc causes a loss of fidelity in local MSAs data, which all have their own unique drivers. I also think you may want to go back and check your history of the GFC. We had a credit collapse centered around the housing industry. While over supply played a role, it was not the only or the main cause. 

On your second point, what would cause the US dollar to not be the world reserve currency? What would cause China to liquidate the 5%-7% of total US debt that they own? What makes you think that if China did face some liquidity crisis, say due to their massively over leveraged housing space, that we couldn't sell more debt to make up for it? What models have you seen/run that lead you to believe that there isn't an appetite for more US denominated debt? W have already issued around $3T in the last few months. In theory, China redeeming their debt would add anything to the Fed's balance sheet, just make pre-existing holders have a larger share. 

You don't lend any credence to the idea that due to Dodd/Frank, mortgage services have to forward payment to bond holders even if they don't receive payments could cause mortgage origination/ servicing to stop? Given that around 8% of loans are thought to be in forbearance, any increase could have disastrous effect on the mortgage industry's liquidity? 

I think you are reasoning from an intermediate shock, which obscures the reality of a situation and/or coming up with a strawman to protect your position. One man's opinion.

While I agree with you that there is a low chance of a housing collapse/crash, saying their is zero probability is laughable. In any simple dynamic system, the probability of an event occurring can't be zero or one. This also applies to the massively complex and interconnected system we call the global economy. 

 

I am not sure what to say, or even that I should bother even saying anything, as your all over the board here which indicates to me that you are just looking to argue without point. 

You asked what would be needed for a collapse, I answered, now your arguing those collapse creating things are not probable to possible, and yeah, I know, that's what I have been saying, and it's kind of the point. 

Than your speaking to the mortgage systems in place and arguing of the now realized flaws in it and therefor doom is coming, possibly. Sure, possibly, IF nothing is done to address the flaws now being discovered and highlighted, which I believe common sense dictates solutions and adjustments will be implemented to eliminate the liquidity bottleneck in the system. It would be a far more reaching and significant issue of there were not the liquidity available, that is not so easily fixed, this is more so an administrative malfunction, and like breaking a beaver dam once done a veritable river of funds flows back through the system so yeas I do believe this is in works and will be soon happening. 

I think you need to actually read what I wrote because you seem to be crediting my advisories words unto myself. 

[Jeffery Rayome]

@Thor Sveinbjoernsson

This will Be very interesting to watch. I’m not sure panic selling would be a good move. If anything a market crash would be good for buy and hold investors. A market crash would flood the market with renters. People have to live somewhere. That would just be my humble assessment.

[Patrick Snyder]

This is the best....I need more popcorn.  Please keep it going folks😀

[Bryce R.]

Originally posted by @Tim Boehm:

I've been on the fence for the last 8 years, sitting on 3/4 of a million. I hope there will be some deals but I doubt it, right now I see inflation right around the corner. You can't drive through the street letting hundreds and thousands of $100 fly through the air for all to pick up without creating inflation. 

 The only inflation so far is in the stock market. When that comes down, it all comes down.

Can't have inflation without velocity.

[Bill F.]

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Joseph Hennis:

Originally posted by @James Hamling:

@Thor Sveinbjoernsson what you have put out is the single worst, most incorrect over-simplification of the " 08/09 Housing Collapse", written with complete and total ignorance of every financial and investment market mechanism involved INCLUDING the actual housing market data and factors involved. And the fact that your calling yourself an accountant! I am totally blown away and terrified for business persons who may be looking to you for sound business advice that they would catalyze into actual actions. 

First off, the housing collapse was (in a simplified manner) 2 MAIN actions: a housing SURPLUS (and a massive one at that) AND a significant monetary contraction. Thats it, NOTHING like today, nothing at all. 

The monetary contraction was a ticking time bomb, it's was destined to happen by the sheer design of it and as you were oblivious to all of this I will not attempt to get into the finer detail of mortgage-backed securities and the layering of tranches. Short story, the securities were destined to fail AND those securities had factors of x20/x40.x50+ of funds gambled upon them so each security that went down took a grossly disproportionate amount of capital down with it. 

At this point you may be asking "this guy seems to know a bit more than average on this", yeah, because I was actually there, and I spent a time as a Mortgage Banker to boot. The housing collapse was a monster sized freight train that many fo us saw coming miles away, not to the full extent of what it was BUT many of us in the business knew a correction was coming, knew lending was hugely inflating the market, knew the math of over-supply and on and on all meant correction was coming, we just didn't know when and how bad. 

Today, we are in a housing SHORTAGE. We do NOT have the same crazy system on mortgage-backed securities we had in 08/09, or to be more accurate the Jenga stack of gambles is not built in a way as it was. 

There is so much distortion in your post and promotion that it verges on criminal. For example, saying everyone better hurry and sell in next 6 months "or else" there will be mass flooding of market with sales, your telling people to flood the market genius. Thats inciting a run on the market. Your inciting fear and panic. 

Your correlating unemployment with housing market collapse, well guess what, pre 08/09 collapse unemployment was under 4%. So by your logic low unemployment = housing collapse, because thats what it was. It was the housing collapse that made unemployment rise, not the other way around. 

i gotta stop, because I could literally write pages of false information and false premise in your doom pandering, with matching pages of actual economic and financial reality, basically all those things actual accountants learn in a university which is why I am confused by your stated position and statements, they don't match at all. 

Will unemployment effect mortgage defaults and the economy, absolutely, and not in the manner stated because we DON'T have a declining market we have a restricted market from regulation suspension. What the difference, well a declining market is one where the whole is reducing from fundamental factors, a restricted one, which we are in, is where desired economic activity is restricted and with that it builds tension, like a spring, and as restriction are removed that tension is expressed by massive economic boom. Don't believe me, just look everywhere that is opening and removing restrictions. 

Look, I'm not an economist, but I did study economics, and all this I am saying is a combination of life business experience and that economics study and basic principles, all of which are and have proved true over and over again. There is NO collapse coming like this ya-hoo is trying to incite. 

 So I already gave Thor a hard time about overfitting the data and assuming a collapse is coming... But you seem to be overfitting in the opposite direction and assuming there is no collapse coming.

Here's the fact of the matter: We DON'T KNOW if a collapse is coming... Unless maybe you are from the future... In that case please PM me, I want to know which stocks to pick.

All we know are the risks that are out there, and we should be prepared to weather whatever storm may come. Personally, I am sitting on a pile of cash, but I am not liquidating all my assets. If you are leveraged beyond your means already, then liquidating may be a good idea, even if a collapse doesn't come.

I have laid out a considerable list of facts, data, economic theory and mechanics, countless times spelling out in detail exactly how economics actually work especially as it pertains to the housing industry, which clearly is stating THERE IS NO COLLAPSE, NOT NOW, NOT SOON, NOT COMING, NOT AT ALL. Your argument is -ignorant of facts -unsupported, plain and simple. If you'd like to actually attempt to counter the facts I have laid out please, feel free, but I laid out the math and data and that is what I am reading which DOES tell the future. 

James, I appreciate the effort you've put into your posts. 

What would need to happen for you to change your mind and believe that a housing "collapse" is coming?  

Interesting question, very interesting..... You said "collapse", not a recession but a collapse. For a collapse to be possible there is a few things that have to happen; 

(A) supply has to exceed demand in a significant proportion. Short of a mass kill off of people I don't know how this could happen, you literally have to remove roughly 35million+ people from needing a home, specifically home owners. All I can think of is WWIII, how else do you make that first necessary ingredient happen? 08/09 housing collapse was result of more than a decade of overbuilding. 

(B) collapse of the mortgage mechanisms of economics; In theory "IF" China called the entirety of US Notes they are holding, all foreign nations call due US Notes, and all foreign nations stop acquiring US Notes. In addition this would also mean the entire planet universally stops using the "Dollar Standard", so they also all agree on a different standard, insert and distribute that world wide, and call all US Notes, that would collapse the US financial mechanisms and with that mortgage liquidity would all but completely end, indefinitely. Without leveraged capital for home purchasing, deflationary pressures come into action. Yes, the entire country would be "burning" and it would be apocalyptic chaos in the streets but yes, this would have deflationary effects on home prices. 

Again, your question specified "collapse" not recession and while there was the 08/09 collapse what too many are forgetting is name the last collapse before that, yeah, it was the Great Depression. And when looking back in history every collapse has come from the financial markets, or invasion, collapse has never come from the economic working sector ever in history go as far back as the Tulip Crash. So barring an invasion of US mainland, I can't find any plausible means other than the above 2. 

Thanks for the response James. 

I used the term collapse because a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.", which doesn't apply to residential RE. 

To your point A), how do you square your idea with the fact that some areas in of the US have a housing shortage, such as LA, NYC, Boston, Chicago, while other places such as Detroit, Indianapolis, Cleveland, have housing oversupplies? Treating the US housing market as a singular bloc causes a loss of fidelity in local MSAs data, which all have their own unique drivers. I also think you may want to go back and check your history of the GFC. We had a credit collapse centered around the housing industry. While over supply played a role, it was not the only or the main cause. 

On your second point, what would cause the US dollar to not be the world reserve currency? What would cause China to liquidate the 5%-7% of total US debt that they own? What makes you think that if China did face some liquidity crisis, say due to their massively over leveraged housing space, that we couldn't sell more debt to make up for it? What models have you seen/run that lead you to believe that there isn't an appetite for more US denominated debt? W have already issued around $3T in the last few months. In theory, China redeeming their debt would add anything to the Fed's balance sheet, just make pre-existing holders have a larger share. 

You don't lend any credence to the idea that due to Dodd/Frank, mortgage services have to forward payment to bond holders even if they don't receive payments could cause mortgage origination/ servicing to stop? Given that around 8% of loans are thought to be in forbearance, any increase could have disastrous effect on the mortgage industry's liquidity? 

I think you are reasoning from an intermediate shock, which obscures the reality of a situation and/or coming up with a strawman to protect your position. One man's opinion.

While I agree with you that there is a low chance of a housing collapse/crash, saying their is zero probability is laughable. In any simple dynamic system, the probability of an event occurring can't be zero or one. This also applies to the massively complex and interconnected system we call the global economy. 

 

I am not sure what to say, or even that I should bother even saying anything, as your all over the board here which indicates to me that you are just looking to argue without point. 

You asked what would be needed for a collapse, I answered, now your arguing those collapse creating things are not probable to possible, and yeah, I know, that's what I have been saying, and it's kind of the point. 

Than your speaking to the mortgage systems in place and arguing of the now realized flaws in it and therefor doom is coming, possibly. Sure, possibly, IF nothing is done to address the flaws now being discovered and highlighted, which I believe common sense dictates solutions and adjustments will be implemented to eliminate the liquidity bottleneck in the system. It would be a far more reaching and significant issue of there were not the liquidity available, that is not so easily fixed, this is more so an administrative malfunction, and like breaking a beaver dam once done a veritable river of funds flows back through the system so yeas I do believe this is in works and will be soon happening. 

I think you need to actually read what I wrote because you seem to be crediting my advisories words unto myself. 

James, all I have done is ask you a few questions. There is no need to assume nefarious motivations and insult my writing style. You don't see me correcting your use of your and you're or then and than. 

I have read all of voluminous posts in this thread and after that had a question so I asked. You gave an answer that didn't cut to the core of my question so I asked clarifying questions.  You had made assertions about various occurrences and I, having a deep interest in economics, thought you may have seen data or analysis I had not and wanted to learn from you.

I now see that's clearly not the case.  My apologizes for wasting both our time. For what its worth, I don't view people who disagree with me as adversaries, but an avenue for me to get closer to the truth.  Again, sorry for the dialogue that went nowhere, but I did take one important kernel of truth from this exchange, so all wasn't for naught. 

I hope the rest of your days are filled with people just like you.

[Jenning Y.]

@James Hamling

@Kyle J.

As I said before, many cities are still under water. If you look at FHFA's June 2005 Report, the top 20 MSA (which were the bubble most) :

Many are still under water:

[Deborah S Huff]

Does anyone know how to opt out of notifications for this specific post?  I'm new to BP so not sure how to do it.  I'm getting too many email notifications for a post that now has few additional learning opportunities.   

[JJ P.]

There seems to be a broken link.  I've tried to opt out many times and I still get notices.  It wouldn't be bad if it was just once a day, but my inbox is slammed. 

[James Hamling]

Originally posted by @Jenning Y.:

@James Hamling

@Kyle J.

As I said before, many cities are still under water. If you look at FHFA's June 2005 Report, the top 20 MSA (which were the bubble most) :

Many are still under water:

 Now that is a 5-star way to dance around the truth and facts to twist reality on it's head. we both know hence why you refuse to show the median home sales values in comparison.

[Ladè Baruwa]

@Thor Sveinbjoernsson you may have a point, however this is all just speculation. Nonetheless, I do enjoy the back and forth!

What I will say is mortgage forbearance will slow down any type of foreclosure for the remainder of 2020.

[James Hamling]

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Bill F.:

Originally posted by @James Hamling:

Originally posted by @Joseph Hennis:

Originally posted by @James Hamling:

@Thor Sveinbjoernsson what you have put out is the single worst, most incorrect over-simplification of the " 08/09 Housing Collapse", written with complete and total ignorance of every financial and investment market mechanism involved INCLUDING the actual housing market data and factors involved. And the fact that your calling yourself an accountant! I am totally blown away and terrified for business persons who may be looking to you for sound business advice that they would catalyze into actual actions. 

First off, the housing collapse was (in a simplified manner) 2 MAIN actions: a housing SURPLUS (and a massive one at that) AND a significant monetary contraction. Thats it, NOTHING like today, nothing at all. 

The monetary contraction was a ticking time bomb, it's was destined to happen by the sheer design of it and as you were oblivious to all of this I will not attempt to get into the finer detail of mortgage-backed securities and the layering of tranches. Short story, the securities were destined to fail AND those securities had factors of x20/x40.x50+ of funds gambled upon them so each security that went down took a grossly disproportionate amount of capital down with it. 

At this point you may be asking "this guy seems to know a bit more than average on this", yeah, because I was actually there, and I spent a time as a Mortgage Banker to boot. The housing collapse was a monster sized freight train that many fo us saw coming miles away, not to the full extent of what it was BUT many of us in the business knew a correction was coming, knew lending was hugely inflating the market, knew the math of over-supply and on and on all meant correction was coming, we just didn't know when and how bad. 

Today, we are in a housing SHORTAGE. We do NOT have the same crazy system on mortgage-backed securities we had in 08/09, or to be more accurate the Jenga stack of gambles is not built in a way as it was. 

There is so much distortion in your post and promotion that it verges on criminal. For example, saying everyone better hurry and sell in next 6 months "or else" there will be mass flooding of market with sales, your telling people to flood the market genius. Thats inciting a run on the market. Your inciting fear and panic. 

Your correlating unemployment with housing market collapse, well guess what, pre 08/09 collapse unemployment was under 4%. So by your logic low unemployment = housing collapse, because thats what it was. It was the housing collapse that made unemployment rise, not the other way around. 

i gotta stop, because I could literally write pages of false information and false premise in your doom pandering, with matching pages of actual economic and financial reality, basically all those things actual accountants learn in a university which is why I am confused by your stated position and statements, they don't match at all. 

Will unemployment effect mortgage defaults and the economy, absolutely, and not in the manner stated because we DON'T have a declining market we have a restricted market from regulation suspension. What the difference, well a declining market is one where the whole is reducing from fundamental factors, a restricted one, which we are in, is where desired economic activity is restricted and with that it builds tension, like a spring, and as restriction are removed that tension is expressed by massive economic boom. Don't believe me, just look everywhere that is opening and removing restrictions. 

Look, I'm not an economist, but I did study economics, and all this I am saying is a combination of life business experience and that economics study and basic principles, all of which are and have proved true over and over again. There is NO collapse coming like this ya-hoo is trying to incite. 

 So I already gave Thor a hard time about overfitting the data and assuming a collapse is coming... But you seem to be overfitting in the opposite direction and assuming there is no collapse coming.

Here's the fact of the matter: We DON'T KNOW if a collapse is coming... Unless maybe you are from the future... In that case please PM me, I want to know which stocks to pick.

All we know are the risks that are out there, and we should be prepared to weather whatever storm may come. Personally, I am sitting on a pile of cash, but I am not liquidating all my assets. If you are leveraged beyond your means already, then liquidating may be a good idea, even if a collapse doesn't come.

I have laid out a considerable list of facts, data, economic theory and mechanics, countless times spelling out in detail exactly how economics actually work especially as it pertains to the housing industry, which clearly is stating THERE IS NO COLLAPSE, NOT NOW, NOT SOON, NOT COMING, NOT AT ALL. Your argument is -ignorant of facts -unsupported, plain and simple. If you'd like to actually attempt to counter the facts I have laid out please, feel free, but I laid out the math and data and that is what I am reading which DOES tell the future. 

James, I appreciate the effort you've put into your posts. 

What would need to happen for you to change your mind and believe that a housing "collapse" is coming?  

Interesting question, very interesting..... You said "collapse", not a recession but a collapse. For a collapse to be possible there is a few things that have to happen; 

(A) supply has to exceed demand in a significant proportion. Short of a mass kill off of people I don't know how this could happen, you literally have to remove roughly 35million+ people from needing a home, specifically home owners. All I can think of is WWIII, how else do you make that first necessary ingredient happen? 08/09 housing collapse was result of more than a decade of overbuilding. 

(B) collapse of the mortgage mechanisms of economics; In theory "IF" China called the entirety of US Notes they are holding, all foreign nations call due US Notes, and all foreign nations stop acquiring US Notes. In addition this would also mean the entire planet universally stops using the "Dollar Standard", so they also all agree on a different standard, insert and distribute that world wide, and call all US Notes, that would collapse the US financial mechanisms and with that mortgage liquidity would all but completely end, indefinitely. Without leveraged capital for home purchasing, deflationary pressures come into action. Yes, the entire country would be "burning" and it would be apocalyptic chaos in the streets but yes, this would have deflationary effects on home prices. 

Again, your question specified "collapse" not recession and while there was the 08/09 collapse what too many are forgetting is name the last collapse before that, yeah, it was the Great Depression. And when looking back in history every collapse has come from the financial markets, or invasion, collapse has never come from the economic working sector ever in history go as far back as the Tulip Crash. So barring an invasion of US mainland, I can't find any plausible means other than the above 2. 

Thanks for the response James. 

I used the term collapse because a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.", which doesn't apply to residential RE. 

To your point A), how do you square your idea with the fact that some areas in of the US have a housing shortage, such as LA, NYC, Boston, Chicago, while other places such as Detroit, Indianapolis, Cleveland, have housing oversupplies? Treating the US housing market as a singular bloc causes a loss of fidelity in local MSAs data, which all have their own unique drivers. I also think you may want to go back and check your history of the GFC. We had a credit collapse centered around the housing industry. While over supply played a role, it was not the only or the main cause. 

On your second point, what would cause the US dollar to not be the world reserve currency? What would cause China to liquidate the 5%-7% of total US debt that they own? What makes you think that if China did face some liquidity crisis, say due to their massively over leveraged housing space, that we couldn't sell more debt to make up for it? What models have you seen/run that lead you to believe that there isn't an appetite for more US denominated debt? W have already issued around $3T in the last few months. In theory, China redeeming their debt would add anything to the Fed's balance sheet, just make pre-existing holders have a larger share. 

You don't lend any credence to the idea that due to Dodd/Frank, mortgage services have to forward payment to bond holders even if they don't receive payments could cause mortgage origination/ servicing to stop? Given that around 8% of loans are thought to be in forbearance, any increase could have disastrous effect on the mortgage industry's liquidity? 

I think you are reasoning from an intermediate shock, which obscures the reality of a situation and/or coming up with a strawman to protect your position. One man's opinion.

While I agree with you that there is a low chance of a housing collapse/crash, saying their is zero probability is laughable. In any simple dynamic system, the probability of an event occurring can't be zero or one. This also applies to the massively complex and interconnected system we call the global economy. 

 

I am not sure what to say, or even that I should bother even saying anything, as your all over the board here which indicates to me that you are just looking to argue without point. 

You asked what would be needed for a collapse, I answered, now your arguing those collapse creating things are not probable to possible, and yeah, I know, that's what I have been saying, and it's kind of the point. 

Than your speaking to the mortgage systems in place and arguing of the now realized flaws in it and therefor doom is coming, possibly. Sure, possibly, IF nothing is done to address the flaws now being discovered and highlighted, which I believe common sense dictates solutions and adjustments will be implemented to eliminate the liquidity bottleneck in the system. It would be a far more reaching and significant issue of there were not the liquidity available, that is not so easily fixed, this is more so an administrative malfunction, and like breaking a beaver dam once done a veritable river of funds flows back through the system so yeas I do believe this is in works and will be soon happening. 

I think you need to actually read what I wrote because you seem to be crediting my advisories words unto myself. 

James, all I have done is ask you a few questions. There is no need to assume nefarious motivations and insult my writing style. You don't see me correcting your use of your and you're or then and than. 

I have read all of voluminous posts in this thread and after that had a question so I asked. You gave an answer that didn't cut to the core of my question so I asked clarifying questions.  You had made assertions about various occurrences and I, having a deep interest in economics, thought you may have seen data or analysis I had not and wanted to learn from you.

I now see that's clearly not the case.  My apologizes for wasting both our time. For what its worth, I don't view people who disagree with me as adversaries, but an avenue for me to get closer to the truth.  Again, sorry for the dialogue that went nowhere, but I did take one important kernel of truth from this exchange, so all wasn't for naught. 

I hope the rest of your days are filled with people just like you.

You credited my answers to your question, as promotions from myself to there potential. I have consistently, and yet again, reaffirm my disbelief in their probability as the data is not reflecting such at this time, or the sector of such. 

You than credited some things to myself of which I never promoted, I actually denounced, so as I said it read as if you were not informed or misconstrued. 

The overall theme of your post confused me as it moved in both what seemed to be a direction of pro and con as to question of impending collapse, a confusing conflict. 

Simply put, economically speaking, any given day there is a theoretical potential of a market collapse, any market, because even a 0.000001% chance of probability is still a chance, and that is much of what people are arguing to, statistically insignificant potentials but promoting in a manner of near or complete certainty. 

I have promoted data backing every single one of my statements, yet counter after counter is laced with personalization and no data supporting counter. Yours was the best discussion point for fact based, only problem is I agree with much of what you laid out so your arguing an agreeance in large part. 

Where we differ is I am willing to tell it as it really is that there is no signs of market collapse, not now not coming, not at all. At most there is speculative potential is all a person can argue to for market collapse, and that would be admitting speculation, which is a hunch of something that has no proof in data and fact but supporting data lends to ones hunch this other thing will come to pass, that's not what these people are saying, they are saying it's happening, it's coming, as factual as the sunset is coming. 

[Glenna Wood]

Originally posted by @Deborah S Huff:

Does anyone know how to opt out of notifications for this specific post?  I'm new to BP so not sure how to do it.  I'm getting too many email notifications for a post that now has few additional learning opportunities.   

I believe it's in your Settings. Turn off Instant on email Notifications. I get one email a day for all threads I choose to follow the  I can go look or not. For a single thread, it won't show you updates unless you elected to Follow it (green check at the top). Hope this helps.

[Deborah S Huff]

Glenna,  Thank-you!   Aah, what a relief !

[Sean Mochizuki]

I don't agree with the base argument that the US RE market will experience a complete collapse. As a few posters mentioned above, individual markets will experience appreciation and depreciation. I am of the personal belief that there will be a migration of people from high cost states (read: California, NY, NJ, etc.) to lower cost states. This will cause home prices in these states to decrease, and cause current low cost of living cities' home prices appreciate. There will be a cascading effect, where homeowners in high cost of living states will find their homes' equity lost and potentially underwater. 

On a macro level, there were a few catalysts prior to COVID-19:

- SALT deduction cap had a punitive effect on high cost states which typically have higher mortgage balances (read: higher deductible mortgage interest), higher state income taxes, and higher property taxes. This made homeownership in many of these states uneconomical.

- Companies began looking for secondary and tertiary corporate offices in lower cost states.

- Lower cost of living caused a flood of Californians to move Oregon, Washington, Nevada and Texas.

With the work from home orders as a result of COVID-19, many companies have found that WFH can be just as effective as working in an office. Facebook has gone as far to say that they will likely haircut salaries if their employees choose to telecommute and live in a lower COL area. There is the very real possibility that living in SF or San Jose does not have the same appeal to many people who are in the tech industry. What happens when companies realize that WFH/telecommuting turns into outsourced white collar jobs to emerging markets? They keep US sales teams, with a few high paid liaisons that can speak English and the local EM language at the fraction of today's cost. If white collar jobs go the way of gig work (see Upwork and Fiverr) or they are lost to outsourcing, certain RE markets and the overall US economy (main street not Wall St.) are in a world of hurt.

1) Many potential sellers did not list their homes during the COVID-19 crisis. There is the potential for supply to enter the market causing inventory to spike. Housingwire

2) Potential buyers choose lower cost options in the suburbs or other states. Redfin

3) Sellers notice the buyer pool shrinks, and lower list prices beget lower list prices.

4) Deflation destroys homes/owners that are highly levered. There has been a lot of discussion about inflation, but I actually foresee a future where we experience deflation. There is the potential for negative US interest rates, Japanification, lower real wages, Cold/trade war with China causing higher production costs that are returned from abroad, etc.

This post become much larger than I originally anticipated. TLDR:

- High cost states will eventually experience lower home values; lower cost states stand to benefit

- Impact to RE market will be localized and can vary significantly from state to state, county to county

- Change in peoples' behaviors and WFH will have a large impact on where people choose to live

- Potential deflation will hurt people with highly levered RE portfolios

[Leonard L.]

I love the title of this post.  It has clearly gotten a lot of interest.  Reading through the posts, however, I find it less interesting to hear people go on and on about what their crystal ball says about the future, and more interesting to hear how they are currently positioning their investments/portfolio in the face of current risks.  

I invest in the Riverside CA area and I am choosing to mitigate risk by liquidating a portion (maybe 35% or so) of my portfolio.  I bought most of my assets during 2011-2013, they have appreciated dramatically, and I have no debt.  With full occupancy and increasing rents for the last few years, it has been (and likely will continue to be) a great time to be a landlord in this area.  

The comment I agree with the most above is that correlation does not equal causation.  It is very, very hard to know with any certainty whether the rising unemployment rate right now will lead to decreased demand and hence falling prices.  There are just so many variables and unknowns, including the historically unprecedented stimulus (which I will share anecdotally I see funding many RE investments in my market) and the under-production of housing in the last decade.  But I do know that the present situation creates a SIGNIFICANT RISK of downward pressure on pricing in the future.  Because my market is RED HOT right now, I can exit at very high prices and lock in gains on a portion of my holdings.  I expect the super-heated nature of the present market will be temporary, but I would be happy to be wrong.

If there is downward pricing pressure in the future, as I think is likely, I will have a bucket of cash to make sure I can pounce on new opportunities. If I am wrong and the market continues to increase over the next several years, the remaining 65% of my portfolio will participate in the updraft.

My strategy reflects how I built my portfolio, my age, my risk appetite, and my views of the likelihood of a downdraft in pricing over the next few years.  YMMV.


 

[Jenning Y.]

Originally posted by @Leonard L.:

I love the title of this post.  It has clearly gotten a lot of interest.  Reading through the posts, however, I find it less interesting to hear people go on and on about what their crystal ball says about the future, and more interesting to hear how they are currently positioning their investments/portfolio in the face of current risks.  

I invest in the Riverside CA area and I am choosing to mitigate risk by liquidating a portion (maybe 35% or so) of my portfolio.  I bought most of my assets during 2011-2013, they have appreciated dramatically, and I have no debt.  With full occupancy and increasing rents for the last few years, it has been (and likely will continue to be) a great time to be a landlord in this area.  

The comment I agree with the most above is that correlation does not equal causation.  It is very, very hard to know with any certainty whether the rising unemployment rate right now will lead to decreased demand and hence falling prices.  There are just so many variables and unknowns, including the historically unprecedented stimulus (which I will share anecdotally I see funding many RE investments in my market) and the under-production of housing in the last decade.  But I do know that the present situation creates a SIGNIFICANT RISK of downward pressure on pricing in the future.  Because my market is RED HOT right now, I can exit at very high prices and lock in gains on a portion of my holdings.  I expect the super-heated nature of the present market will be temporary, but I would be happy to be wrong.

If there is downward pricing pressure in the future, as I think is likely, I will have a bucket of cash to make sure I can pounce on new opportunities. If I am wrong and the market continues to increase over the next several years, the remaining 65% of my portfolio will participate in the updraft.

My strategy reflects how I built my portfolio, my age, my risk appetite, and my views of the likelihood of a downdraft in pricing over the next few years.  YMMV.

 

 Same thoughts as yours, except I am heavily leveraged. I am in the process of getting rid of some highly appreciated but cash-flow poor properties and hold large enough cash. If everything is ok, I am happy with it.  If things turn ugly, holding enough cash is not a bad thing too,  may find some opportunities...  

[Tony Blasioli]

Originally posted by @Account Closed:

@Tony Blasioli I pray you will find help.

Thank you.

[Steve Vaughan]

Originally posted by @Leonard L.:

I am choosing to mitigate risk by liquidating a portion (maybe 35% or so) of my portfolio.  I bought most of my assets during 2011-2013, they have appreciated dramatically, and I have no debt.    

. 

Awesome, Leonard. I was wondering how you plan to mitigate the tax hit on your sales? 1031?

I've been selling 1 to 2 per year (by owner) since 2017 and have just been taking it. Not bad selling slowly but recapturing depreciation after many years bites. I already sold my 1 for this year in Jan, thankfully. Wondering how someone sells 35% in 1 year without taking a tax beating . Thanks for that.

Also- no debt? Bravo. Do tell! I have several paid off but not all. Mine are either at about 70% or 0. How did you do it without debt? 

Did you get to no debt by paying cash in the beginning or paid off as you went? I paid half mine off as I went, then starting buying with cash intending to BRRR, but never got around to or needed the refi part. Thanks!