Housing crash deniers ???

[Greg R.]

Unfortunately I've been away for a few months while taking care of some personal matters, so I haven't been able to keep up on discussions. 

However, several months ago there were ample amount of folks here insisting that a market crash/ correction was impossible and that prices would only continue to increase.

Curious if there are still people out there who feel this way? If so, I'd love to see some data that supports your view that the market isn't going to crash/ correct. 

[Larry Zucker]

The thing is that 6% is still on the lower side of historical rates and inventory is still very low. So, unless inventory increases dramatically or the unemployment rate soars (forcing people to sell quickly), the housing market will not quickly and dramatically move downward - i.e., crash.  That's my opinion anyways.

[Greg R.]

Quote from @James Hamling:

Quote from @Greg R.:

Quote from @James Hamling:

 There is everything wrong with this line of thinking Greg, and I do mean EVERYTHING. You can NOT time a market "bottom", flat out fact. Those of us who have been in this game for some time, and by some time I mean those of us who measure our career in decades not years, we know this fundamental law as fact. 

I get it, your sitting back dreaming of a '08' 2.0 and all the juicy deals your gonna snag up because have spent the last years thinking and saying "oh man, if I had just known I would'a" but fact is NO you WOULDN'T, because you DIDN'T, and you DIDN'T because when you COULDA you thought it was all bad and stupid, just-like-now....... 

Fact is, in '09' when I WAS investing, most and I mean MOST as in 90%+ were saying I was nuts, to "wait for the bottom". In 2010 as I flipped and was selling in less then 72 hours most said it was a fluke, luck, and I better stop while I was ahead. In 2011 they said I was going to go bankrupt any day once I got caught with a hot potato in hand. It was in 2012, as MEDIA caught traction fo things and the flipping shows started to become popular that people finally started saying "huh, maybe you got something there, but bah bah bah, it's way too risky". And by 2015 it was "oh man, I WOULDA _______ IF-I-KNEW....". 

Yeah, well, it's not that you didn't know, it's that you simply don't have the vision to see past the BS and see the opportunity. That's the reality check of it. 

To compare things today to '08' collapse and say it will happen again is just infantile knowledge, it is, because there is NOTHING of the same/similar setup, nothing, zero, zip, zilch nada. 

Are things stepping back today, heck yeah, and it's AWESOME! It's called CONSOLIDATION, and it's a GREAT sign and signal for INCREASED pricing. See, this is how economics work, I understand the YT of choice may not understand this in between slinging Nord VPN and then yapping how the world is about to reverse direction and spin backwards. 

We had explosive pricing ascension, if you don't understand the catalyst for this, then you will never understand the consolidation we are in, nor the localized adjustments. We are in the second great suburban migration, empowered by virtual working, civil unrest, politics of the day, and just a desire to not like like a Tokyo sub-division. We have inflation the likes of which has NEVER been experienced in human history and guess what, we are just getting through the 2nd wave of this tsunami of cash-expansion and there is more to come, that's how economics actually works, at least 4 waves from this, the 3rd which is just starting now which is mass increase to consumer expense and wage increase, which will facilitate the elevation in asset pricing yet again due to input cost elevation. 

No, there is NO collapse, unless we are no re-labeling that too so consolidation = collapse, slow moving adjustments over weeks/months = collapse, vanilla on a waffle cone = collapse....... 

Feel free to think you can time the bottom, be my guest, I am used to 80%+ sitting the sidelines talking a lot and doing little to nothing, I am happy to be the minority, I have been it for more then 3 decades. Fact is, home ownership is rapidly stepping away from attainment by most. The very fundamentals are well into transition into a renter nation, and once you realize it, it's too late, your going to be crying saying "oh man, if I knew I WOULDA.....". Again.......

Not sure why you're making the assumption that I'm waiting. I've said repeatedly in this thread that I closed a deal in Jan, at the top of the bubble. And I'm not thinking that I am going to buy at the very bottom of the market. But I'm also not going to buy at the top of the market in a hyper-inflated market and get into a deal that doesn't cash flow well and has a poor COC return - not going to happen. The writing is on the wall of what's to come. My plan is to exercise patience and buy when the time is right. Not to listen to "gurus" that insist that it's always the right time to buy. Inventory is still tight now (albeit slowly improving), but let's see where we are Nov/ Dec. The buyer pool is definitely drying up, proven by steep decline in mortgage apps. A lot of signs point to there being a significant amount of foreclosures in the next 6-12 months as well.

 LMAO! There is so much wrong in that I don't know where to start. 

You say where am I getting the idea your trying to time the bottom, and then go into detail on how your plans are to time the bottom, LOL. 

Then all the rambling saying you bought in the Bubble referring to this past January, then onto how there is going to be mass foreclosures....... I don't understand, what color is the sky in your world? I don't understand people like you who just make things up out of thin air, then pick n choose singular disembodied data points to then present as evidence. 

We have historic HIGH of equity in homes, how does that = mass foreclosures? 

There seems to be no point trying to speak common sense because you've already chosen the result and are refusing to acknowledge the input which clearly states a completely different result. 

This is no different then all the people who said the sky was falling and R.E. would drop by 30%+ when covid lockdowns started. Well, how well did that work out? Homes are how much more now? 

You have fun with your end of the world, enjoy that cool-aid, I'm going to be busy living life and cashing checks. 

Ok, let me try to simplify this for you. 

When did I ever say I was trying to purchase right at the bottom? Not sure if you understand how these things work. There is a peak and then a valley. Right now we're somewhere close to the top of the peak. I'm going to wait for the crash, correction, or whatever you want to call it, and plan scoop up inventory somewhere close to the bottom. Obviously no one can know exactly how far things will go, but I never said that I'm going to purchase at the exact bottom. 

I did buy this past January, what about that isn't clear to you? It was a very good deal - unlike anything else I came across during the bubble, so I purchased. 

Regarding foreclosures, we've just about climbed back to pre-pandemic levels on foreclosures and delinquent accounts. Not to mention, there are still people under covid-forbearance protection that will soon be losing that protection. We also just entered into a recession, which correlates to higher amounts of foreclosures. 

But, but the equity! Yeah, a lot of people have equity, but many people overpaid by a significant margin over the last couple years and as the rates increase and buying activity decreases, equity diminishes. 

From your last comment, seems doubtful that you'll be able to understand the points that i lay out in this post. In any event, best of luck to you, I hope your portfolio does well. 

[James Hamling]

Quote from @Will F.:

Quote from @Larry Zucker:

Quote from @Greg R.:

Quote from @Larry Zucker:

The market is not crashing. The current market is very different from 2008 when inventory flooded the market as people could no longer afford their mortgages. Inventory levels alone tell that picture. In the raleigh, NC market, Year over year (YOY), July 2022 saw the number of listings increase by a modest 1% with a sale-to-list of 101.7% (down from 105%) and median sale prices are up 18% YOY.  While Average days on market have increased 33.3% as interest rates have forced some buyers out of the market, that comparison can be deceiving since the comparison is between 9 days on market last year to 12 days on market this year - historic lows numbers.

The current market changes are the start of balancing and normalization, not a crash. Keep an eye on that inventory. If it skyrockets - which I don't think it will because of solid homeowner equity - then the discussion about a crash may be relevant. But for now, it is not.

@Greg R. - Don't buy into the fear mongers that are promoting a market crash to improve their ratings, likes and reach. You asked for data, and I provided it above. Now rest easy. From an investor perspective, demand for rentals go up whether there is low inventory (people can't find/afford a home) or a market crash (high inventory created by sellers who now need a place to live) so your cash flow numbers should improve in this market either way.

Hi Miles, I agree - the market is currently not in a crash. However, many economic markers indicate that's where we're heading. To your point, certain markets are going to be hit harder than others. And trust me, I'm not listening to social media gurus. Nor am I fearful about it - I'm simply preparing for the scenario as I believe it's the most likely outcome. When it happens I am not going to be surprised/ flat footed.

Your original post asked for data. I provided some, have you?. The inventory is at historic lows there is no getting around that. Inventory would have to quadruple to get the months-of-inventory up to 6 months. Very unlikely to happen. Interest rates, while on the rise, continue to be at historic lows. As the saying goes: "None are so blind as will not see."

 Larry I agree with all your points.  

But  also wouldn't you say most of the properties priced in the last year or so will not make sense at 6%+ rates.

My fear is that affordability is at a low for decades. Property is unaffordable when taking out loans for most home buyers and many investors. Both prices (RE value) is relatively high and rates are increasing. Costs to hold don't make sense with high LTV loans.

https://fred.stlouisfed.org/se... affordability index St Louis FED

https://cdn.nar.realtor/sites/... NAR housing affordability index

I'm currently buying a multifamily 8-20 u and having to put 40-50% down to get a 6% APR loan to work. DSCR ratio makes many deals not make sense on paper...

Either way I'll continue buying but with more downpay and with more caution for the next year or so

100%, Affordability is the elephant in the room. 

So, let's do some deductive reasoning. We are getting into election cycle, and it's about as hot as a Kilauea hot-tub. We have the "Oprah-Hour-Gov" at play (you get a billion - YOU get a BILLION - WE ALL GET A BILLION!!!!) so the chances that inflation is random gypsie wondering through town on his way out in a few days, well it just ain't so. Inflation is going to keep on trucking until someone put's a stop to the printing press. 

So what is a politician to do????? 

Maybe wrangle up a group of savy economists and industry professionals, to get some credible insight, draft some effective policy actions, maybe step back some spending, hop on CNN and inform the voters how, well, the money tree happens to be all you folks, the working class and sorry but, we gotta stop the press and do some real things to makes things factually better, but hey, vote for ____ come November. 

-OR-...... What if we just take this giant steaming poo-pile, wrap it in some shinny foil and call it a gift? We don't have to actually fix anything if we just let people pay over longer time! A 40yr mortgage! Yeah, THAT'S what's wrong, paying over 30 vs 40 years, yeah that's the ticket! Fixing things "phew" that's for chumps, too much work, no we just make homes affordable again!

I have all the faith in the world that the politicians who, unfortunately, run this funny-farm we call 'MERICA', will do everything they can to win there elections by doing the absolute least and most short-sighted thing they can. Which generally involves some deception action that also enriches the corporate powers that be, something like normalizing a 40yr mortg over a 30. Hell, why stop there, why not a 60 and really get people locked into financial servitude for a lifetime. 

And they will hold parades for themselves and all there genius that your home is so cheap and affordable, thanks to them, all it costs you is 3X it's purchase price. But not really because you'll die owning. 

[Allan Ryan]

honestly I try to stay away from real estate and just throw most my money in index funds. much more stress f

[James Hamling]

Quote from @Greg R.:

Quote from @James Hamling:

Quote from @Greg R.:

Quote from @James Hamling:

 There is everything wrong with this line of thinking Greg, and I do mean EVERYTHING. You can NOT time a market "bottom", flat out fact. Those of us who have been in this game for some time, and by some time I mean those of us who measure our career in decades not years, we know this fundamental law as fact. 

I get it, your sitting back dreaming of a '08' 2.0 and all the juicy deals your gonna snag up because have spent the last years thinking and saying "oh man, if I had just known I would'a" but fact is NO you WOULDN'T, because you DIDN'T, and you DIDN'T because when you COULDA you thought it was all bad and stupid, just-like-now....... 

Fact is, in '09' when I WAS investing, most and I mean MOST as in 90%+ were saying I was nuts, to "wait for the bottom". In 2010 as I flipped and was selling in less then 72 hours most said it was a fluke, luck, and I better stop while I was ahead. In 2011 they said I was going to go bankrupt any day once I got caught with a hot potato in hand. It was in 2012, as MEDIA caught traction fo things and the flipping shows started to become popular that people finally started saying "huh, maybe you got something there, but bah bah bah, it's way too risky". And by 2015 it was "oh man, I WOULDA _______ IF-I-KNEW....". 

Yeah, well, it's not that you didn't know, it's that you simply don't have the vision to see past the BS and see the opportunity. That's the reality check of it. 

To compare things today to '08' collapse and say it will happen again is just infantile knowledge, it is, because there is NOTHING of the same/similar setup, nothing, zero, zip, zilch nada. 

Are things stepping back today, heck yeah, and it's AWESOME! It's called CONSOLIDATION, and it's a GREAT sign and signal for INCREASED pricing. See, this is how economics work, I understand the YT of choice may not understand this in between slinging Nord VPN and then yapping how the world is about to reverse direction and spin backwards. 

We had explosive pricing ascension, if you don't understand the catalyst for this, then you will never understand the consolidation we are in, nor the localized adjustments. We are in the second great suburban migration, empowered by virtual working, civil unrest, politics of the day, and just a desire to not like like a Tokyo sub-division. We have inflation the likes of which has NEVER been experienced in human history and guess what, we are just getting through the 2nd wave of this tsunami of cash-expansion and there is more to come, that's how economics actually works, at least 4 waves from this, the 3rd which is just starting now which is mass increase to consumer expense and wage increase, which will facilitate the elevation in asset pricing yet again due to input cost elevation. 

No, there is NO collapse, unless we are no re-labeling that too so consolidation = collapse, slow moving adjustments over weeks/months = collapse, vanilla on a waffle cone = collapse....... 

Feel free to think you can time the bottom, be my guest, I am used to 80%+ sitting the sidelines talking a lot and doing little to nothing, I am happy to be the minority, I have been it for more then 3 decades. Fact is, home ownership is rapidly stepping away from attainment by most. The very fundamentals are well into transition into a renter nation, and once you realize it, it's too late, your going to be crying saying "oh man, if I knew I WOULDA.....". Again.......

Not sure why you're making the assumption that I'm waiting. I've said repeatedly in this thread that I closed a deal in Jan, at the top of the bubble. And I'm not thinking that I am going to buy at the very bottom of the market. But I'm also not going to buy at the top of the market in a hyper-inflated market and get into a deal that doesn't cash flow well and has a poor COC return - not going to happen. The writing is on the wall of what's to come. My plan is to exercise patience and buy when the time is right. Not to listen to "gurus" that insist that it's always the right time to buy. Inventory is still tight now (albeit slowly improving), but let's see where we are Nov/ Dec. The buyer pool is definitely drying up, proven by steep decline in mortgage apps. A lot of signs point to there being a significant amount of foreclosures in the next 6-12 months as well.

 LMAO! There is so much wrong in that I don't know where to start. 

You say where am I getting the idea your trying to time the bottom, and then go into detail on how your plans are to time the bottom, LOL. 

Then all the rambling saying you bought in the Bubble referring to this past January, then onto how there is going to be mass foreclosures....... I don't understand, what color is the sky in your world? I don't understand people like you who just make things up out of thin air, then pick n choose singular disembodied data points to then present as evidence. 

We have historic HIGH of equity in homes, how does that = mass foreclosures? 

There seems to be no point trying to speak common sense because you've already chosen the result and are refusing to acknowledge the input which clearly states a completely different result. 

This is no different then all the people who said the sky was falling and R.E. would drop by 30%+ when covid lockdowns started. Well, how well did that work out? Homes are how much more now? 

You have fun with your end of the world, enjoy that cool-aid, I'm going to be busy living life and cashing checks. 

Ok, let me try to simplify this for you. 

When did I ever say I was trying to purchase right at the bottom? Not sure if you understand how these things work. There is a peak and then a valley. Right now we're somewhere close to the top of the peak. I'm going to wait for the crash, correction, or whatever you want to call it, and plan scoop up inventory somewhere close to the bottom. Obviously no one can know exactly how far things will go, but I never said that I'm going to purchase at the exact bottom. 

I did buy this past January, what about that isn't clear to you? It was a very good deal - unlike anything else I came across during the bubble, so I purchased. 

Regarding foreclosures, we've just about climbed back to pre-pandemic levels on foreclosures and delinquent accounts. Not to mention, there are still people under covid-forbearance protection that will soon be losing that protection. We also just entered into a recession, which correlates to higher amounts of foreclosures. 

But, but the equity! Yeah, a lot of people have equity, but many people overpaid by a significant margin over the last couple years and as the rates increase and buying activity decreases, equity diminishes. 

From your last comment, seems doubtful that you'll be able to understand the points that i lay out in this post. In any event, best of luck to you, I hope your portfolio does well. 

 Sorry Greg, it makes all the sense in the world now, it's crystal clear how your strategy to buy in the bottom is not you planning to buy at market bottom, yup, got it, perfect sense....... 

So, curious, as you apparently have Nostradamus like powers, why are you not getting the Powerball? That seems to make the most sense. I mean, you clearly know the future to the point that you can predict something that literally all data and actual industry professionals say has a LESS a chance of happening then getting hit by lightning while being mauled by a Grizzley, but hey, you got that foresight bud. 

And what is this bubble? In January? Were you blowing bubbles? Was this some rave thing? Maybe a Check-E-Cheese event? Because there was no "bubble" for the economy, real estate in January that you seem to be eluding to. Is that a place you did the closing "The Bubble"? Weird name for a office but ok. 

How about this, put your $ on this. Put this Nostradamus power to use, fleece me. Your saying collapse, when exactly? Let's set a date. Or is this one of those Kiyosaki things that if you say it enough, one decade, some decade, it will come true?      You say collapse, 30%+ drop in R.E. price nationwide, in next what, 6 months? Ok, let's put $10k on it, how about that? 

Because in case you haven't noticed, what am I saying of course you did, prices in many markets keep climbing, median sales price is up. As far as collapses go, this one is doing a horrible job of it. 

[Will Barnard]

Not sure why I did, but I read all 4 pages of this thread and now my head hurts, pass the advil please.

The sky is blue. It will be sunny tomorrow. - Send me my badge when I'm correct!

There appears to be a lot of people here eager to predict a "crash". This has been going on for as long as predictions have and the vast majority of them are wrong. A broken clock is correct twice daily and if that is your play, good luck with your results.

Those who claim that the 2008 crash in RE (and stock market) can have a similar or worse result upcoming are simply ignoring the facts. FACT: Housing inventory is and remains at historic lows. Home equity is at historic highs. The fact that new housing permits continue to be well short of the housing needed for increased population is yet another factor. Loans were not given out to strippers and their cats through liar loans in the past decade+. The jobs market is strong, historically strong. Anybody willing to work (granted there are millions who would rather live off of free hand outs exist) can get a job in 5 minutes as there are a massive amount of available jobs and a shortfall of those willing to take said jobs. 

Rather than trying to win a prize for being correct with your crystal balls, why not focus on more productive tasks!

Now for my opinions: I think we are in for some RE value corrections and the market has already shown signs of retraction. More listings are having price reductions, listings are not getting 40+ over ask price offers anymore, and the interest rate hikes have placed many would be buyers out of the homeownership market and remain as renters (or add to the renter pool). This does NOT mean in my eye that a crash is imminent. It simply means things will flatten and adjust. Most have equity and even a harsh correction will not send a influx of foreclosures into the inventory pool. I am in my 3 decade of RE investing so certainly not a rookie, but will admit (and have publicly many times here) I have made many mistakes investing. One mistake I have not made is to base my decisions on peoples predictions, specifically those like Kiyosaki who make these doom predictions time and again and are rarely correct. In fact, it would probably be wise to do the exact opposite of what they say and you would be right 90+% of the time!

[Jose Goncalvez]

@Greg R.

I don’t believe real estate can be discussed or analyzed as simple as this. Specially with all the craziness we saw during 2020 and 2021.

In my opinion, in order to properly discuss the possibilities of what could happen, we must identify the market that we are talking about.

Which area? What type of property? Within what price range?

Take a look at the macroeconomics, what’s happening in that specific market? Why it is where it is today? What would make it “crash” and what won’t?

Etc etc etc

[Jack Seiden]

Quote from @Derick Bonsu:

I was gonna jump in here but you pretty much every point I wanted to make for me. For those debating semantics of crash vs correction, it does seem some what irrelevant in that if I think something is going to be worth less in the future than it is today why would I buy it as an investment. The housing market is driven by primary homebuyers using 30 year fixed mortgages that have doubled over the last 6 months (the average mortgage rate is up $900) your average consumer simply cannon absorb that therefore prices must come down and it’s already happening (In my market D.C. metro prices declined 7% mom from June to July.) I’m a big car guy and one thing this reminds me of is when car guys get mad at manufacturers for building boring ugly cars not realizing that enthusiast’s make up a tiny franction of the car market, similarly biggerpockets is by definition a housing enthusiast’s website, the only reason I engage so much is i really don’t want to see investors lose their shirt in this market.

 So what you're saying is they can't build a twin turbo, 6sp manual, rear wheel drive,500 hp wagon that weighs the same as an NA Miata, that can tow like an f150, that you can also take to the tracks? Why not?

😂😂😂😂😂 #Bringbacktheroadmaster

[Carlos Ptriawan]

Quote from @James Hamling:

100%, Affordability is the elephant in the room. 

So, let's do some deductive reasoning. We are getting into election cycle, and it's about as hot as a Kilauea hot-tub. We have the "Oprah-Hour-Gov" at play (you get a billion - YOU get a BILLION - WE ALL GET A BILLION!!!!) so the chances that inflation is random gypsie wondering through town on his way out in a few days, well it just ain't so. Inflation is going to keep on trucking until someone put's a stop to the printing press. 

So what is a politician to do????? 

Haha but real estate up or down is not defined by politicians, we do not vote for Fed Chairman.
I think even today's politician is also confused by the act of the Fed. 

What they did is basically they intentionally hit the brakes when the economy is moving very fast. 
But they're the one that fuels that engine by making the money cheap in 2020 in the first place.

It seems like they don't know what they're doing.

[Greg R.]

Quote from @James Hamling:

 Sorry Greg, it makes all the sense in the world now, it's crystal clear how your strategy to buy in the bottom is not you planning to buy at market bottom, yup, got it, perfect sense....... 

So, curious, as you apparently have Nostradamus like powers, why are you not getting the Powerball? That seems to make the most sense. I mean, you clearly know the future to the point that you can predict something that literally all data and actual industry professionals say has a LESS a chance of happening then getting hit by lightning while being mauled by a Grizzley, but hey, you got that foresight bud. 

Lmao... "all data and actual industry professionals say [a crash] has a LESS a chance of happening then getting hit by lightning while being mauled by a Grizzley"

Thank you for putting this gem out there. Says a lot about your opinion on these topics. 

[Will F.]

Quote from @Larry Zucker:

The thing is that 6% is still on the lower side of historical rates and inventory is still very low. So, unless inventory increases dramatically or the unemployment rate soars (forcing people to sell quickly), the housing market will not quickly and dramatically move downward - i.e., crash.  That's my opinion anyways.

 I don't anticipate a crash either due to the amount of equity, and money still in the system.  Affordability is not sustainable without rates being low ( under 6%) ...

The problem I see is that the monthly cost of holding real estate with a loan is at all time highs.  It doesn't matter if the loan is at 4-5-6% but if the price of property is so high.  For instance $900k for a decent home in LA monthly payments become so high that only 1% of people can afford it. 

If rates went up to normal levels  like high 7s to 9s then how would people make $81k interest payments a year on a $900k house.  

So to me there should be a correction at some point.  

Basically why would you buy a property at a 4 cap when interest rates are at a 6 cap?

But there's also costs of building going up and inflation which should actually make housing values go up ...so again ...its hard to say

[Larry Zucker]

Quote from @Will F.:

Quote from @Larry Zucker:

The thing is that 6% is still on the lower side of historical rates and inventory is still very low. So, unless inventory increases dramatically or the unemployment rate soars (forcing people to sell quickly), the housing market will not quickly and dramatically move downward - i.e., crash.  That's my opinion anyways.

 I don't anticipate a crash either due to the amount of equity, and money still in the system.  Affordability is not sustainable without rates being low ( under 6%) ...

The problem I see is that the monthly cost of holding real estate with a loan is at all time highs.  It doesn't matter if the loan is at 4-5-6% but if the price of property is so high.  For instance $900k for a decent home in LA monthly payments become so high that only 1% of people can afford it. 

If rates went up to normal levels  like high 7s to 9s then how would people make $81k interest payments a year on a $900k house.  

So to me there should be a correction at some point.  

Basically why would you buy a property at a 4 cap when interest rates are at a 6 cap?

But there's also costs of building going up and inflation which should actually make housing values go up ...so again ...its hard to say

 @Will F.  I agree. That is exactly why we are seeing a correct / balancing of the market. And you raise a good point about not buying a 4% cap investment when interests are 6%.  This will ease as rents continue to climb, businesses raise pay to employees and inventory adjusts. 

[Carlos Ptriawan]

 Hi Will, your calculation is little bit inaccurate. Your market is following bay area lot. This is real affordability example okay. Most people by average uses 10-15%down. And by average they use 40-45% of their monthly income to pay mortgage.  In Bay area it's extremely extremely common for husband and wife working in tech. Starting salary lets say 130k, so it's common for household to make at least 300k, it's middle class income. With that calculation they could easily afford $8-9k mortgage. Now, 900k homes translates to 800k mortgage, 800k mortgage is "only" $4k something, it's easily affordable by husband and wife working in tech. My painter and my USPS worker also few years ago buying 1 mil house. SO from your number, the 1% may be actually 20%. There're still lot of families that could afford it as long as the basic wage support such configuration.

But you also have good point, in the environment where the interest rate is 6%, you need to buy investment that yield 2% above that or 8% which is only available in Ohio LOL :)

[Will F.]

Quote from @Carlos Ptriawan:

 Hi Will, your calculation is little bit inaccurate. Your market is following bay area lot. This is real affordability example okay. Most people by average uses 10-15%down. And by average they use 40-45% of their monthly income to pay mortgage.  In Bay area it's extremely extremely common for husband and wife working in tech. Starting salary lets say 130k, so it's common for household to make at least 300k, it's middle class income. With that calculation they could easily afford $8-9k mortgage. Now, 900k homes translates to 800k mortgage, 800k mortgage is "only" $4k something, it's easily affordable by husband and wife working in tech. My painter and my USPS worker also few years ago buying 1 mil house. SO from your number, the 1% may be actually 20%. There're still lot of families that could afford it as long as the basic wage support such configuration.

But you also have good point, in the environment where the interest rate is 6%, you need to buy investment that yield 2% above that or 8% which is only available in Ohio LOL :)

Oops yeah i see that my point was a bit off.  Thanks for pointing it out

but lets say I meant a 900k loan.  Most upper-middle homes are in the 1.2-1.3m range

at a 9% rate would be 81k  in just interest-- not principal payment/ prop tax/ insurance

I was making the point that if rates went up to those rates it would be high interest pay.  

 Quick math i just put in mortgage calculator at 9% would be 8500$ payments if you include prop tax and insurance

It's just expensive and it's due to low interest rates largely in the 2.5-3.5 ranges.  Now we're i the 5s and if it gets to that 8-9% rate it could have a pretty big affect on RE

[David Song]

This is getting really interesting. I just looked at a house today.

SFR in Castro valley, ca

7/17: $925k

7/27: $825k

8/22: $759k.

I have multiple rentals in this area. This house, 6 month ago, will easily sell around 1 m, with multiple offers and a bidding war.

So I called the listing agent and want to know if there is any offer on the table. No.

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

On the other hand, I also want to wait a little longer to see if the market will further soften and get a bigger discount.

I am surprised that nobody offered at this price point. 

[Bruce Woodruff]

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

[Gonzalo Gaston]

Quote from @Greg R.:

Ok, lets talk about historical numbers. In 1980 the median cost for a house was 63k. The CPI adjusted price is 226k. Now compare that the 2022 median cost which is 440k - almost double of the CPI adjusted price from 1980. Also, when we look at the "historically high rates" we need to adjust for inflation and look at the "real rate". In 1980 inflation was raging at over 15%. Rates were +/- 13.5%

You are focusing on nominal rates, not real rates. a real rate is the nominal rate minus the rate of inflation and it reflects the actual cost the borrower is paying. 

So not only were the houses about half as expensive in 1980 per the CPI, the real rate was lower than rates are today. 

If we're going to look at historical data we need to compare apples to apples. You need to adjust for CPI and inflation to have a credible argument. 

 And the houses are now twice as big, have you factor the sq footage of a home? It is like comparing the adjusted price of a home in the 50's where less than 1,000 sq ft was the norm. Then you have the land value, you are from Dallas, how many quarter acres can you find at a reasonable price in the desirable areas? Because if you go outside towards Terrell, you more likely found big lots for $30,000 o $40,000. Good luck finding anything in the 10x that price in Dallas or the metroplex as a whole. 

[David Song]

Quote from @Bruce Woodruff:

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

Sure about what? If I know the future, I will not hesitate now.

[Jay Hinrichs]

Quote from @David Song:

Quote from @Bruce Woodruff:

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

Sure about what? If I know the future, I will not hesitate now.

 offer 700k quick close  have you gotten a trio on it to see whats owed ?? 

[Account Closed]

Quote from @David Song:

This is getting really interesting. I just looked at a house today.

SFR in Castro valley, ca

7/17: $925k

7/27: $825k

8/22: $759k.

I have multiple rentals in this area. This house, 6 month ago, will easily sell around 1 m, with multiple offers and a bidding war.

So I called the listing agent and want to know if there is any offer on the table. No.

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

On the other hand, I also want to wait a little longer to see if the market will further soften and get a bigger discount.

I am surprised that nobody offered at this price point. 

 I'm seeing drops in the Phoenix market as well. OpenDoor has stopped buying, interest rates are up, and inventory is expanding by 4 times. Your drop price is about 18% I'm seeing about a 10% price drop since June on some properties. 

It just depends on how motivated the seller is. I'd say at this point anybody that is even listing is afraid of missing the "Top" and the "Top" left us in the dust a few months ago. The seller is playing catch up.

In 2008 we called that "racing to the bottom".  

[Greg R.]

Quote from @Gonzalo Gaston:

Ok, lets talk about historical numbers. In 1980 the median cost for a house was 63k. The CPI adjusted price is 226k. Now compare that the 2022 median cost which is 440k - almost double of the CPI adjusted price from 1980. Also, when we look at the "historically high rates" we need to adjust for inflation and look at the "real rate". In 1980 inflation was raging at over 15%. Rates were +/- 13.5%

You are focusing on nominal rates, not real rates. a real rate is the nominal rate minus the rate of inflation and it reflects the actual cost the borrower is paying. 

So not only were the houses about half as expensive in 1980 per the CPI, the real rate was lower than rates are today. 

If we're going to look at historical data we need to compare apples to apples. You need to adjust for CPI and inflation to have a credible argument. 

 And the houses are now twice as big, have you factor the sq footage of a home? It is like comparing the adjusted price of a home in the 50's where less than 1,000 sq ft was the norm. Then you have the land value, you are from Dallas, how many quarter acres can you find at a reasonable price in the desirable areas? Because if you go outside towards Terrell, you more likely found big lots for $30,000 o $40,000. Good luck finding anything in the 10x that price in Dallas or the metroplex as a whole. 

Gonzalo, agreed. Newer homes are generally larger than older homes. However, for that exercise we'd need to pinpoint an exact area to perform an analysis. My prior primary home was +/- 2,600 sqft and was build in 1956 (San Diego). The one before that was 2,000 sqft and built in 1972 (San Diego). 

Regardless, the point I was making was about CPI and real rates vs nominal rates. The gentleman I was conversing with stated that current rates are really low compared to what they've been historically. However, that's not as simple of a comparison as it seems. That stance is being used to defend the inflated prices & high rates we're seeing today. However, when we look at the historical high rates we need to take in account inflation and median home prices (at a bare minimum). 

If we're going to ignore those factors and only look at the nominal rate, there's no use looking at data 40-50 years old. We're in an entirely different market now - which was also my point.  

[Greg R.]

Quote from @Greg R.:

Quote from @Gonzalo Gaston:

Ok, lets talk about historical numbers. In 1980 the median cost for a house was 63k. The CPI adjusted price is 226k. Now compare that the 2022 median cost which is 440k - almost double of the CPI adjusted price from 1980. Also, when we look at the "historically high rates" we need to adjust for inflation and look at the "real rate". In 1980 inflation was raging at over 15%. Rates were +/- 13.5%

You are focusing on nominal rates, not real rates. a real rate is the nominal rate minus the rate of inflation and it reflects the actual cost the borrower is paying. 

So not only were the houses about half as expensive in 1980 per the CPI, the real rate was lower than rates are today. 

If we're going to look at historical data we need to compare apples to apples. You need to adjust for CPI and inflation to have a credible argument. 

 And the houses are now twice as big, have you factor the sq footage of a home? It is like comparing the adjusted price of a home in the 50's where less than 1,000 sq ft was the norm. Then you have the land value, you are from Dallas, how many quarter acres can you find at a reasonable price in the desirable areas? Because if you go outside towards Terrell, you more likely found big lots for $30,000 o $40,000. Good luck finding anything in the 10x that price in Dallas or the metroplex as a whole. 

Gonzalo, agreed. Newer homes are generally larger than older homes. However, for that exercise we'd need to pinpoint an exact area to perform an analysis. My prior primary home was +/- 2,600 sqft and was build in 1956 (San Diego). The one before that was 2,000 sqft and built in 1972 (San Diego). 

Regardless, the point I was making was about CPI and real rates vs nominal rates. The gentleman I was conversing with stated that current rates are really low compared to what they've been historically. However, that's not as simple of a comparison as it seems. That stance is being used to defend the inflated prices & high rates we're seeing today. However, when we look at the historical high rates we also need to evaluate inflation and median home prices at the time (at a bare minimum). 

If we're going to ignore those factors and only look at the nominal rate, there's no use looking at data 40-50 years old. We're in an entirely different market now - which was also my point.  

[David Song]

Quote from @Jay Hinrichs:

Quote from @David Song:

Quote from @Bruce Woodruff:

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

Sure about what? If I know the future, I will not hesitate now.

 offer 700k quick close  have you gotten a trio on it to see whats owed ?? 

 Thanks for the suggestion. I will give it a try, and report back. It’s a trust sale. Nothing owed.

[Jay Hinrichs]

Quote from @David Song:

Quote from @Jay Hinrichs:

Quote from @David Song:

Quote from @Bruce Woodruff:

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

Sure about what? If I know the future, I will not hesitate now.

 offer 700k quick close  have you gotten a trio on it to see whats owed ?? 

 Thanks for the suggestion. I will give it a try, and report back. It’s a trust sale. Nothing owed.

 there ya go  all cash quick close as is etc etc you know the drill  good luck.

[David Song]

Quote from @Jay Hinrichs:

Quote from @David Song:

Quote from @Jay Hinrichs:

Quote from @David Song:

Quote from @Bruce Woodruff:

Quote from @David Song:

I am tempted to offer at around 740k range. If there is no crash, the price stabilizes, that will be a good deal.

I see your point, but are you sure...?

Sure about what? If I know the future, I will not hesitate now.

 offer 700k quick close  have you gotten a trio on it to see whats owed ?? 

 Thanks for the suggestion. I will give it a try, and report back. It’s a trust sale. Nothing owed.

 there ya go  all cash quick close as is etc etc you know the drill  good luck.

 Thanks. Always go all cash no contingency. It was hard the last 2 years with bidding war raging in Bay Area, sometimes over 500 k above listing. Now maybe the time to grab some deals. From now to q12023, I hope there might be some deals to be had.