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. 

[Joe Villeneuve]

Quote from @Bruce Woodruff:

Quote from @Greg R.:

If they paid cash, they'll just be a little bummed. If they got a loan recently or an ARM, they'll be a bit more than bummed......

 Actually, the opposite is true.  If you paid all cash, and the PV goes down, that's your money you lost.  If you paid 20% DP, and the bank sold you the rest of the money, as long as the cumulative CF equals (or greater than) the DP, you don't lose anything since all of your money was recovered from the CF...and since the property is still CF positive, the tenant is paying off the rest.  Even though the balance of the loan is greater than the balance of what the PV is minus the DP, you're not the one paying it.

Where the drop in PV hurts you is if the loan balance is greater than the price you can sell the property for.  So, don't sell the property until after that problem reverses itself.  Until then, as long as you have positive CF, you aren't losing anything.

[Carlos Ptriawan]

I understand that there are going to be winners in any market environment. In a bull market, anyone with a pulse and credit will make money and ride the wave up. We are in a slow down period now though nationally. I did a deal last year probably at the peak of the overall market. I'm comfortable with it if the market drops up to 50%. I'm still expecting a 20% drop though because that is what the math is showing.

Just to let you know the Canadian Housing market authority already announced this week to expect the Home price to fall 15%.

From US side, there's a well-researched paper early this year from Freddie Mac that they think the House demand will still be solid even with interest rate hikes.

It seems almost everyone is wrong again.

[Carlos Ptriawan]

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

Quote from @John Carbone:Seems like they just stopped buying in a lot of markets. they are waiting for prices to drop to get back in when valuations make sense. 

 https://www.google.com/amp/s/f...

Yea they are waiting for the perfect time to buy. Every fund out there is waiting when the Fed will do the "pivot".  Valuation is following the pivot.

Some of them predicted the stock market to bottom mid-next year.

I think the faster the home price reduction/pullback/crash/ happened, it would be better as it will put pressure on the Fed. 

If they pivot by year end, housing values won’t drop materially. A house transaction takes a few months to complete and it takes longer to reach proper market pricing.  But Powell said he wants lower home values, I used to think the fed will pivot early because the damage they will do, but they are single mandate inflation. I really think they will let spx go below 3000 and housing to go below Covid levels before they panic. Unless we have a major liquidity crisis like the UK had with a pension fund or a bank then they will have their “excuse” to pivot while still acting “tough”. The fed works with other central banks, they are going to monitor the boe sorcery and see if they can add it to their own arsenal. 

 Yes, from last week to the next 6 months is "Lehman" moments. 

Either SPX is going up 5% after Fed announced pivot or  SPX dropped 10% after some country's fund or big banks in Japan/UK/Spain/Portugal/South Africa announce zero liquidity (then maybe we will hear the same story,the Fed has to help their friend like in 2008)

Btw the CDS of European countries is higher now than during the latest Financial Crisis.

[Bruce Woodruff]

Quote from @Carlos Ptriawan:

Nice theory except you're mostly wrong. Did you, your friends and families move out of there recently? I don't think so.

So out of dozens of people that I personally know very well that have moved, only a small percentage of them moved due to financial reasons.

No doubt the extra $$ are nice once you're gone, but that is not the primary reason that most people are leaving, it is just icing on the cake.

Now does that change the economic situation? Maybe....these people moving to the new states are bringing more than just Cali  house money with them.

[Bruce Woodruff]

Quote from @Joe Villeneuve:

Quote from @Bruce Woodruff:

Quote from @Greg R.:

If they paid cash, they'll just be a little bummed. If they got a loan recently or an ARM, they'll be a bit more than bummed......

 Actually, the opposite is true.  If you paid all cash, and the PV goes down, that's your money you lost.  If you paid 20% DP, and the bank sold you the rest of the money, as long as the cumulative CF equals (or greater than) the DP, you don't lose anything since all of your money was recovered from the CF...and since the property is still CF positive, the tenant is paying off the rest.  Even though the balance of the loan is greater than the balance of what the PV is minus the DP, you're not the one paying it.

Where the drop in PV hurts you is if the loan balance is greater than the price you can sell the property for.  So, don't sell the property until after that problem reverses itself.  Until then, as long as you have positive CF, you aren't losing anything.

My point was that if one bought a house for $300k cash and it went up in value to $800k, then slipped back by 20% to $640k, then this particular owner is just bummed...because he didn't really lose any real money, just appreciation $$...

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

So out of dozens of people that I personally know very well that have moved, only a small percentage of them moved due to financial reasons.

Folks that I knew, simply moved due to retirement. It makes sense to downsize after retirement.

[Joe Villeneuve]

Quote from @Bruce Woodruff:

Quote from @Joe Villeneuve:

Quote from @Bruce Woodruff:

Quote from @Greg R.:

If they paid cash, they'll just be a little bummed. If they got a loan recently or an ARM, they'll be a bit more than bummed......

 Actually, the opposite is true.  If you paid all cash, and the PV goes down, that's your money you lost.  If you paid 20% DP, and the bank sold you the rest of the money, as long as the cumulative CF equals (or greater than) the DP, you don't lose anything since all of your money was recovered from the CF...and since the property is still CF positive, the tenant is paying off the rest.  Even though the balance of the loan is greater than the balance of what the PV is minus the DP, you're not the one paying it.

Where the drop in PV hurts you is if the loan balance is greater than the price you can sell the property for.  So, don't sell the property until after that problem reverses itself.  Until then, as long as you have positive CF, you aren't losing anything.

My point was that if one bought a house for $300k cash and it went up in value to $800k, then slipped back by 20% to $640k, then this particular owner is just bummed...because he didn't really lose any real money, just appreciation $$...

Yep.

[Jay Hinrichs]

Quote from @Carlos Ptriawan:

Quote from @Bruce Woodruff:

So out of dozens of people that I personally know very well that have moved, only a small percentage of them moved due to financial reasons.

Folks that I knew, simply moved due to retirement. It makes sense to downsize after retirement.

 with many bay area residents moving to the gold Country or foothills of the Sierra Nevada  El dorado county Nevada county etc.

[Matt Kalish]

 that is pretty wild. 6% appraisal job in 2 months. usually it takes a while for the banks and appraisers to adjust. My guess is the banks are getting worried right now. There very well may be a liquidity issue coming up soon.

[Carlos Ptriawan]

It's in the news already, some banks are reducing CRE funding this year.
 

[John Carbone]

Quote from @Carlos Ptriawan:

It's in the news already, some banks are reducing CRE funding this year.
 

Last call for @James Hamling to pivot, and accepting a minimum 10 percent national drop in the median home price by end of next year. Idk who will pivot first, Powell or james hamling. I think once we drop 10 percent though sir James will say it’s “seasonal adjustment “

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

It's in the news already, some banks are reducing CRE funding this year.
 

Last call for @James Hamling to pivot, and accepting a minimum 10 percent national drop in the median home price by end of next year. 

Ehh him and I have both been saying 10-15%. So not sure why you are backing down that from the 20-30% we’ve been seeing…. 
 

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

It's in the news already, some banks are reducing CRE funding this year.
 

Last call for @James Hamling to pivot, and accepting a minimum 10 percent national drop in the median home price by end of next year. 

Ehh him and I have both been saying 10-15%. So not sure why you are backing down that from the 20-30% we’ve been seeing…. 
 

I’m not backing down from 20-30, at first he said no drop at all. Then said it will only be seasonal adjustments, which a few days ago was 5-7 percent. A week ago he was at 0 drop, so I’m trying to see if he’s accepting 10 percent as the minimum now. 

He’s calling for consolidation primarily driven by seasonal adjustments. Anything 10 or more he says won’t be consolidation. He has done a mini pivot, but I think he’s due for a full pivot now. 

 

[Adam Christopher Zaleski]

Quote from @Greg R.:

Quote from @Bill B.:

Thank goodness they bought a home then or they’d be homeless. Rents are up 20-30% while their payment stayed the same. Sure they could sell and walk away with a pretty healthy gain. But rent would eat that up within a year or two and then back to homeless. 

You cant count the number of people who didn’t buy for the last 2 years because they were promised a housing crash was coming. Now prices are 30% higher and interest rates have doubled. They’ll never be able to buy a home, even if prices did drop 20%. They’re pretty much screwed for life. 

The “experts” have been predicting a crash for at least 12 years. They want to make sure they get credit for predicting it this time. The news made hero’s out of those who saw it last time and everyone wants to be a hero. So they runaround yelling fire fire fire. Go ahead and search BP for housing crash coming. Your computer will probably crash with the number of results. 

Ahh, thanks Bill. I knew folks like you were still around... ones in the camp of "if you didn't buy during the bubble, you'll never be able to buy". Thanks for making your stance known. 

Also, which experts were predicting a crash in 2011-2019? I personally didn't hear a lot of talk about a crash in that timespan. The economy and the housing market was in a generally healthy place - very different from where we are now economically. 

The owner of this website used to host a podcast and has been predicting a housing crash since 2015. Go back and listen to the episodes in June - August 2015. Lots of talk about a housing crash that never came. 

I do not see any distressed sellers in my markets that would provoke a housing crash. I just heard from the podcast "on the market" last week that the median credit score of a mortgage holder right now is 773. 

[Carlos Ptriawan]

Quote from @Adam Christopher Zaleski:

Quote from @Greg R.:

Quote from @Bill B.:

Thank goodness they bought a home then or they’d be homeless. Rents are up 20-30% while their payment stayed the same. Sure they could sell and walk away with a pretty healthy gain. But rent would eat that up within a year or two and then back to homeless. 

You cant count the number of people who didn’t buy for the last 2 years because they were promised a housing crash was coming. Now prices are 30% higher and interest rates have doubled. They’ll never be able to buy a home, even if prices did drop 20%. They’re pretty much screwed for life. 

The “experts” have been predicting a crash for at least 12 years. They want to make sure they get credit for predicting it this time. The news made hero’s out of those who saw it last time and everyone wants to be a hero. So they runaround yelling fire fire fire. Go ahead and search BP for housing crash coming. Your computer will probably crash with the number of results. 

Ahh, thanks Bill. I knew folks like you were still around... ones in the camp of "if you didn't buy during the bubble, you'll never be able to buy". Thanks for making your stance known. 

Also, which experts were predicting a crash in 2011-2019? I personally didn't hear a lot of talk about a crash in that timespan. The economy and the housing market was in a generally healthy place - very different from where we are now economically. 

The owner of this website used to host a podcast and has been predicting a housing crash since 2015. Go back and listen to the episodes in June - August 2015. Lots of talk about a housing crash that never came. 

I do not see any distressed sellers in my markets that would provoke a housing crash. I just heard from the podcast "on the market" last week that the median credit score of a mortgage holder right now is 773. 

 The US mortgage holder credit score could be 800+ but the bank as counterparty risk could have a credit score of 300 :)

Heard two European investment banks in Europe is on the brink of 'Lehman moment' due to massive margin calls and obligations.

Whenever the dollar sky high like this it always brings chaos to the world. Now is it possible for Fed to continue QT and ROW is needing QE ? 

the world would not be functioning at all.

[Guy Gimenez]

Those who believe the economy and the real estate market will cruise along just fine will seldom change their minds. Those who believe the economy and the real estate market will face a major correction/crash will seldom change their minds. Each group is often defined by their experiences, or in some cases, lack of experiences, along with built-in biases. Having been through a number of market corrections since the 90's and having seen how outside forces (government) can do to a relatively free market system, makes it almost impossible to make an accurate projection of what is to come next in the real estate market. However, when things don't make sense, you should assume things don't make sense, and plan accordingly. 

[Account Closed]

If you were trying to buy a house last year or you were taking out a $450,000 mortgage, that same payment right now would only buy you a $315,000 mortgage. Mortgage rates turning housing market into 'world of two buyers and two sellers': Expert  Here's the Yahoo article

[Bruce Woodruff]

Quote from @John Carbone:

Good luck with that..... 🤣

[Jay Hinrichs]

Quote from @Account Closed:

If you were trying to buy a house last year or you were taking out a $450,000 mortgage, that same payment right now would only buy you a $315,000 mortgage. Mortgage rates turning housing market into 'world of two buyers and two sellers': Expert  Here's the Yahoo article

 having been an active RE broker in the early 80s with the very high rates. We saw buyers motivations change and lifestyles change. 

buyers will have to prioritize ..  what we saw was a priority for housing and less priority on cars motor homes boats planes toys in general.

So instead of buying a house and having 150k worth of cars and car or lease payments. plus the motor home plus the boat. Folks scaled down on their autos and toys so they could afford shelter and qualify..  I can see that card start being played again.  Rent and have a 100k escalade in the carport of the apartment or Buy and have a used Honda Accord in the driveway ???  so maybe there is a shift in priorities and living styles.  So folks CAN afford payments as you suggest. 

[Greg R.]

Quote from @Account Closed:

@Carlos Ptriawan
@James Hamling
@John Carbone

If you were trying to buy a house last year or you were taking out a $450,000 mortgage, that same payment right now would only buy you a $315,000 mortgage. Mortgage rates turning housing market into 'world of two buyers and two sellers': Expert  Here's the Yahoo article

Yup... rates are going to be the main factor that sink prices. It's a simple economical fact. I do however think that it's likely lower-priced homes won't take as much of a hit (but they will still come down). There are still a lot of people who can afford buy in that range, it's the largest pool of buyers. For instance, homes in the 200s-300s in DFW will have plenty of buyers no matter what the rates are - within reason. 

However, those 700k-1m properties have lost a ton of potential buyers. With that, simple economics come in. If all the buyers who used to be able to qualify & afford for 700k can only qualify and afford 575k, you have a simple set of choices. 1) hold and occupy or try to rent it out, 2) sell for a price where they buyers are at, or 3) give it back to the bank.

It really comes down why the person is selling, is it due to a life circumstance, or are they just testing the waters and don't need to sell.

Talk to anyone in retail, it doesn't matter the product. For every product/ industry there is a sweet spot. Consumers don't have indefinite amounts of money and buying power. There comes a point where if you want to sell "x" product, you have to price it to where the buyers are. 

If Wal mart increased all of their prices by 50% over night, do you think all their customers would continue shopping there? No, they would go to where they can afford to shop, Costco, Target, etc. Wal mart would have two choices... bring prices down to where people could afford them, or go out of business. 

Whether they like it or not, sellers now have that same choice. Rates are up in the 7s and the cost to buy their home just went up substantially for buyers. Therefore, adjust the price to meet the buyers where they are, hold/ rent, or give it back to the bank.

[John Carbone]

Quote from @Jay Hinrichs:

Quote from @Account Closed:

If you were trying to buy a house last year or you were taking out a $450,000 mortgage, that same payment right now would only buy you a $315,000 mortgage. Mortgage rates turning housing market into 'world of two buyers and two sellers': Expert  Here's the Yahoo article

 having been an active RE broker in the early 80s with the very high rates. We saw buyers motivations change and lifestyles change. 

buyers will have to prioritize ..  what we saw was a priority for housing and less priority on cars motor homes boats planes toys in general.

So instead of buying a house and having 150k worth of cars and car or lease payments. plus the motor home plus the boat. Folks scaled down on their autos and toys so they could afford shelter and qualify..  I can see that card start being played again.  Rent and have a 100k escalade in the carport of the apartment or Buy and have a used Honda Accord in the driveway ???  so maybe there is a shift in priorities and living styles.  So folks CAN afford payments as you suggest. 

I hear the argument for how it’s similar now to the 80’s with higher rates. But the world is a much different place now on many levels. I agree boats and luxury cars will be first to go, but the cost to own a home back then even with the high rates was only around 3x the median income. I mean heck, 15 years ago when I bought my first house it was 3x my salary. It’s gotten to 10x now….10x….there’s never been anything like this before. And it’s more flexible now than the 80s, back then everyone needed to be local and baby boomers were working. Now, baby boomers retiring and can go anywhere, and a lot of jobs people don’t need to go in the office everyday so they can live further out from the cities or in some cases anywhere. There’s clearly not a lack of buildable land in this country. Sure, there is limited land in certain places that a lot of people may want to be, but they don’t need to be there. Once the supply chain gets flushed out and wages go back to normal the cost to build houses are going to collapse relative to these levels right now. 

[Carlos Ptriawan]

 Once the supply chain gets flushed out and wages go back to normal the cost to build houses are going to collapse relative to these levels right now. 

Except never in history that "wages" go back to normal/lower. Wages can only go up, especially in the inflation environment.

What could go down is only the "commodity market", but that goes lower usually only happened after 'massive demand destruction'  or situation that economy back to a 'normal interest rate environment' like 2019. In a high-interest rate environment, it's not abnormal for commodities to rise. So I guess there's a bit of a dilemma of a feedback loop in an inflationary environment. 

Point being is I don't think the whole "cost to build" home in 2025 will be cheaper compared to 2017. 

When there are inflation shocks, on a long-term basis, usually people will just accept and adjust to the new normal.

In my short term view, rent growth will be slower, as a lot of SF that can't be sold might be converted as a rental house and pushing the rent price to go down. In long term, there will be less SF build, but much more on MF.  Building SF doesn't have competitive advantage for the builder.

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

 Once the supply chain gets flushed out and wages go back to normal the cost to build houses are going to collapse relative to these levels right now. 

Except never in history that "wages" go back to normal/lower. Wages can only go up, especially in the inflation environment.

What could go down is only the "commodity market", but that goes lower usually only happened after 'massive demand destruction'  or situation that economy back to a 'normal interest rate environment' like 2019. In a high-interest rate environment, it's not abnormal for commodities to rise. So I guess there's a bit of a dilemma of a feedback loop in an inflationary environment. 

Point being is I don't think the whole "cost to build" home in 2025 will be cheaper compared to 2017. 

When there are inflation shocks, on a long-term basis, usually people will just accept and adjust to the new normal.

In my short term view, rent growth will be slower, as a lot of SF that can't be sold might be converted as a rental house and pushing the rent price to go down. In long term, there will be less SF build, but much more on MF.  Building SF doesn't have competitive advantage for the builder.

In general I think it’s safe to say MF will be a bigger thing everywhere going forward. From an affordability standpoint (townhomes etc..) and for population. 

This downturn is going to pass. I’m kind of curious how the market evolves after. Lot of factors and issues all coming together at once:

- more remote work (this is going to grow not shrink, especially as more and more firms let leases go.

- rise of remote work should result in more population migration

- boomers retiring and passing - changing the biggest home ownership group and a wealth of $$$ being inherited

- Even as we reset shelter costs will be far higher. Which should create different pressures on rental and the middle class in general - especially with the rise in transportation/vehicles costs.

Going to be interesting.

[Michael Wooldridge]

Now this is interesting. Just read 92% of mortgages today are under 5% interest (not surprised). 

Half have rates under 3.5% (this surprised me). That’s a big number I figured most would be like 4-5%. 

The people most tight on income will worry about interest rates the most. And should sit. The people who aren’t have the money to ignore the rate and also sit on property. in fact survey across 25 major markets saw a listing decline of 10.6% of the year before in the month of August. Happening already.

The stickiness on rates is going to be big. If you are 2.7% even when rates normalize in a few years you’ll be likely to pay double interest. 

[John Carbone]

Quote from @Carlos Ptriawan:

 Once the supply chain gets flushed out and wages go back to normal the cost to build houses are going to collapse relative to these levels right now. 

Except never in history that "wages" go back to normal/lower. Wages can only go up, especially in the inflation environment.

What could go down is only the "commodity market", but that goes lower usually only happened after 'massive demand destruction'  or situation that economy back to a 'normal interest rate environment' like 2019. In a high-interest rate environment, it's not abnormal for commodities to rise. So I guess there's a bit of a dilemma of a feedback loop in an inflationary environment. 

Point being is I don't think the whole "cost to build" home in 2025 will be cheaper compared to 2017. 

When there are inflation shocks, on a long-term basis, usually people will just accept and adjust to the new normal.

In my short term view, rent growth will be slower, as a lot of SF that can't be sold might be converted as a rental house and pushing the rent price to go down. In long term, there will be less SF build, but much more on MF.  Building SF doesn't have competitive advantage for the builder.

That’s true but the wage increases have blown up in certain fields. For example, I know a concrete guy who is making 400k a year running his own business. Before Covid, he made around 100k. He’s not expecting to make 400k every year going forward. A lot of construction jobs are similar in this area. When the work dries up, people will lower their asking prices. When companies lay people off, they don’t need to hire at the same price level if they overpaid for someone during Covid due to the supply issue. Yes, I’m not going to argue that wages don’t drop historically, but in housing, the wages blew up only due to so much housing demand and fewer workers, I think in targeted fields wages and and likely will come down.